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Micro-Enterprises, Development for Poverty Alleviation

Volume I

Micro-Enterprise Development Programme (MEDEP)/UNDP Ministry of Industry (MOI) 2010

Copyright © 2010 by Micro-Enterprise Development Programme (MEDEP)/UNDP All rights are reserved. No part of this edited volume may be reproduced by any means, nor transmitted, nor translated into a machine language without the written permission of the publisher. ISBN: 97899946-916-5-4

Published by:

Micro-Enterprise Development Programme (MEDEP)/UNDP Ministry of Industry (MOI), Kathmandu, Nepal Printed in Nepal at : Office Support Service Centre Chhapakhana P. Ltd. Teku, Kathmandu Tel.: 4240571

Email.: osscc@wlink.com.np

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About the Book Introduction

Micro-Enterprise refers to any economic unit engaged in the production and

distribution of goods and services at household level. It is primarily of self-employed

nature, employing him/her in the enterprise and sometimes some family members.

The enterprise runs on little amount of capital investment at a fixed market centre or

mobile business locations. This sector is identified with features like reliance on

indigenous resources, family ownership of enterprises, small scale of operation,

labour-intensive, adapted technology, and minimum skill. Micro–enterprise, therefore,

is particularly suitable for poor communities.

Micro economic enterprises play a vital role in poverty reduction in both rural and

urban areas, and reinforce urban-rural linkages for economic and social development

in Nepal. The linkages are essential not only for utilization of local resources but also

in acting as agents for the flow of goods and services between urban and rural areas.

Their roles are important since they possess the features like self employment

generation, employment to poor and women, use of local resources, meeting basic

needs of the poor, traditional enterprise/skill and craftsmanship, labour intensive, self

satisfaction on the job, entrepreneurship and innovative (skill learned through

apprenticeship method), and fair income distribution among the poor.

However, development and promotion of Micro-Enterprises in Nepal has been hindered

due to some major factors: First, lack of easy access to micro-credit is the most crucial

constraint and, therefore, Micro-Enterprises are unable to utilize the economic

opportunities available in the local area in sustainable and successful manner.

Promotion of micro informal enterprises is required in their overall productivity

enhancement considering resource allocation, i.e. credit facility. Secondly, Micro-

Enterprises lack knowledge and skills to produce the items as per market demand.

Therefore, promotion-based training is next important component, which should be

poor community -friendly and it should be provided to potential and interested

individuals to upgrade their knowledge and management of enterprising skill. Excellent

entrepreneurs will be produced only if trainings are provided at different stages and

levels. Monitoring is essential for validating and use of trainings. Thirdly, labour and

capital productivity and rate of surplus are other measures to promote Micro-

Enterprises. These include the considerations of skill up-gradation, management, and

technological improvement. Lastly, other constraints of micro enterprising

development include (i) limited backward and forward linkages, (ii) lack of market

chains and price chains of the products, and (iii) lack of market places for selling

within the cities. These necessitate due considerations.

The government agencies should play a crucial role to promote safeguard and manage

the micro economic activities. If managed properly, it will be one of the crucial

income sources for the local government units.

Micro-Enterprise Development Programme (MEDEP) is thus established to address all

the issues, problems and measures related to micro-enterprises. As a part of

dissemination, skill development, knowledge sharing, operational research

development, and constructive recommendations for further development of the

Programme, MEDEP since its inception in 1998 has initiated to assist students from

universities and campuses with scholarships to complete their research theses. This

volume intends to draw papers out of the theses and research reports duly submitted

to MEDEP.

Methods

Altogether 23 internship reports, theses and research reports this volume embraces.

These papers are prepared based on the standard formats that include components

like (i) abstract, (ii) introduction (rationale and problems statement), (iii) objectives,

(iv) review of literature, (v) materials and methods, (vi) results and discussions, and

(vii) conclusion and recommendations.

The theses and research reports integrate different academic levels. They include, for

instance, 12 Master’s level, 2 Post-Graduate Diploma, 3 Bachelor level, 5 Internships,

and 1 in project report. They cover different fields of studies like regional

development and management, rural development, sociology and anthropology,

gender and development, women studies, development studies, forestry, business

administration, and population. Researchers represent different universities and

development agencies like Tribhuvan University and its affiliated campuses,

Kathmandu University, Pokhara University, Purbanchal University, and Manchester

College, USA and MEDEP. They deal with the Micro-Enterprises of different fields of

studies, comprising NTFPs, women empowerment, impacts, local resources based-

products (beekeeping, Dhaka, ginger, and off-season vegetables), water resource,

market outlets, and social inclusion. These research works have been completed from

1991 to 2007. Fifteen researchers are female and eight males. There are 17 full-

fledged papers containing all components as stated above and remaining six are short-

note papers that do not contain literature review and references.

