The State of

Microfinance for Inclusive Economic Growth

__________

Outreach and Growth

Ganesh Bahadur Thapa, Chairperson, CMF Nepal

Microfinance Defined• Access to financial services for the poor and low income

group.

• Microfinance includes micro-credit, savings, micro insurance, and remittances services to the poor

• Universally accepted as an effective tool for addressing poverty

• The term is often used narrowly, as services delivered by MFIs adopting methodologies to manage tiny uncolleterised loans

• Credit only and credit-plus

Microfinance Outreach-Global

• Strong growth of microfinance globally in the last one and half decade

• 154.8 million poor served in 65 countries

• Demand for microfinance largely unmet. Global demand estimated between 400 – 500 million households

• Millennium Development Goal (MDG) of UNDP cutting poverty by half by 2015 per country or reaching 175 million poor families by 2015

• However, outreach from one continent to another differs

Microfinance Outreach - Nepal

• About 31% of Nepal’s population lives below the poverty line

• Although informal system still remains dominant microfinance sector has expanded remarkably in Nepal over the last one and a half decade

• Currently, 13 Micro Finance Development Banks (2 wholesale lenders, 5 Grameen Banks and 8 private sector banks) provide services to:

- 547,435 rural poor (mostly women): Mid-July 2009- Through 112,642 groups- Across 55 districts

• Financial Intermediary NGO’s (FINGO’s)- 381,392 clients Mid-July 2009- Through 45 FINGOs

• Savings and Credit Co-operative- 714,516 individuals Mid-July 2009- Through 5161 SACCO’s ( Some of them, urban based, are not doing microfinance)- In 72 districts

• Small Farmers Cooperative Ltd. (SFCL)- 145,419 individuals – Mid-July 2009- Through 225 SFCLs (( Some of them are not doing microfinance)

Aggregate Outreach:

• 1,788,762 (Female 1,387,043 Male 401,719 ) including SACCOs (excludes SCGs and Village Banking Groups of different development organization due to lack of authentic data)

• Aggregate outreach growth in two years 49%

• Representing 6.3 % of total population20 % of below the

poverty line

Geographic Coverage of Microfinance

Geographical outreach and need

Microfinance development banks

FINGOs Saving and Credit

Cooperatives (SACCOs) SFCL s

51%12%

21%

Conclusion• Nationally, the total outreach is about 20% of

those below the poverty line.• Given the policy environment growth in

outreach is satisfactory• Incremental growth rate of savings and deposits

has slowed down due to economic reasons ( such as high rate of inflation and consequent contraction in saving)

• In the case of the SACCOs there has not been efforts on their part to synchronies savings and loans

• The incremental growth rate of loans has also slowed down due to pessimistic perceptions

• Available data does not disaggregate to see the outreach of MFIs towards inclusiveness (social, ethnic, and economic)

Recommendations:• Need for increasing speed of expansion• Resource constraints for expansion of MF sector

poses a problem. This needs to be resolved through either through setting up a new funding arrangement for MFIs or by permitting MFDBs to accept public deposit

• While Terai region is largely well served by MFIs, the remote and mountainous regions continue to lack MF services. Official and donor support should be mobilized to help expand MF services.

◦ The existing models and technologies available do not seem to be appropriate for these difficult regions. External support is required to conduct in depth research studies to discover appropriate and effective MF service models and methodologies.

◦ Currently, SACCOs operate in a limited way in these regions. Expansion of SACCOs services by providing wholesale funding for on lending purposes has the potential of expanding MF services in these difficult regions in the short run

• SACCOs should pay proper attention towards matching savings with loans to realize higher gains from the accumulated savings resources

• There is a need to compile and analyze data based on social and economic status of the clients so that MF services could be focused more closely on the socially excluded groups such as Dalits, Janjati, Madhesi, and other disadvantaged communities.