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 Nepals 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 NGOs (FINGOs) - 381,392 clients Mid-July 2009 - Through 45 FINGOs Savings and Credit Co-operative - 714,516 individuals Mid-July 2009 - Through 5161 SACCOs ( 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 population 20 % of below the poverty line

Geographic Coverage of Microfinance

Geographical outreach and need

Microfinance development banks FINGOs Saving and Credit Cooperatives (SACCOs) SFCL s

12% 51%

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.