Supply/ Availability of Wholesale Funds for MFIs in Nepal Bhoj Raj Bashyal Nirdhan 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, 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. FYResourceUse of Resources for On- lending Resource Surplus (Gap) SavingsCapitalBorrowingsTotal 2006/07 1,3841,118 7,3419,8445,7804, /08 1,4251,257 8,80214,4857,0787, /09 2,0301,450 8,90412,3858,2314,153

Expected Demand of Funds Types of MFIs Funds needed for On-lending Funding needed for additional 3 months Total Funds needed MFDBs5,7531,4387,191 FINGOs1, ,813 SACCOS1, ,318 TOTAL9,0592,26411,323 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 ActualProjected 2006/072007/082008/092009/10 1 Commercial Banks: Total Loan 215,978292,500382,082476,838 Deprived Sector loan7,2139,67012,86914,305 2 Development Banks: Total Loan 11,93021,53339,42557,163 Deprived Sector loan7241,143 3 Finance Companies: Total Loan 21,08536,90251,16569,263 Deprived Sector loan 4Total Amount available under Deprived sector lending scheme 7,2139,67014,25316,487 Supply

5 Funding towards YSEP Fund (1/3 of DSL Funding) 5,495 6 Amount for Direct Lending to clients (32 %) 5,275 7Remained Amount for MFIs5,715 S. No. Types of Financial Institutions ActualProjected 2006/072007/082008/092009/10 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