Local Units Project

Local Units Project – Branch Establishments in Karnali Province and Provinces 5 & 7

(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 and Province No. 5 & 7.

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 Branches Proposed Districts
1 Citizens 5  Achham – 1 Humla – 1 Kailali – 1 Pyuthan – 1  Rukum – 1
2 Himalayan 4  Bajura – 3 Salyan – 1
3 Janata 5  Humla – 3 Rolpa – 2
4 Laxmi 3  Darchula – 1 Rukum – 1 Salyan – 1
5 Nepal Bank 4  Bajura – 1 Dolpa – 2 Rolpa – 1
6 NIBL 4  Bajhang – 1 Darchula – 1 Jumla – 1 Pyuthan – 1
7 NIC Asia 2  Dang – 1  Jajarkot – 1
8 RBB 6  Bajhang – 1  Dolpa – 3  Mugu – 2
9 Sanima 2  Bajura – 1  Kalikot – 1
10 ADBL 7  Baitadi – 1  Jajarkot – 3  Kalikot – 3
11 MBL 2  Darchula – 2
12 Nabil 7  Achham – 2  Baitadi – 1  Doti – 1  Kalikot – 2  Salyan – 1
13 Prabhu 3  Dadheldhura – 1 Dolpa – 1  Humla – 1
TOTAL 54

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 11.78 billion (GBP 81.27 million) government grant to local units resulting in an annual saving of NPR 231 million (GBP 1.59 million) for the government through the elimination of ghost beneficiaries.[1]

As of August 31, 2018, eight Commercial Banks, namely, Nabil Bank, Citizens International Bank, Laxmi Bank, Rastriya Banijya Bank, Nepal Bank, Sanima Bank, Nepal Investment Bank and NIC Asia Bank, have officially launched 26 physical branches in total.

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