Reaching Out To The Financially Unserved

May 15, 2019

Nawadurga Rural Municipality, where Sakchyam-supported branch of Prabhu Bank is located, is just 35 kilometers from Dadeldhura. For us, covering that distance involved crossing a river, driving 1.5 hours on a freshly carved dirt road and even clearing the boulders that had blocked the road. Once you reach Nawadurga, it’s evident why the branch was the need of the hour of this remote location.

“Within less than two months of opening this branch, we have been able to open more than 300 accounts and collect deposits of over NPR 22,00,000,” informs Dharma Budha, Branch Manager at the Nawadurga branch of Prabhu Bank about how a formal financial institution was required in the area. He also points out that the branch is one of the two financial institutions operating in the area, the other one is a cooperative.

The Citizens Bank International’s branch in Dhakari Rural Municipality of Achham, opened with support from Sakchyam, also has had a similar experience. “We have been successful in opening over 1,800 accounts, collecting deposits of over NPR 9 crores, out of which NPR 6 crores is from the municipality for various government payments such as social security payments,” says Rabindra Prasad Dhungana, Branch Manager of the Dhakari branch. Although the banks were apprehensive about opening branches in remote locations, the return has been quite satisfactory. Their concern about operating branches in such areas included lack of minimum population density and minimum economic activities that are required for a branch to sustain on its own.

Dhungana, also informs that the bank branch has already signed an agreement for Government to People (G2P) payment with the Dhakari Rural Municipality, and is in the process of distributing the social security payments in all the 8 wards of the rural municipality. “This means we will reach a close to 6,000 beneficiaries out of the total population of 25,000 in Dhakari,” he added. The branch also carries out remittance services as Dhakari sees an influx of remittance payments, especially from India, UAE and Malaysia. “On an average we make around 25-26 remittance payment amounting to NPR 7-8 lakhs each day,” he says.

Reaching out to the financially unserved

The Need

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 channels. 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 untouched by any commercial bank service. After the mandate, 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, however 116 local units were still not allotted by any commercial banks.

Sakchyam’s Support

In collaboration with NRB and MoF, Sakchyam came in to support the expansion of the banks’ footprints in the 54 local units (out of 116 that remained) which came under Sakchyam’s priority districts. Sakchyam invited applications from commercial banks operating in Nepal, to expand their presence and outreach aimed at serving the underserved rural population, mobilize local financial resources, channelize central government budgetary support including social security payments and facilitate financial activities of local government and private businesses for the development of local economy, sustainably.

“When Sakchyam started its journey five years ago, our mission was to make formal financial services available to the under-served and un-served population. Sakchyam believes the presence of the commercial banks in these rural and remote locations can be pivotal in reinvigorating the local economic activities. We are also cognizant of the fact that such branches, especially in their early years of operation, will face operational issues and difficulties, take up additional costs leading to questions on their long-term sustainability,” shares Nirmal Dahal, Team Leader of Sakchyam. “In order to facilitate this joint bid to promote access to financial services in rural and remote local units, Sakchyam supported the opening of bank branches in Sakchyam priority regions totalling 54 local units,” he continues.

The 54 local units are located in Sakchyam’s priority districts in Karnali Province, Sudurpaschim Province and Province no. 5.

The Impact

Over the project period of two years, Sakchyam’s partnership with the 13 banks will enable access to banking services to over 800,000 individuals (combined population of the 54 local units). In a time span of less than a year the project has reached 31,978 beneficiaries.

Moreover, this exercise will not only facilitate social security payments to more than 1,21,000 beneficiaries through a formal banking channel and the beneficiaries will get the service at the convenient locations to them.

As of May 2019, with the 13 partner banks have launched 42 physical branches in total in the allotted local units. The establishment of the remaining branches are in the process. Some of the remaining branches are located in regions which have been rendered inaccessible due to heavy winter snowfall. Moreover, NRB has given instructions to the banks to launch all their allotted branches by Baishakh-end (Mid-May) at the latest. This has added additional pressure on the banks to launch the branch but most of them are planning for a more realistic launch date of around Asar-end (Mid-July)

Reaching out to the financially unserved

Text by Ayusha Nirola, Sakchyam Access to Finance