The Sweetest Thing

February 12, 2018

Financial services, especially in the rural districts, provide more than just an opportunity for the unbanked to pursue their livelihood in search of increase in household income. It allows the community an opportunity to pursue their dreams.

Until a few years ago, the idea that financial institutions limited to the comforts of urban lending would diversify their investments into unbanked communities in remote locations, thereby taking on additional, unwanted risks seemed highly unlikely. How would you then explain Sanima Bank branch in Dhading Besi investing 100 million on 360 individuals and their businesses? What drives these institutions to take risks?

The answer is profit. Apparently, the small and medium enterprise loans – classified as borrowers within the NPR 50,000 to 1 million bracket – have an excellent repayment history.

What are these small loans, often priced at 14% – 16% p.a. invested in? Lifestyle, for one. And agriculture. (picture, left: a development bank board advertises the availability of ‘agriculture loan’ at Dhading Besi)

Pramila, who owns a tailoring shop in Dhading Besi, has invested NPR 700,000 in her shop. She travels to Kathmandu every month to purchase cloth and readymade dresses which she brings back to her shop. Here, she offers ‘fitting’ services as per her customers’ requirements. On a cold windy evening in Dhading Besi, I enquired about the price of the most expensive dress in her shop. “NPR 6,000” she said, pointing to a bright salwar kameez – adding they are currently the best seller. She tells me the margins on the dresses are up to 40% and that the interest in loan doesn’t really bother her although ‘it would be nice if the interest were lower’.

What then, fuels these purchases? 1)remittances, 2) trade, and 3) consumption.

With satellite television the norm in every household, the latest trends in fashion is followed keenly in this part of the country, and designs of dresses seen on the television copied when possible. This in turn has fueled a growth for tailoring shops. At 8am on a Tuesday morning, I counted 28 shops that were already open, each offering ‘readymade garments’, and made to order ‘latest design’ dresses.

The population boom in this region is largely due to the concentration of the majority of the population, including those from the surrounding villages who prefer to live closer to the town center. This has in turn increased the demand for food. Staple food in a Nepali household consists of rice, pulses, vegetables and for those that can afford it – meat – two times a day.

Ram Prasad Timilsina used to teach at the local school. After his retirement, Ram Prasad (pictured right with the ICAI team) and his wife, Urmila, mortgaged their land to start vegetable farming with a loan of NPR 400,000. At a turnover rate of a fresh batch of vegetables every 45-60 days, Ram has been able to generate additional income for the household while paying back 25% of the loan to date. “Isn’t the interest rate on your loan too high?”, I ask him echoing Pramila’s statement. ‘No, he responds. You see, it is all relative. We received a loan from a commercial bank when even the local financial institutions were apprehensive of making that investment. So, at this point of time, we are grateful for an opportunity to follow our dreams of what I hope one day will be a full-fledged commercial farm.” He then pointed out the additional land he has recently leased with hopes of starting a fish farm from April. ‘We don’t have the technical skills; but we’re willing to learn and work hard’. His wife sat down nearby listening in on the conversation, her face beaming with pride the entire time.

As I walked back to our car, a fresh batch of vegetables was lying in the back seat. Turns out Urmila had seen me admiring the greens and decided to surprise me with a fresh delivery from her gardens.

I thanked her, and tried to pay her for the vegetables; but Urmila would have none of it. “You’ve come to our house for the first time”, she said. “How can we take money from you?” before quickly adding that she looked forward to seeing me again.

And then she smiled.