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The
leading microfinance organizations in Nepal follow international best practices,
sometimes adapted to local circumstances such as: conflict, disparity of
population, and hilly and mountainous landscapes. The following are key best
practices adopted in Nepal, as reported by microfinance practitioners.
Client
and poverty focus, through customized financial products
Sound
management practices, including cost control, risk management, commercial
interest rates on lending, resulting in efficiency and sustainability.
Strong
institutional development, in systems and controls (finance and MIS),
capacity building of staff, and a strategy for expansion
Mobilisation
of local savings and access to domestic sources of commercial funding.
Participation
to network organizations and events.
As
experienced by commercial banks and specialized microfinance institutions, it is
easier to reach large poor population in the Terai (plain) region where
there is a higher density of population, better infrastructure and therefore
easier access to clients, in opposition to hills and mountains.
Nirdhan
Uttan Bank Ltd.
has adopted sound management practices, in streamlining its operations with the
development of a set of operating manuals. Moreover, Nirdhan has always kept a
strong focus on the poor, while developing highly effective systems including: a
computerized MIS, an internal training department and building key strategic
alliances with donors, investors, and networks.
Studies
of Savings and Credit Cooperative Societies (SCCS) demonstrate
that savings mobilization is improved when the cooperatives offer customized
savings products to their members, satisfying their financial needs. The level
of savings mobilization in SCCs is also increased by offering high interest
rates on deposits, linkages with insurance cover, and access to larger loans.
Credit methodologies are mostly successful when a wide range of credit products
are offered to members, for productive and social purposes. According to recent
CMF publications, SCCs can become sustainable organizations within a two to
three years period if they meet the following minimum thresholds:
500
members
Rs.50
in savings per member per month
Rs.500
in share capital per member
Repayment
rate of 95%
In
addition, several other best practices among SCCs can be identified as: strategy
for scaling up and strong institutional development, effective and transparent
governance, financial sustainability, and sound financial services responding to
clients needs.
The
following is a summary of the comparative performance of the major Grameen Bank
replications (GBR) in Nepal, i.e. the five public ‘Grameen Bikas Banks’ and
the two private rural microfinance banks, Nirdhan
Uttan Bank Ltd and Swabalamban
Bikas Bank Ltd,
with the performance of medium and small institutions operating in South Asia as
reported by the Microbanking Bulletin (MBB). More details are included in the
recent paper presented by Sunil Khanal, from Nirdhan, at the latest BWTP
workshop in Nepal. This section also integrates a comparison between the five
public and the four private GBRs, as developed into the paper presented by
Mukunda B. Bista, Executive Director, Center for Self-help Development (CSD)
& Keshar B. Shrestha, Executive Director, Swabalamban Bikas Bank Ltd. in the
BWTP workshop in Nepal.
Grameen
Bank replications in Nepal are in line with their MBB South Asian counterparts,
with loan officers handling an average of 150 loans – 20 more, on average,
than the small South Asian organisations (130), but 50 less than medium Asian
organisations (200). As of July 2003, Easter Region Grameen Bikas (public) was
the largest of the GBRs operating in Nepal, reaching about 50,000 clients,
savers and borrowers. The second largest was the Western Region Grameen Bikas
(public) with 40,000 clients. Private GBR, Nirdhan and SB Bank reached
approximately 33,000 clients each.
Despite
a slightly negative figure (-1%), GBRs post better results in terms of Return on
Assets than MBB Asian institutions, which show greater, negative results. GBRs
as a group are operationally and financially self-sufficient, whereas this is
not the case in MBB small South Asian institutions (for both indicators), and
their medium-size counterparts reach only operational self-sufficiency.
With
an overall Portfolio at risk of 5.7%, GBRs match the results of MBB Medium South
Asian institutions (5.6%), and are much better than MBB Small South Asian
institutions (14.8%).
GBRs
in Nepal seem less efficient that the average of small and medium Asian
institutions, with operating expenses representing 20% of their loan portfolio,
against 14% in MBB South Asian institutions. The cost per borrower for GBRs
($22) is similar to MBB Small South Asian institutions ($21), but higher than
medium institutions ($11). The higher costs of running microfinance operations
in Nepal can be a result of the difficult context (conflict, hills, mountains,
higher poverty levels) and the relatively young and small microfinance
organisations in Nepal, compared to their more matured counterparts in South
Asia.
‘Best Practices in Nepal and Regional Standards in Microfinance’. Suni Khanal. Nirdhan Uttan Bank Limited. Presented at BWTP-CMF workshop in February 2004
‘A directory of MFIs in Nepal’. CMF December 2003).