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Page 1: A COMPARATIVE STUDY OF MICRO-FINANCE IN NEPAL AND BANGLADESH · PDF fileA COMPARATIVE STUDY OF MICRO-FINANCE IN NEPAL AND BANGLADESH ... Bank -Vowel Rajabari Sreepur Branch Dhaka Zone

A COMPARATIVE STUDY OF MICRO-FINANCE IN NEPAL AND BANGLADESH

*Dr.Puspa Raj Sharma

Chairman, Management Research Committee

P.N. Campus , Pokhara

Program Co-ordinator, BBA, JMC

The article mainly on comparison between micro-finance-GB Model practices in Nepal and

Bangladesh. It includes the observations, general overview of micro-finance in Bangladesh

and Nepal, comparison of the key indicators of micro-finance services, major micro-finance

strategy in Bangladesh, and lessons from Bangladesh. The overall productivity of Nepalese

MFI seems poor as compare to Bangladesh. The paper includes some recommendations for

the improvement of micro-finance in Nepal.

1. Introduction

Micro-finance is relatively a new innovation in the age-old banking industry. With the untiring efforts of micro-finance practitioner specially by Muhammad Yunus (Winner of Nobel peace prize-2006) for over 30 years in developing country. Micro-finance has received a global recognition today not only as a powerful instrument for poverty reduction and empowerment of women, but also as a promising sector of financing for the banks, financial organizations and NGOs. Countries with sound Micro-finance system have succeeded in reducing poverty and improving socio-economic conditions of women significantly. MDG calls for reducing world poverty in all its forms by the year 2015 with significant improvement in education, gender equality, health care and overcoming hunger and environmental degradation through microfinance intervention(NPC, 2003).

In the process of observations the researcher visited Grameen Bank (rural branch, center meeting, group and individual) and interacted and received valuable insight about the World famous “Grameen Bank” with innovator Prof. Muhammad Yunus since most of Nepalese MFIs were adopting “Grameen Model” of micro-finance. Besides this the researcher also visited and interacted with BRAC,ASA, and PKSF organizations and their top authorities.

2. An Overview of Micro-finance in Nepal and Bangladesh Nepal and Bangladesh are countries in South Asia that share borders with India. Bangladesh is much larger than Nepal in terms of population and the population of Bangladesh is estimated 160 million and the total area occupied is 145570 square kilometer. It has one of the largest population densities in the world over 867 people per square kilometer. The contribution of agriculture sector in the GDP of Bangladesh is 34.5 percent. Eighty percent of the population live in rural areas and the current population growth rate is 1.67 percent (WB, 2005). The population of Nepal is about 26 million and its total area is 147,181 square kilometers. The economy of both Nepal and Bangladesh is characterized by the predominance of the agricultural sector. About 40 percent of GDP and 80 percent of total population are employed

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by the agriculture sector in Nepal. In both countries, women working in agriculture account for a large majority. Moreover, in both countries the role of women is given lessor importance due to the prevalence of patriarchal system.

Despite these similarities, intervention of micro-finance program on the status of poor and women have different priorities. Bangladesh is considered as the pioneer in the world for applying and achieving successful results. The fact that the micro-finance industry has been able to provide access to credit, currently to nearly thirteen million poor households in Bangladesh is truly remarkable. There are around twelve hundred micro-finance institutions (MFIs) in Bangladesh (ADB, 2002) alone but the industry is dominated by four large MFIs (BRAC, Grameen, ASA and Proshika) that serve around 11.4 million or ninety percent of all clients. These four institutions combined have over $800 million in outstanding loans and around $380 million in savings. The differences between the number of borrowers and members reflect differences in the variety of services offered by these MFIs. Proshika and BRAC offer a range of services to their members, while Grameen and ASA focus on the provision of micro-finance services.