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Acknowledgements

This book contains theses and research reports contributed by the students of

respective universities, colleges and other academic institutions. MEDEP owns all these

theses and research reports. Effort in this book has been made to produce research

papers out of those theses and research reports. All the papers contain the data

gathered and generated from the field surveys conducted by the authors across

different parts of Nepal. In broader term, the papers deal with concepts, issues,

contemporary theories and models, problems, prospects and policy measures of micro-

enterprises. These serve as complements and contribute to the development of micro-

enterprises. This book will be useful to development practitioners, policy designers,

students and researchers interested particularly in the roles of micro-enterprises in

improving livelihoods of the poor people and local economic development.

MEDEP management would like to express sincere gratitude to all the students, their

supervisors and head of the Universities, colleges and other academic institutions for

their interest in MEDEP particularly in Poverty Alleviation through Micro-Enterprise

Development. MEDEP management also expresses its heartfelt gratitude to Dr. (Prof.)

Pushkar Pradhan, Head, Central Department of Geography, Tribhuvan University for his

support in technical editing of this compilation and including this publication as one of

the reference books for the students studying Master Degree in Geography specialising

in Micro-Enterprises and Livelihoods in Urban Planning and Management. Finally, all

the entrepreneurs who provided the first hand information to the students and

professionals to make their research agenda successful also deserve high appreciation.

MEDEP Management

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FOREWORD

To address the dire need of a proven tool that could fight poverty in the county by

sustainably promoting entrepreneurship culture, particularly in the population living

below the poverty line, Micro-enterprise Development programme (MEDEP) was

launched as piloting phase in 1998.

Since then, MEDEP’s interventions in the activities of the target poor people, imparting

them need based training, skills and knowledge, access to micro-finance, access to

appropriate technology, shoring up startup support, establishing resource and market

linkage and research work support for scientific investigation and evaluation of the

process, impact, and lesson learnt have been continuously refurbishing MEDEP and

its tools, intervention process and methodologies rationalized in every phase, suitable

to the need and the demand.

Poverty reduction and achievement of Millennium Goal is not simply the tasks set forth

by the world governments and global communities, it is also the challenge facing the

local, regional, the central governments in the world map as well.

The United Nations, World Community and the donor agencies have been supporting

the least developed countries in their fights against the poverty. Many such projects

were funded and implemented in Nepal as well. Tremendous numbers of immediate

and long term researches, data collection and compilation of the important and

relevant information have already been conducted while implementing such different

development programmes. However, the researches and data collection is lost along

with termination of the programmes, hampering the free share and better utilization

of the valued information when needed for policy formulation, academic studies,

specialization and proper knowledge based management.

Learning lessons of the many of Multi-donor supported projects in Nepal, MEDEP came

up with a solution and initiated institutionalization of the knowledge management

after the MEDEP Project Board decided that huge data and information generated by

the project should be converted into knowledge management through academic

research and the cost effective way of doing so is by involving students of different

Universities, Colleges and Institution in Nepal and abroad to conduct their internships,

theses and dissertation. This decision opened the door for students studying in

academic institutions and started conducting their researches in the MEDEP related

fields through institutional linkages between MEDEP and academic institutions. By now

since 2006 more than 40 students have benefited with this knowledge management

mechanism and this is the first effort of MEDEP to compile the internship reports,

theses and dissertation based extracted from articles and publish them in Volume I

which will follow publication of Volume II.

I am confident; MEDEP’s initiation to bring about positive changes in the lives of

hardcore poor can have tremendous support and invaluable inputs from many

stakeholders, sectors, and academia. The collection of research papers prepared by

the promising university students will certainly contribute much to enhance the

knowledge of the resources and demand of the people living below the poverty line in

rock hard geographic, socio-economic, and political situation in Nepal.

