Supply/ Availability of Wholesale Funds for MFIs in

Nepal

Bhoj Raj BashyalNirdhan Utthan Bank Ltd.

Siddharthnagar, Rupandehi

Agenda

• An overview on Nepalese MFIs.

• An overview on current pattern of financing mix

• Supply and Use of funds

•Growth and Demand of wholesale funding to MFIs

• Expected Supply and probable gap

• Probable sources and solution to meet the gap.

Nepalese MFIs:

• MFDBs- as Class D financial institutions under BAFIA, 2006

• FINGOs under FI Act, 1998 - taking permission from NRB to have limited banking activities.

• SACCOS under Cooperative Act, 1992

• Saving-credit groups under different funding/ financial support.

•Informal self-help groups

Financing Sources for MFIs

• Equity

• Savings

• Borrowings

Capital Required for MFDBs

• Rs. 10 million for MFDBs working in 3 districts

• Rs. 20 million for 10 districts

• Rs. 60 million as regional level, and

• Rs. 100 million for national level.

• 30 % of shares to be sold to general public.

• Capital Adequacy to be maintained 8% of RWA.

In case of FINGOs and SACCOS, they have to maintain positive net worth.

Savings

•Only from the members, covers about one-third of total loan portfolio. (saving to loan ratio ranges 27 % to 71%)

• Small size due to low disposable income.

•Basically, mandatory and voluntary savings,

•Few MFIs adopting contractual, recurring saving scheme.

Borrowings

• Borrowings under Deprived Sector Lending Scheme

• Borrowings from Wholesale funding-RSRF/NRB, RMDC and SKBBL. • Borrowings from other multilateral funding projects like TLDP, PAPWT, CGISP

• Borrowings from GT, Bangladesh

Sources and Uses of Funds

A Case of MFDBs(Amount in Rs.million)

• Borrowings being about 70% of total resource

• Savings being the second followed by capital.

• Till the FY 2008/09, MFDBs have adequate resources.

FY Resource Use of Resources for On-lending

Resource Surplus (Gap)

Savings Capital Borrowings Total

2006/07 1,384 1,118 7,341 9,844 5,780 4,063

2007/08 1,425 1,257 8,802 14,485 7,078 7,407

2008/09 2,030 1,450 8,904 12,385 8,231 4,153

Expected Demand of Funds

Types of MFIs

Funds needed for On-lending

Funding needed for additional 3

months

Total Funds needed

MFDBs 5,753 1,438 7,191

FINGOs 1,450 362 1,813

SACCOS 1,855 463 2,318

TOTAL 9,059 2,264 11,323

Expected Demand of funding for FY 2009/10 (Amount in Rs. Million)

Status of Disbursement of funding under DSL Scheme and expected Supply in FY 2009/10

(amount in Rs. Million)

S. No.

Types of Financial Institutions

Actual Projected

2006/07 2007/08 2008/09 2009/10

1 Commercial Banks: Total Loan

215,978 292,500 382,082 476,838

Deprived Sector loan 7,213 9,670 12,869 14,3052 Development Banks: Total

Loan11,930 21,533 39,425 57,163

Deprived Sector loan 724 1,1433 Finance Companies: Total

Loan21,085 36,902 51,165 69,263

Deprived Sector loan4 Total Amount available

under Deprived sector lending scheme

7,213 9,670 14,253 16,487

Supply

5 Funding towards YSEP Fund (1/3 of DSL Funding)

5,495

6 Amount for Direct Lending to clients (32 %)

5,275

7 Remained Amount for MFIs 5,715

S. No.

Types of Financial Institutions

Actual Projected2006/07 2007/08 2008/09 2009/10

Supply Contd……

The Gap Rs.5,608 million excluding expected supply from wholesale institutions RSRF/NRB, RMDC and SKBBL.

Growing MF Sector• About 25 % growth,

•NRB’s DSL scheme, wholesale institutions- RMDC, SKBBL, RSRF are facilitating a lot on promoting and developing MF sector,

• Legal recognition to MF,

• MF sector getting importance in poverty alleviation

Drying up Resources • MFIs are in rush to catch financial resources,

• Finding difficult to get the money as and when needed

•When availed, interest rate is increasing (previously 4-6%, now 7-9% and in few cases up to 11 %)

•MFIs -seriously in pain to manage the financial resources and increasing cost

•MFIs either to consolidate/squeeze business or increase interest to poor clients,

• Hesitate to expand business in hills and remote areas

• Push the poor people living in remote area further back,

Probable Solution•Besides, DSL scheme and funding from wholesale sources,

•MFIs mobilize more savings from the clients,

•Deposit mobilization from general public- NRB to set criteria and limit ensuring security of public deposit,

•MFIs develop appropriate products and services and delivery methodology to reach more,

•MFIs to use IT - reduce cost, increase efficiency

Contd……………………..

•MFIs search international sources of funding, social investors are increasing,

•Major problems with international funding: High interest rate, Exchange risk, Many formalities, costly and lengthy process

•MFIs/NRB/Govt. need to make strategy to relieve MF sector’s dependency on subsidized funding and implement accordingly,

• Govt.- Relief in corporate tax so that the saved money could be

utilized to expand services in hills and remote area,

- Channelizing poverty related fundings through MFIs could be more effective,

- Take into consideration of MF sector while formulating policies specially in banking, financial and poverty related areas.

THANKS