Table :1 Micro-finance Portfolios of the Big Four MFIs in Bangladesh ( As of June 2004)

Organization Number of Members

Numbers of Borrowers

Member’s Savings

Cumulative Disbursement

OutstandingLoan Amount

Million Million US $ Grameen Bank 3.6 3.5 194.1 3372.5 295 BRAC 4.5 3.8 114.4 2014.2 219.9 ASA 2.7 2.5 47.3 1607.3 232.1 Proshika 2.8 1.5 24.3 464.4 61.3 Total 13.7 11.4 380 7458.4 808.3 Source: PKSF 2004 Note: Exchange rate in June 2004: US$1 = Tk60.36

After the “big four” the next largest NGO has 0.7 million clients, and there are only ten NGOs who have more than 100,000 borrowers. The bottom line is that the majority of the MFIs are small (less than five thousand borrowers) and that the bulk of access to micro-credit is provided by the four large MFIs. In this backdrop, some performance highlights of Grameen Bank Bangladesh are as following: Table:2 Performance of Grameen Bank Bangladesh ( November,2004)

No of center 80782

Number of groups 674117

Number of Member 39,58,319

Number of borrowers 35,62,487

Outstanding loan amount ($295M) 17789 million taka

Outstanding savings ($194.1M ) 11716 million taka

Total number of staffs 12903

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Number of branch 1326

Number of village covered 47836

Exchange rate: 60.36 taka=$1

A case study of Grameen bank, Branch Bangladesh (where the researcher observed)

Table 3 Grameen Bank -Vowel Rajabari Sreepur Branch Dhaka Zone -At a Glance

S.No.

Particulars 2004, January

1 Opening date of the branch 21-07-1982 2. Name of the branch manager

(see photo in annex) Dewan Md. Jahangir

alam 3. Number of staffs 9 4. Number of centers 73 5. Number of groups 633 6. Number of members 3410 7. Number of village 34 8. Cumulative amount of loan disbursed 74.03 Million 9. Cumulative amount of loan repaid 39.60 Million 10. Outstanding loan

Basic loan 30.54 Flexible loan 0.06 Housing loan 3.30 Other loan 0.53 Total loan 34.43 million

11 Rate of recovery (%) 100 12. Microenterprises loan (Cumulative)

12.1 Number of micro-enterprises loanee 1275 12.2 Amount disbursed 10.18million 12.3 Amount repaid 3.97 million

13. Balance of savings 13.1 member deposit 33.46 13.2 non-member deposit 13.63 Total 47.09 million

14. Number of village loan 153 15. Number of house built with housing laon 1650 16. Higher education loan

(Female student 5, male student 19) 24

17. Scholarship 21 Scholarship recipients (female) 13 Scholarship recipient (male) 8

18. Number of struggle loanee 5 19 Number of staff 9 20. Field staff 6 21. Cost per unit of money lent 0.11 22. Average loan size (taka) 9900 23. Average saving amount 9290 24. Active clients per loan officer 563

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25. Average loan per officer (taka) 59 lakh 26. Dropout 6% 27. Salary structure and post

Branch manager salary (21 years ) taka 9925 Bracnh officer (17 years ) taka 6792 Senior cente manger(8 years) taka 5024 Centre manager (2 years) taka 3924

In Nepal, the status of MFI is limited and small in comparison to Bangladesh. Micro-finance programs have grown rapidly in Nepal during the last decade. Though the program of micro-finance for the poor was first initiated in 1950s through cooperatives and continued in various forms such as SFDP, PCRW, MCPW, etc., but the operation of micro-finance in its true sense was started with the establishment Grameen Bikas Bank in 1992. Prior to adoption of liberal financial policies starting from 1991 and intensified in later years, micro finance program was exclusively under the government control. However, with the initiation of liberal policies after 1991, the private sector and NGOs have also been involved in micro-finance programs following Bangladesh Grameen model. Micro-finance programs are implemented by government, semi-government and non-government financial institutions such as commercial banks, Grameen Banks, micro-finance development banks, NGOs and savings and Credit Co-operatives and others. There are 5 regional Grameen Bikas Banks one each in five development regions in the government sector, 4 micro credit development banks in the private /NGO sector, 143 small farmers’ cooperatives limited, 44 FINGOs and 34 savings and credit cooperatives (NRB, 2005). The following chart shows the various model of micro-finance in Nepal

