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| Commercialisation | Microfinance, Commercial Banks and Insurance Companies |
Under
the Development Act 1996, NGOs are able to establish rural microfinance
development banks by transferring their microfinance loan portfolio. With this
status, they can access new sources of commercial funding as institutions, and
mobilise savings. Over a period of four years (1998-2002), four NGOs established
rural microfinance development banks, Nirdhan, Center for Self-Help Development,
DEPROSC and the Neighbourhood Society Service Center.
In
2002, with 37,000 clients, Rs. 170 million loan outstanding, and accepting
deposits from members, the NGO, Center for Self Help Development, looked at the
options to be regulated under the ‘Development Bank Act’. Two options were
then possible:
To
continue as an NGO. Under this status directors would become personal
guarantors for deposits mobilised, and the organisation would have go
through an annual registration process to continue its financial operations
as an NGO.
To
transform into a development bank, which would build trust from members and
the public and provide a higher profile by being a bank.
It
was decided that all staff, clients and assets would be transferred to the newly
created development bank ‘Swabalamban Bikas Bank Ltd.’
Commercial
banks in Nepal are required by the central bank to earmark a portion of their
loan portfolio to priority lending (agriculture, cottage industry, services),
which includes 0.25% to 3% to the deprived sector (poor population). Under this
obligation, commercial banks can lend directly to individuals or self-help
groups, charging a 6-7% interest rate, or provide wholesale funds or equity to
microfinance providers serving the poor. Two thirds of the priority and deprived
sector lending and investment are provided by the two public commercial banks,
Nepal Bank Limited and Rastriya Banijya Bank. Until recently the priority
lending was set at 12% of the loan portfolio. It is now being phased out, ending
completely in 2007, while the 3% deprived sector requirement will stay in place,
and therefore loan and investment in microfinance with it. As of mid July 2003,
Rs.22,605 million were affected to the priority sector, while Rs. 3,563 million
allocated to deprived sector lending, from which 132.6 million was in the form
of equity. Under this requirement, investments made by commercial banks in the
Rural Microfinance Development Center, an apex organisation providing wholesale
fund to microfinance, can be seen as a new link between the formal finance
sector and microfinance.
However,
commercial banks are not seeing a commercial interest in lending to microfinance
clients, directly or indirectly, as they are judged being too poor, without the
necessary collateral to secure their loans. They have reduced their lending to
microfinance over time. Some believe that banks need to see opportunities in
microfinance for their banking business, instead of being forced to serve a
population unknown to them, with inappropriate approaches and products.
Fulfilling
their ‘deprived sector’ requirements, Nabil bank and Himalayan bank provide
lending and equity capital to the two leading private rural microfinance banks,
Swabalamban Bikas Bank and Nirdhan Uttan Bank. Everest Bank is also an investor
in Nirdhan, while Nepal Investment Bank is a key shareholder of the Swabalamban
Bikas Bank. In addition, the banking office of the Women Cooperative Society (an
NGO) has a 12% share in Swabalamban Bikas Bank.
Self
Help Groups, which have evolved into registered cooperatives, can access
commercial bank lending if they gather at least 25 members and satisfy the bank
borrowing criteria. However, there is often little interest from cooperatives to
borrow from commercial banks as they can access funds at subsidised interest
rates from the Rural Self-Reliance Fund (8% reduced to 2% in case of good
repayment).
Nirdhan
and BISCOL (a cooperative) collaborated during the last two years, with the
leading insurance company in Nepal, National Life Insurance Company, on the
implementation of a microinsurance product. Facilitated by the Center for
Microfinance, the pilot project provided life insurance, health insurance and
livestock insurance policies to the clients of microfinance providers. BISCOL is
providing matching fund in the scheme, while Nirdhan has announced that it will
now extend this product to all its clients.
‘A case study of four Savings and Credit Cooperatives Societies (SACCOs) operating in the hills of Nepal’. Nav Raj Simkhada, RUFIN/GTZ. Presented at BWTP-CMF workshop in February 2004. Kathmandu
‘A review of the lessons learned from the small farmer cooperative Ltd. System.’ Ulrich Wehnert. RUFIN/GTZ. Presented at BWTP-CMF workshop in February 2004. Kathmandu
A directory of MFIs in Nepal. CMF December 2003