The conclusions deduced by some of the theses and study reports presented in this

book are anticipated to be useful to all those who have a burning desire to understand

the prospects and challenges Nepal has been facing for its poverty alleviation and

economic development. Fortitude with natural and human resources, Nepal is still

known as one of the poorest countries in global map. Poverty begets adversities;

attributing to economic, social, and political anomalies, the poor countries are facing.

Consorted efforts to shatter the vicious circle of poverty for achieving prosperity

through micro-enterprise development may be the panacea the country is in need for

its holistic development. This book is just the beginning.

Dhundi Raj Pokharel

Joint Secretary, Ministry of Industry

And National Programme Director, MEDEP

24 December 2010

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Table of Contents

About the Book iii

Acknowledgements v

Foreword viii

Title Page

CHAPTER I: INTRODUCTION TO MICRO-ENTERPRISE DEVELOPMENT IN NEPAL Introduction to Micro-Enterprise Development Model and its Achievements in Nepal

Lakshman Pun………………………………………………………………………………………………………………….... 1

CHAPTER II: FACTORS AND ROLES

Micro-Enterprises and Household Income in Nepal: A Case Study of Parbat District

Ajay Thapa……………………………………………………………………………………………………………………….... 25

Assessing Forest Based Micro and Small Enterprises and their Contribution to Rural

Development in Kabhrepalanchok District, Nepal

Dil Bahadur Purja Pun…………………………………………………………………………………………………….... 36

Factors Influencing Entrepreneurship Ability: A Case Study of Parbat District

Gyanu Maya Pun………………………………………………………………………………………….………………….... 47

Role of Micro Finance in Developing Micro-Entrepreneurship: A Study of Ceramic

Enterprise in Gadhawa VDC, Dang District

Rumina Khanal………………………………………………………………………………………………….…………….... 60

CHAPTER III: IMPACTS Study on the Off-Season Vegetables Farming and its Impact on Socio-Economic Development: A Case Study of Rasuwa District Bimal Prajapati……………………………………………………………………………………………………………….... 69

Impact of Micro-Enterprises on Poverty Alleviation in Nawalparasi District, Nepal

Chakra Bandhu Pandey………………………………………………………………………………….……………….... 79

Impact of NTFP-Based Micro-Enterprise on Poverty Alleviation of Janajati Community: A Case Study of MEDEP in Nawalparasi District Sanju Koirala………………………………………………………………………………………………………….……….... 91

Impact of Micro-Enterprises on Socio-Economic Contion of the Enterpreneurs:

A Case Study of Udayapur District

Dinesh Kumar Lama……………………………………………………………………………………………………….... 101

CHAPTER IV: LIVELIHOODS AND TECHNOLOGY

Micro-Enterprise – Way to Enhance Livelihoods of Community through Beekeeping:

A Study of Dang District

Rashmi Pandey……………………………………………………………………………………………………………….... 111

Change in the Livelihoods of Rautes through Micro-Enterprise Development Initiatives

Sangini Rana…………………………………………………………………………………………………………………….... 121

Study on Improved Water Mill in Nuwakot District, Nepal NPSO/MEDEP…………………………………………………………………………………………………………………….... 130 CHAPTER V: EMPOWERMENT AND INCLUSION Economic Empowerment of Women: An Impact Study of Micro-Enterprises in Nuwakot District Babita Adhikari…………………………………………………………………………………..………………………….... 138

Women Empowerment through MEDEP: A Case Study of Nuwakot District Durga Prasad Dhakal……………………………………………………………………………………………………….... 148

Impact of Micro-Enterprise Development Program on Women: A Case Study of

Sunsari District

Sabita Sitoula………………………………………………………………………………………………………………….... 155

Social Inclusion of Dalits through Micro-Enterprise: A Case Study MEDEP in

Nawalparasi District

Sarika Gurung………………………………………………………………………………………………………………….... 164

CHAPTER VI: MARKETING AND FINANCE Study of the Existing Marketing Outlets of Micro-Entrepreneurs Development Programme and Enhancing their Effectiveness Madhu Thapa and Vikash Shrestha……………………………………………………………………………….... 173

Products Marketing by Entrepreneurs: A Case Study of MEDEP in Dhanusha District

Bimala Subedi………………………………………………………………………………………………………………….... 183

Financial Analysis of Allo Based Micro-Enterprise and Its Impact on the Livelihood of