Micro-finance programs that have evolved in Nepal over the years can be categorized into 6 groups: Co-operative Programs, Priority Sector Lending Program, Intensive Banking Program, Specific Target Group Programs, Grameen Bank Replication Programs, Micro-finance Development Banking. The existing outreaches of major micro-finance program are as below:

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Table: 4 Outreach of Micro-finance in Nepal (Rs.’000)

Particulars Total of

GBB

SB Bank Nirdan Chhimek Deprosc Total

GBR

Grand

*total

No. of center 4980 1426 2085 834 607 4952 9932

No. of Group 34782 7796 11643 3279 3290 26008 60790

No. of member 161747 37415 61137 16698 14508 129758 291505

No. of borrowers 146523 48755 45569 12683 11758 118765 265288

General loan

disbursed Rs.

10597440 1807694 1884576 315898 371036 4379204 14976644

General loan repaid

Rs.

9378558 1635435 1541104 215839 269344 3661722 13040280

General loan

outstanding Rs.

1218882 172259 343472 100059 101692 717482 1936364

Other loan disbursed

Rs.

1317228 333795 189649 27028 30377 580849 1898077

Other loan repaid Rs. 1105513 296486 159477 17742 21713 495418 1600931

Other loan

outstanding Rs.

211715 37309 30172 9286 8664 85431 297146

Total loan disbursed

Rs.

11914668 2141489 2074225 342926 401413 4960053 16874721

Total loan repaid Rs. 10484071 1931921 1700581 233581 291057 4157140 14641211

Total lon outstanding

Rs.

1430597 209568 373644 109345 110356 802913 2233510

Personal saving

balance Rs.

52889 7002 12164 7572 3606 30344 83233

Group fund balance

Rs.

392159 37283 89201 25261 11370 163115 555274

Group fund loan

balance dis Rs.

309857 111440 57478 0 0 168918 478775

Group fund loan

repaid Rs.

291570 106413 50520 0 0 156933 448503

Group fund loan 18287 5027 6958 0 0 11985 30272

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outstanding Rs.

Staffs 1029 142 243 60 51 496 1525

No. of Branch 142 38 38 11 13 100 242

VDC covered 1007 297 349 112 190 948 1955

Districts covered 43 9 10 9 9 37 43

Source: NRB,2005 (Outreach of grameen model included only)

Grameen Bikash Banks are in operation each one in all the development regions to provide credit without collateral for the deprived rural people especially women in-group for their income generation activities. About 301,939 families with 989,330 members (Directory of micro-finance Nepal, 2003) of Nepal directly benefited from the Micro-finance program including various models. The outreach status of Grameen Bikash Bank and Grameem Bank Replicators ( Nirdan, SBB, Deprosc, Chhimek ) are presented in the above table. Nepal Rural Credit review Report 1994, revealed that in 1991/92, only 30.39 percent of rural household has borrowed. Of these borrowing households, 86.82 percent had borrowed from informal sources such as landlords, merchants /traders, friends and relatives, 20.29 percent from formal sources and 7.11 percent household borrowed from both the sources (ADB, 2003).Currently, in Nepal, less than 20 percent of the households have borrowed money from formal institutions, because of the present situation being particularly unfavorable for people living in the hills and mountains (Dhakal, 2004). There is a demand for small size loans supported by small savings which is coupled with high transactions costs, resulted in a concentration of financial institutions in urban areas and accessible regions of the country (Sharma, 2006). Micro-finance in Nepal does not focus on sustainability, it is rather conceived as a tool to provide social services and it is often reduced to a micro-credit component in broader projects and programs for social development (Dhakal, 2004).

3. Comparison of the Key Indicators

There are several key indicators out of which depth and breadth are popular. Depth focus on

how effectively the services are targeted to the poor to reduce the poverty and breadth focuses

on what varieties of services are available to the clients to achieve financial self-sufficiency

of the MFIs. Although all micro-finance practitioners agree that their goal is to improve the

welfare of the poor, they do not agree how best to achieve this goal. That is why effort is made

to show the difference in the school of thought through these depth and breadth approaches.

