(Partnerships between UKaid Sakchyam and 13 Commercial Banks)
After Nepal adopted a federal structure of governance, the Government of Nepal (GoN) made it a priority to ensure the presence of at least one branch of commercial bank 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, the 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.
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 Nepal Rastra Bank (NRB) allowed the commercial banks to allot the unreached local units amongst themselves; this exercise saw a total of 296 local units being taken up by the commercial banks amongst themselves, but 116 local units remained unallotted.
The banks reasoned that the establishment of branches in those locations would be extremely difficult owing to the lack of proper basic infrastructures 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.
After receiving a 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 establishment of bank branches in 54 unallocated local units that fell under Karnali Province, Sudurpaschim Province and Province No. 5.
Sakchyam also conducted quick and preliminary market research to collect basic information about the general status of these local units. The information collected includes:
- Human Development Index of the districts
- The population of the local units
- Yearly central government funding
- Social Security Payments
- The 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||4|
|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||4|
|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||6|
|9||Sanima||2||Bajura – 1 Kalikot – 1||2|
|10||ADBL||7||Baitadi – 1 Jajarkot – 3 Kalikot – 3||6|
|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||3|
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 for them. This newly established channel is expected to facilitate the 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.
As of March 2020, the 13 partner banks of LUP have:
- Reached more than 81,000 beneficiaries
- Disbursed loan amount of more than NPR 325 Million
- Collected a deposit amount of NPR 4 billion
As of January 2020, 13 Commercial Banks have launched 53 physical branches in total (as shown in the table above).
In the remaining 62 local units, commercial banks would establish branches solely with their own investment. According to the Nepal Rastra Bank (NRB), as of February 2020, out of the total 753 local units, 745 now have at least one commercial bank branch and only 8 local units remain unserved.
Additional Complementary Activities under LUP Partnerships
Out of the 13 partner banks, the LUP project has completed for ten partners, while partnerships with three banks – Nepal Bank, NIBL and NIC ASIA Bank – are being extended. Establishment of additional 8 physical branches and extension counters as well as pilots in Digital Financial Service space are being undertaken through these three project extension.
 Based on the 16% savings on total social security payment reported by World Bank Social Safety Nets Project- 2015 (ICR00003263)