Rural Community in Parbat District

Punam Thapa………………………………………………………………………………………………..….…. 193

CHAPTER VII: SHORT ARTICLES – Prospects of Local High Value Products

A Market Study of Ginger in Deurali VDC, Nawalparasi

Anu Joshi and Neeta Shrestha……………………………………………………………………………………….... 205

Market Study of Allo (Nettle) and Hemp in Nepal

Deewa Shrestha……………………………………………………………………………………………………………….... 211

A Market Study of Honey in Nepal

Heidi Arnaudon……………………………………………………………………………………………………………….... 213

Market Study of Ginger at International Market

Heidi Arnaudon……………………………………………………………………………………………………………….... 216

Strengthening Dhaka Enterprises in Tehrathum District

Pooja Siwakoti……………………………………………………………………………………….……………………….... 218

Present Status of Chyuri Trees: Its Availability, Use and Possible Intervention for

Economic Development in Dadeldhura

Shyam Adhikari, Chet Raj Bhatta and Lakshman Pun……………………………………………….... 223

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Role of Micro Finance in Developing Micro Entrepreneurship: A Study of Ceramic Enterprise in Gadhawa VDC, Dang District

Rumina Khanal1

This study has examined the impacts of micro finance on changing micro

enterprising activities and socioeconomic status of the micro entrepreneurs of

Gadhawa VDC in Dang District. All 24 indigenous Kumale entrepreneurs

involved in the ceramics enterprise, called as Laligurash Micro Enterprise,

were covered and data on characteristics of the entrepreneurs, enterprising

process, access to institutional finance, enterprising development, products,

products-market and problems were acquired by using semi-structured

questionnaire survey. The study found out that investment in modifying

traditional pottery making into ceramic factory from the loan of financial

institution, organizing individual entrepreneurs into single enterprise, and

training on enterprise skill and management improved the livelihoods of the

entrepreneurs’ households. However, repayment of installment of loan and

interest has been a crucial problem due to lack of adequate demand of their

products, which require to be improved by providing rigorous skill training to

them.

1. Introduction

1.1 Background

Micro finance is defined as the financial services provided to the deprived groups of

people and small/micro entrepreneurs to help them in capturing self-employment

opportunities and income generation activities (Marguerite 2001). In Nepalese context,

micro finance denotes to the services of collection of saving from women, poor

households and micro entrepreneurs, and mobilization of loan from collected saving

and seed money received from financial institutions (Baral 2001). Thus, micro finance

is closely related to the poor that are generally unable to generate investment on their

own in enterprising activities nor can they produce any kind of collateral to utilize

credit facilities from the formal financial institutions.

The practice of micro finance in Nepal has a long history. The traditional forms of

micro finance have long been practiced by different ethnic groups like Bheja of Magar

community, Dhikuti of the Thakalis, etc. They are subsumed under the informal

institutions. The formal institution of micro finance known as ‘Bakhan Saving and

Credit Cooperative Limited’ was established in 1956 in Rapti Zone. In 1975, the Small

Farmer Development program (SFDP) was initiated by the Agriculture Development

1 Ms Khanal is a student of Bachelor in Development Studies (BDEVS), Kathmandu University, 2007. She extends gratefulness to her supervisor, Mr. Resham Thapa.

61

Bank (Baral 2005). At present, there are several formal institutions established for

micro finance. Grameen Bikas banks, saving credits cooperative societies and some of

the non-government organizations provide these services.

In Dang district (Rapti Zone) of the mid-western Nepal as in other programme districts,

the micro entrepreneurs have been supported by the joint efforts of Ministry of

Industry, Commerce and Supply (MOICS) and Micro Enterprises Development

Programme (MEDEP) to run their enterprising activities. In this district, MEDEP has

supported several micro enterprises like candle making, grocery, paper bag, vegetable

venders, etc. Ceramic is an important enterprise operating in Gadhawa VDC of Dang

under MEDEP support.

1.2 Statement of the Problems

In rural Nepal, poverty is the major root cause of underdevelopment. Though poverty

condition has improved, declining from 41 to 29 percent in rural areas, still the rural

people are not being able to meet their basic necessities of life. They lack access to

different kinds of production assets like physical (land, housing, raw materials, etc),

finance or credit, skill training, information, etc, which are necessary for creating

employment opportunities, supporting the family and increasing income. Of these,

rural entrepreneurs are facing capital deficiency to undertake the enterprising

activities they want. The traditional institutions prevailing elsewhere in other parts as

stated above are also absent in Dang.