One advocates for breadth with the emphasis on self-sustainability approach and the other

advocates for depth with the emphasis on poverty/ welfariest approach. In this context, the

sector of micro-finance is compared between Nepal and Bangladesh based on researcher

observations and published literature in the field of micro-finance.

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Table : 5 Comparison of the Key Indicators

Differences Bangladesh Nepal Ownership of

Grameen Bank About 94 % of the total equity belongs to borrower and 6% only with the government

Still majority of the ownership of 5 Grameen bank belongs to governments. The process of divestment has initiated recently.

Recovery rate The recovery rate is 99 percent as reported in financial statement.

The total of major MFIs 87.24 percent in average of GBB(NRB,2005).

Resource financed

The GBB has 100 percent loan financed from own fund and savings.

In Nepal, majorities of GB financed from equity fund of the government, loan from apex institutions, and commercial bank.

Status of deposits

Deposits alone are occupied 99 per cent of the outstanding loans in GBB.

In Nepal, GBs have less than 20 percent of the outstanding loan collected as a deposit

Profit status Except 1983, 1991, 1992 all the year generating profit. These specific years were effected by the natural disasters.

In Nepal, 3 out of 5, GB are running at loss technically. Other GB replicator run by the private sector are performing better than government initiated program.

Salary cost In GBB about 38 percent of the total expenditure represented as salary cost.

In Nepal, GB has incurred more than 50 percent of the total expenditure hold by the salary cost.

Interest rate and types of loan.

There are four interest rate for loans from GB- ♦ 20% declining basis for income

generating loans. ♦ 8% for housing loans. ♦ 5% students loan. ♦ 0% struggling members.

Only few options are available in GB, Nepal. The rate of interest is higher than in Bangladesh. Normally the Flat rate is 12-15% or 18-22% interest on diminishing loan balances.

Deposit rates and its status.

IN GBB has offered minimum interest of 8.5 percent to 12 percent. Non- member deposit is also accepted

In GB Nepal, only 6 percent is offered in deposit and only member deposit is allowed to take.

Micro enterprises loan provision.

There is no restriction on the loan size for fast moving member. Clients can take loan for power tiller, transport vehicle, river craft and others.

In GB Nepal there is restriction on loan size (Urban Rs.100, 000 and Rural Rs. 50, 000). This type loan can be taken only by providing acceptable collateral.

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Scholarships programs.

Scholarships are given to the children of Grameen members, with priority to girl children, every year, to encourage them to get better grades in school. Up to now, 14538 children at various level rewarded.

No such type of program is introduced in Nepal. Few “Grameen Replicators” have realized the practices.

Network to support the services.

Grameen network institutions are established without holding any share of GBB. Like Grameen phone, Grameen telcom, Grameen communications, Grameen cybernet, Grameen software, Grameen IT park. Grameen Information highways, Grameen Star Education, Grameen trust and others are established to support the need of the clients. .

In Nepal no such support institutions. There is lack of co-ordinations among the established institutions also.

Pension fund / insurnace/ loan

paid off at Death

GB addressed through pension fund for old age borrower. The borrower find it very attractive. Similarly insurance and loan paid off at death program are also introduced.

In Nepal no such pension fund program and limited services in the insurance and other field. The clients find it not so attractive.

Attractive staff package

GB introduced its staff attractive package of services. One can retire after 10 years of services and found high level of motivations of the staffs.

No such schemes are available in Nepal and found low motivations of the field staffs. They perceive their facility status is very low.

Five stars for achievements (Green, Blue,

Violet, Brown, Red)

GB provides 5 colour coded stars to its branches on the basis of various evaluations (repayment rate, profit, self sufficiency, girl education, crossing poverty line). The system creates healthy competitions among the branches.

No such systems of evaluations are prevailing. Weak reward and punishment system with nepotism and favoritism.

Policy for opening new

branches

New branches are allowed to borrow from the head office of the bank only during its first year, to undertake on-lending activities after the initial year the on-lending fund must come from its own deposit mobilization. A new branch is expected to break even within the first year of its operation.

