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(A partnership between UKaid Sakchyam  and Unique Nepal Laghubitta Bittiya Sanstha Ltd)

Background

Diversity in products and services is required for a Financial Institution (FI) to meet the needs and preferences of diversified clients. Meanwhile, increase in number of products and services also increases the cost and complexities in management. In this paradox, that institution will be competitive, successful and sustainable which can provide client need-based dynamic products and services in efficient and easier manner.

Savings is one of the major financial products of Microfinance Institutions (MFIs) that taps the scattered money among the clients, whatever small may be the amount, develops savings habit among the clients, develops their confidence for better future while managing more reliable fund for the MFIs. Clients’ savings become more important when external borrowings become difficult like the situation Nepali MFIs faced in 2016-17 after the central bank changed the Deprived Sector Lending (DSL) policy which mandated* Banks and Financial Institutions (BFIs) to lend directly 2% of their portfolio in Deprived Sector Lending (DSL).

Similarly, digitization in financial transactions is an innovation that will be more valuable to MFIs as it supports in reducing operating costs and increases efficiency. Many MFIs are digitizing their transactions leading to make it paperless, swift and reliable.

Challenges

Financial institutions often focus more on designing loan product for their clients compared to other products like savings, remittance and insurance. UNYC Nepal has also introduced new loan products such as Business Loan that are larger in average size and also demanded by larger number of clients. This increase in loan demand was due to new intervention focused on commercial scale business with direct concerns of the clients to improve their status and also due to faster expansion in work area as a result of the first project with Sakchyam.

UNYC saw a large decline in its savings to outstanding loan portfolio ratio from 71% in July 2014 to 39% in July 2016, mainly due to increased loan portfolio and slow growth in savings by the clients. Meanwhile, the DSL mandate of the central bank reduced their access to Deprived Sector Wholesale Loans.

Similarly, many of the competing MFIs of UNYC like Kisan Microfinance and Kisan Cooperative started digitization through tablets under Sakchyam support. This pressured UNYC to opt to be competitive.

Sakchyam’s Interventions

UNYC realized the immediate need to increase internal sources of funding by increasing clients’ savings at the institution. To do so, UNYC proposed UKaid Sakchyam Access to Finance Programme (Sakchyam) a second project entitled ‘Saving Increment Model (SIM) Project’ with one of the key objectives being increasing clients’ saving habits and amounts through new savings-led products and services at all branches. Despite existing 5 savings products at UNYC, the project further planned to develop at least three new savings products and revisit existing loan and savings products.

In addition, UNYC also planned to digitize transactions through 224 tablets for all branches, link the products to entrepreneurship, insurance, and remittance. As UNYC identified that many of the Agriculture Cooperatives don’t have sufficient funding capacity to meet their members’ demands, it planned to tap them in UNYC network to increase outreach, loan, savings and other services through the cooperatives in Self-Reliance Group (SRG) modality.

UNYC expects to reach 81,000 beneficiaries, assist 2,430 SMEs, mobilize NPR 144.63 million deposit, build capacity of 1,380 clients, and organize Savings-led Campaigns to benefit 54,000 clients.  They also plan on increasing average savings to loan outstanding ratio to at least 60% and thereby reducing its dependency on DSL or other wholesale borrowings.

The Plan Savings product offers two mid-term voluntary deposit schemes with different amount, term and interest rate. Under Scheme I, a client can commit or plan to save NPR 20,000 within a time period of 1 or 2 years and get an interest of 9% and 9.5% interest respectively. While under Scheme II, a client can commit or plan to save NPR 50,000 within 1 or 2 years period and get 9% and 9.5% interest respectively. They cannot withdraw the amount within maturity but can access to a special loan of up to 80% of their accumulated deposits for any purpose any time. These features were finalized after a systematic market study, piloting and evaluation before the Plan Saving product was launched in all the branches.

Impact

As of September 2019, UNYC has

  • Collected over NPR 99 million in their Plan Saving account from more than 24,112 clients.
  • Purchased 120 tablets and has reached over 82,309 clients in 36 branches through 102 tablets. To make the use of tablets more effective, UNYC has conducted training, exposures and refreshers to the focal staff on tablet. Similarly, the clients are systematically informed on the Plan Saving and Tablets at trainings and center meetings.
  • Offered financial literacy to over 2,000 clients through Pre-Group Training, reached 2,037 school students through financial literacy campaigns and offered financial literacy to over 950 clients at center meetings.
  • Produced radio jingles with financial literacy messages and broadcasted the same from six FM stations, and published 1000 copies of literacy materials on savings to be used at all branches. They have started process for Smart Certification receiving technical services from Good Return Australia.

*mandatory requirement removed now