Financial Inclusion: In Nepal

An Introduction to Nepal 77 Districts; now 7 provinces and 753 local councils 26m pop (2011) (now estimated to be closer to 30m) ~47% < age 20 80% live in rural areas Extremely diverse geography from lowest point (70m) to highest Mt Everest (8848 m)

An Introduction to Nepal 126+ ethnic groups 92 languages 94.2 M/F ratio $25B GDP; $2,520 PPP dollars GNI per capita (2016) ~30% from remittances ~1,147 Nepalese migrate daily (48 per hour) Roughly 1 in 8 Nepalese now lives and works abroad. #145 on HDI but improving

High income segment (10%) Nepal’s Financial Market - 28 Commercial Banks; Full range of financial services for urban and semi urban people - 83 ‘other’ Development Banks (credit, savings) 16 Savings/Credit Coops ( Licensed by central bank) 79 Finance Companies (hire purchase, leasing, housing) - 53 MF Dev’t Banks (savings, credit, insurance) - 25 FINGOs (credit and member savings) High income segment (10%) Mid level (45%) Poverty line The Poor and Low- Income segment (45%; 80 % rural) - Money lenders (credit) - Over 19000 SCOs, NGOs, SHGs, Coops (informal credit and savings)

Financial Institution Type Paid Up Capital Requirement (USD Million) Financial Inclusion in Nepal : Snapshot of BFIs # of FIs licensed: Category Financial Institution Type Number Paid Up Capital Requirement (USD Million) Class A Commercial Banks 28 78 Class B Development Banks 39 24 Class C Finance Companies 8 Class D Micro Finance Development Bank 53 0.98 Total 148 The cooperative sector is also a key provider of finance. There are over 35,000 Cooperatives. Banking, microfinance, and cooperative sectors serve about 5.4m clients or roughly 27% of the adult population (doesn’t account for client duplication).

Status of Banking Industry 80 years of learning… Massive Growth in Number of Branches Overlapping of Branch Locations No significant expansion in Financial Outreach Source: NRB Quarterly Bulletin

Decentralization Political Administrative Fiscal Economic or Market Decentralization

Implications for the Nepalese Financial Sector Central Bank: Directive to open commercial bank branches in all 753 units Efficient to decentralize authority within the FIs. FIs headquartered at the capital and other main cities may choose to limit the authority of its local bank branches by setting up rules and regulations that constrain their actions and which centralize authority. Lack of capacity may result restrictions on the loan approval and loan size restrictions for local bank branches, thereby continuing to centralize decisions on large scale investments

I Interpretation of the Challenges and Opportunities Monitoring and Evaluation – 35,000 cooperatives, 77 Cooperative Division Strengthening national economy through the participation and free development of public sector, cooperative sector and private sector Diversifying and expanding markets for productions and services through the development and expansion of industries Encouraging and mobilizing foreign capital and technology investment for infrastructure development in the areas of export promotion, and import to suit national interest Promoting economic development by establishing coordination among provinces and between province and federation regarding industrial corridors, special economic zones, national projects and foreign investment projects Formulating strategies and programs for sustainable socio-economic development under regional development plans for balanced and inclusive regional development and to implement them in a coordinated manner

Financial Sector and Reconstruction Assessment of the supply constraints (particularly the market distortion and MFI constraints) and why the demand is not taking up as needed is likely the next step Credit guarantee can be a substitute to collateral but not repayment capacity. Banks and Reconstruction Interest free loans Skilled Labor BFIs fear that government will come out with populist measure like ‘loan waiver scheme’ in future, which will penalize non-delinquent borrowers, risking future servicing of loan portfolio. Average turnaround time for a refund of subsidy schemes such as the insurance premium and interest is 400 days and counting

Improve payments systems and interoperability Opportunities for increasing Financial Inclusion in Nepal Unlock credit and mobilize savings to invest in assets and productive capacity Improve payments systems and interoperability Leveraging remittances market via mobile wallets Bolster risk-mitigation capabilities to weather risk events that can have significant impact on their financial situation Build capacity of locally-based financial service providers Design more demand-driven products Enhance financial inclusion support in national governance Strengthen consumer empowerment, protection and education Strengthen support infrastructure including ICT and transportation.

Sakchyam’s Strategic Pursuits/Key Wins

Sakchyam’s Accomplishments