In GBB, Nepal no such clear policy regarding branch establishments and time for break even analyses. The approach of opening the new branches seems supply driven rather than demand driven. Cost sensitivity is not a matter of concern.

System of internal

evaluations

According to recent survey, 51.09 percent of Grameen borrowers’ families have crossed the poverty line.

No practice of such internal assessment in Nepal. No detail profile of poor, who crossed the line of poverty.

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Productivity of Grameen Bank

Overall productivity of GB in Bangladesh is higher than in Nepal Per staff client serving is 307. Per staff outstanding loan 2.108 million taka.

Lower productivity is observed in Nepal than in Bangladesh. Per staff client serving is 174. Per staff outstanding loan Rs.1.46. million

Policy/legal basis Government’s “Interim Poverty Reduction Strategy Paper 2003.” Micro-finance plays an important role in poverty reduction strategy. Under the Grameen Bank Ordinance of 1983 , a special act to support micro-finance, NGOs register one or more acts of parliament or ordinances. Most NGOs have micro-finance programs that are exempted from oversight by Bangladesh Bank (Central Bank) or other regulatory agencies.

NRB Act of 1955; Financial Intermediary Act of 1998; Comprehensive Bank and financial Act of 2004; ADB/N and other financial institutions like NIDC, under special charters. Cooperatives function under the cooperative act and require NRB license for savings mobilization. NGOs are registered under society registration act of 1978 and they required a financial license from NRB. Micro-finance license from NRB under the financial intermediary Act of 1998; registration as Micro-finance Development Bank under the Development Bank Act of 1995.

Regulated MF providers and

regulatory agency

Grameen Bank worked as regulated providers and Bangladesh Bank work as regulatory agency.

Commercial banks; Regional Rural Development Banks worked as a regulated providers and NRB as regulatory agency.

Loan loss provisions

Unclassified 5%; substandard 5%; doubtful 5%; bad and loss 100% are in practices.

1% for good loan, 2% for inferior loan, 50%for doubtful debt, and 100% for bad loan are in practices.

Leadership Prof.Muhhamed Yunus is providing the leadership of whole micro-finance sector through close watching by adopting trail and error approach.

No dedicated leadership in the field of micro-finance. Most of decisions are taken on adhoc basis and personal interest of the political leaders.

Donor client relationship

we can observe in Bangladesh a constructive donor client relationship

Such type of donor clients’ relationship in national level can not be found.

Macroeconomic and regulatory environment

The early experimentation and later scaling up of Micro-finance industry in Bangladesh is found with low inflation.

Established GBB in each sector without any preparation by hiring staff first, which causes problems in operational and financial sustainability.

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4. Micro-finance Strategies in Bangladesh

In this section, the researcher likes to explore micro-finance strategy, which make the success

history of micro-finance in Bangladesh. The followings are the strategies:

(a) Institution Building – Leadership, Staff Incentives

The vision and stamina of the leaders of the NGO/MFI movements are a key factor behind the success of the micro-finance industry in Bangladesh. Leadership skills were instrumental at the initial stages in persuading a skeptical public that providing credit to the poor could become a viable and replicable proposition. These skills were equally important during the process of scaling-up. These included being able to recruit and motivate staff, decentralizing authority away from the center, building management information systems and internal controls as well as having the humility to learn from mistakes. Moreover, once the leaders of these organizations showed that scaling up is possible and this view became a part of the staff culture and other staff had the confidence to expand the programs within their own jurisdiction (Khandker, 2003).

(b) A Constructive Donor-Client Relationship

External resources played an important part in the experimentation process, which subsequent growth in outreach and institutional strengthening of the micro-finance industry. At the same time, the large micro-finance institutions have been successful in ‘managing donors.’ NGOs, such as the Ford Foundation, Oxfam and the Aga Khan Foundation, played an important role at the initial stages of the NGO-MFI industry in Bangladesh. The subsequent expansion and consolidation stage was funded largely by official bilateral agencies (Yunus, 2003) and later by multilateral agencies. A large part of these donor investments went to the capitalization of MFIs loan funds, crucial to the rapid expansion that took place in the 1990s, as well as into developing institutional capacity through management information systems and human resource development. Finally, the 1990s have seen dependence on donor resources progressively declining for the large MFIs.

