Local Units Project

Local Units Project – Branch Establishments in Karnali Province, Sudur Paschim Province & Provinces 5

(Partnerships between UKaid Sakchyam and 13 Commercial Banks)

Background

In early 2018, the Government of Nepal (GoN) through Nepal Rastra Bank (NRB) instructed the commercial banks to ensure presence of at least one branch in each of the 753 newly formed local administrative units (Rural Municipalities and Municipalities). The main objective behind this mandate was to route government funds and social security payments, through formal banking channel. Moreover, presence of large commercial banks in local units would also ensure availability of a host of banking services including saving, loans and remittance to the local population – an important step towards improving financial inclusion.

Challenges

Before the government’s intervention, as of June 2017, a total of 412 local units had remained without commercial bank service. After the instruction, Ministry of Finance (MoF) and NRB allowed the commercial banks to allot the unreached local units amongst themselves; this exercise saw total of 296 local units being taken up by the commercial banks amongst themselves but 116 local units remained unalloted.

The banks argued that the establishment of branches in those locations would be extremely difficult owing to the lack of proper basic infrastructure such as roads, electricity and security. They also argued that the branches would not be feasible or self-sustainable as the locations lacked the minimum population density and minimum economic activities that are needed for a bank branch to sustain on its own.

Sakchyam’s Intervention

After receiving request for support from both NRB and MoF, Sakchyam undertook a series of deliberations involving MoF, NRB and Nepal Banker’s Association (NBA), which led to a breakthrough – a joint agreement was reached wherein Sakchyam would support the expediting of bank branch establishment in 54 unallocated local units that fell under Karnali Province, Sudurpaschim Province and Province No. 5.

Sakchyam also conducted a quick and preliminary market research to collect basic information about the general status of these local units. The information collected include:

  • Human Development Index of the districts
  • Population of the local units
  • Yearly central government funding
  • Social Security Payments
  • Road distance from nearest existing bank branch
  • Status of infrastructure – communication, electricity, road, security

Sakchyam then released a Request for Proposal (RFP) to all interested commercial banks for the establishment of physical branches in the eligible 54 unallocated local units. Out of the competitive proposals received in response to the RFP, 13 commercial banks qualified for the establishment of a combined total of 54 physical branches as shown in the table below:

SN No Bank Planned Branches Proposed Districts Launched Branches
1 Citizens 5 Achham – 1 Humla – 1 Kailali – 1 Pyuthan – 1  Rukum – 1 5
2 Himalayan 4 Bajura – 3 Salyan – 1 2
3 Janata 5 Humla – 3 Rolpa – 2 5
4 Laxmi 3 Darchula – 1 Rukum – 1 Salyan – 1 3
5 Nepal Bank 4 Bajura – 1 Dolpa – 2 Rolpa – 1 3
6 NIBL 4 Bajhang – 1 Darchula – 1 Jumla – 1 Pyuthan – 1 4
7 NIC Asia 2 Dang – 1  Jajarkot – 1 2
8 RBB 6 Bajhang – 1  Dolpa – 3  Mugu – 2 3
9 Sanima 2 Bajura – 1  Kalikot – 1 2
10 ADBL 7 Baitadi – 1  Jajarkot – 3  Kalikot – 3 1
11 MBL 2 Darchula – 2 2
12 Nabil 7 Achham – 2  Baitadi – 1  Doti – 1  Kalikot – 2  Salyan – 1 7
13 Prabhu 3 Dadheldhura – 1 Dolpa – 1  Humla – 1 1
TOTAL 54 40

 

Likely Impact

Over the project period of two years, the partnership with the 13 banks will enable access to banking services to over 800,000 individuals (combined population of the 54 local units). Moreover, this exercise will facilitate social security payments to more than 121,000 beneficiaries through a formal banking channel and at the locations that are nearer and convenient to them. This newly established channel is expected to facilitate transfer of over NPR 11.9 billion government grant to local units resulting in an annual saving of NPR 233 million for the government through the elimination of ghost beneficiaries.[1]

As of March 2019, thirteen Commercial Banks have launched 40 physical branches in total (as shown in the table above). The remaining branches are in the process of being launched soon. Some of the remaining branches are located in regions which have been rendered inaccessible due to heavy winter snowfall and, therefore, must wait till spring time around April/May 2019.

Out of the 116 local units that remained to be served before Sakchyam’s intervention, Sakchyam planned to support the launch of commercial bank branches in 54 local units which were located in Sakchyam’s priority districts in Karnali Province, Sudurpaschim Province and Province no. 5. In the remaining 62 local units, commercial banks would establish branches solely with their own investment. According to the Nepal Bankers’ Association (NBA), as of March 2019, out of the total 753 local units, 704 now have at least one commercial bank branch and only 49 local units remain unserved. With Sakchyam’s support, partner commercial banks have so far launched branches in 40 out of 54 (74%) allotted local units. Out of the 62 local units which will not receive Sakchyam’s support, only 27 (44%) have seen the establishment of a commercial bank branch.

 

[1] Based on the 16% savings on total social security payment reported by World Bank Social Safety Nets Project- 2015 (ICR00003263)