(c) An Enabling Macroeconomic and Regulatory Environment

The early experimentation and later scaling-up of the micro-finance industry in Bangladesh was helped by an appropriate ‘enabling environment.’ Firstly the macro-economy has been, by and large, soundly managed and one should not underestimate the significance of this. The rate of inflation has been kept to single digits and economic growth over the past decade has averaged around 5 percent per annum, thereby creating economic opportunities for micro-credit financed investments.

(d) Population Density, Ethnic Homogeneity and Religious Patience

Aside from the Chittagong Hill Tracts area, Bangladesh is ethnically a relatively homogenous

country, with a high population density and good communication networks. Moreover, this

largely homogenous market is also very large in absolute terms. The contrast with Nepal for

instance is striking and the difference in micro-credit outreach between these two countries is

partly due to these factors. It is also striking how in Pakistan, Afghanistan, Egypt and certain

other Muslim countries, MFIs have found religion to be a factor that has led to a relatively

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lower demand for micro-credit and MFIs that are more cautious about expanding (Zaman,

2004). In contrast, even conservative religious forces in Bangladesh have been largely tolerant

of micro-finance activities and the greater economic empowerment and mobility of women.

(e) A Professional Apex Body for Micro-finance

The Palli Karma Sahayak Foundation (PKSF) was created in 1990 and is governed by a board

composed of both public and private sector representatives. It is a public-private apex body

that channels funds for micro-finance to MFIs has been critical in the expansion and improved

professionalism of the microcredit industry in Bangladesh. PKSF’s core functions include

(i)lending money to MFIs which meet certain eligibility criteria to expand their micro-finance

operations, (ii) capacity building and hands-on assistance to strengthen MFIs and move them

toward financial sustainability, and (iii) advocacy on micro-finance issues and helping develop

an appropriate regulatory framework for the industry.

5. Conclusions, Lessons from Bangladesh and Recommendations

The observation and available literature study highlights some lessons from Bangladesh that

may be relevant to micro-finance growth and impact in other countries including Nepal.

• The first lesson is the importance of an ‘enabling environment’ for micro-finance. A

critical part is maintaining a stable macro-economic environment with both interest

rates and inflation kept at reasonable levels. The lack of macro-stability has seriously

constrained the growth of micro-finance in several countries.

• The second lesson is that micro-finance may be a more effective remedy against

poverty and vulnerability if it is complemented with other interventions. These

interventions may be particularly appropriate for the poorest households that face the

higher risks of income fluctuations and have the greatest need for a range of financial

and non-financial services. In Nepal, lack of co-ordination of MFI with other line

agencies and government agencies regarding skill development training, management

development training, and other various non- financial aspects.

• The third lesson is that there is a role for donor financial assistance in expanding the

capital base in emerging micro-finance institutions as well as in developing technical

capacity that leads to organizational sustainability. Hence, subsidies can be justified to

support ‘infant’ micro-finance institutions as long as there is a viable route to

institutional sustainability. The duration of these subsidies would vary according to

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local conditions and level of poverty of the clients. In the name of financial self

sufficiency, if we are not cooperating infant MFI, they can not recover the initial social

cost, which ultimately can not address their services to the poor. So the role of donor

should be worked as complement rather than competitor for the private MFI.

• The fourth lesson is that while visionary leadership cannot simply be ‘franchised,’ the

systems and formal rules that govern the successful micro-finance industry in

Bangladesh to an extent can be replicated. In Nepalese MFI less consideration are

found in this aspect in general and especially by the government initiated MFI. The

role of the government should as enabler, not as a direct provider of micro-finance

services.

• The fifth lesson from the Bangladesh experience is that the creation of a micro-finance

wholesaler has the potential to play an important role in expanding access, developing

professional standards and in advocating for MFI issues. In Nepalese context, the role

of apex institution confined only to provide credit need of the MFI, without intensive

investigation of the partner organization. The role should be broadening other

institutional development like human resource development, capacity building, high

level outreach and financial sustainability. Specially government run apex fund, should

be optimized and utilized properly by looking their objectives for the period, it should

not be confined only to lending and repayment rate. The issue of fund parking is raised

by the partner organizations as a fault of wholesale lenders.

• The sixth lesson is that the bulk of the scaling up took place through four institutions

(GB, BRAC, ASA, PROSIKA) that currently serve ninety percent of all micro-finance

borrowers. Hence another lesson from the Bangladesh experience could be that it is not

necessarily a sound strategy to support many different institutions, and risk spreading

resources thinly, in order to reach large numbers of poor people. This is particularly

important in light of the fact that there may not be adequate leadership skills and

professional capacity available to up scale.

In Nepalese perspective, lack of wide vision, foresighted leadership, corporate governance,

and institutional development of MFI are the main challenges for the coming days.

However, few privately run MFI performing better in comparison to government initiated

MFI. The overall productivity of the Nepalese MFIs are poor in comparison to GB,

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Bangladesh. The followings are the some observations to improve the micro-finance

services more effectively.

1) . To increase the outreach of existing MFIs, the government, INGO/ Donor agency

should subsidize social costs of MFIs either on clients’ basis or on time basis until and

unless they reach a level of operating self-sufficiency as these border mission is

beyond the goals or capacity of the MFIs alone. The culture of long term subsidy

should be discouraged and ultimately it should be directed towards financial self-

sufficiency for their sustainability in the long run.

2) To create healthy competition among MFIs the problem of duplication among

institutions should be avoided immediately. For this local co-ordination network of

MFIs should be established by incorporating credit information of the new clients.

3) In order to increase clients serving capacity of the MFIs proper planning and

implementation clarifying the authority and accountability of each branch and staffs

should be prepared and monitored time to time effectively.

4) The motivation level of the field staff should be maintained at high level , they are the

“key scorers” of the micro-finance game

5) To increase the enterpreneurship and business skill of the clients vocational and skill

enhancement training should be emphasized, since credit without skills may not be

sustainable in the future. For this there should be proper co-ordination with training

delivery government and non-governmental institutions at national, regional and local

level. Basic training at the beginning of the program should be intensive, it should not

be used only for formality for taking credit.

6) Credit plus approach provides an effective and cost-effective model for creating

sustainable enterprises among the poor, the ultra poor, and the severely socially

excluded, so government and central bank should formulate the policy and program of

credit plus approach of micro-finance specially for the deprived and hard core poor.

7) To minimize the vulnerability and risk of the client’s micro insurance schemes and

products should be designed by addressing the need of the clients. Awareness building

program should be launched time to time regarding rules, terms, conditions and

provisions of the services.

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8) To strengthen the internal resources of the MFIs, saving schemes should be diversified.

There should not be wide gap between saving interest rate and lending interest rate in

the name of microfinance services. MFIs should be alert about the competitors and

market rate of interest. The effort of MFIs should always be to minimize their

transaction costs.

9) The existing outreach of MFIs is focused on terai and hilly urban areas rather than

the mountain and rural hills. The government should design a special program with the

provision of subsidies for meeting operational costs in order to motivate the MFI’s to

implement microfinance programs in the remoter mountain and hill areas. Besides, the

MFIs should promote the local NGOs and Cooperatives to make them capable of

carrying out micro-finance program in their areas. Such NGOs and Cooperatives

would be more cost effective and locally oriented than the MFIs from outside.

10) The working procedure in the Grameen modality should be reviewed by interacting

with the clients like weekly installment may be changed to fortnightly or monthly

according to the need and desire of the clients

11) The cause of drop out should be analyzed properly and if the causes are within the

control of MFIs, then it should take necessary action immediately.

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Asian Development Bank (2000). Finance for the Poor: Micro-finance Development Strategy Manila: ADB/M.

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Dhakal, N. H. (2000). A case study on Micro Life Insurance Scheme. CMF, December.

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