In Gadhawa VDC of Dang, agriculture is the only source of income available for its

inhabitants. Despite this, mere agriculture occupation has not been adequate to

sustain livelihood of the poor households. The development of agriculture is

constrained due mainly to inadequate access to credit. Outside agriculture, however

ceramic is one of the potential activities available for the local entrepreneurs. Soil as

raw material for ceramic is locally available and therefore it is being promoted by

MEDEP. The Agricultural Development Bank’s outlying branch has provided small loan

to the people of this area. Thus, the intent of this study is to examine the role of

micro finance in the promotion of ceramic micro entrepreneurs in Gadhawa.

1.3 Objectives

This study has two-fold objectives: to examine the rural ceramic enterprises and micro

finance institutions and to analyse the household income generation through ceramics

enterprise.

2. Research Methodology

a. Study area

Gadhawa VDC, as one of 38 VDCs, lies in the southern part of Dang district. Along with

various program activities, MEDEP is supporting to the micro enterprises to run

ceramics in Gadhawa VDC with the credit facilities provided by the sub-branch of the

Agriculture Development Bank of Nepal (ADB/N).

b. Selection of ceramic entrepreneurs and data sources

There were 24 entrepreneurs involved in the ceramics enterprise under MEDEP

program in Gadhawa. All these entrepreneurs were covered for this study.

Semi-structured questionnaires were used to acquire data from all those

entrepreneurs. Informal discussions were also held with some of the key informants.

Data were processed by using the computer programmes such as Statistical Package for

Social Sciences (SPSS) and Excel. Scrutiny of the completed questionnaires was done to

ensure that the data were accurate and consistent. In addition, secondary data sources

including published and unpublished reports and documents and web sites on micro

enterprises were also visited and acquired information.

Analytical measures like central tendency and dispersion, graphical presentations and

classifications have been used in the contextual manner. The definition of variables

like enterprises, microfinance, micro-credit, entrepreneurs, entrepreneurship,

household income, and literacy has been derived from the standard references. In

regard to education level, those who have attained grade 10 and above have been

defined as educated and likewise, economically active population included the age

groups of 14 - 50 years.

3. Review of Literature

The word ‘ceramic’ comes from the Greek word ‘Keramos’ meaning ‘pottery’,

‘potter's clay’, or ‘potter’. According to the Sanskrit, its root meaning is to ‘burn’ the

soil. The technical definition of ceramics encompasses a great variety of products out

of soil. To most people, the word ceramic means dinnerware, figurines, vases, and

other objects of ceramic art.

a. Traditional financial organizations

In Nepal, the traditional rotating credit organizations such as Dhikuti, Dharma Bhakari, Guthi, etc

represent a truly local, indigenous response to credit needs in the form of cash, food grains and

labour (CMF 2001). They offer services of savings and credit. Dhikuti are groups formed in both

rural and urban areas in western Nepal for the purpose of savings and credit activities. They are

based upon the collection of equal amount of savings collected from each member for each

month, which is then left out to the member in need in a rotating sequence2. Dharma Bhakari

means ‘welfare storage’ of grains, which collects grain during harvest season contributed equally

by its member. The member in need can borrow the amount during slack season. It thus signifies

2 A bidding process determines the rotation where the bidder with highest rate receives the loan. Number of members in Dhikuti ranges from 20 to 30, depending on interested group and the members’ saving amount also varies according to the economic group. Any discount on the monthly amount to be deposited constitutes the implicit interest rate of the schemes (CMF 2001).

63

a safeguard against starvation. Guthi, related especially to the Newars, works for collective

purposes like community welfare, funeral, construction, conservation, maintenance, sanitation,

feasts, etc. Guthis have wealth in the form of cash, land, buildings, etc accumulated from their

members of similar social group, which are used by its members for productive purpose on rental

basis.

b. Formal financial institutions

History of formal institutional credit in Nepal dates back to 1937 through the establishment of

Nepal Bank Limited. Later in 1956, Nepal Rastra Bank was established. The commercial bank

(Rastriya Banijya Bank) came into existence in 1963. These banks have their outreach networks

at major towns and cities across the country. In 1959, Credit Cooperative Society was formed,

which was later upgraded to ‘Cooperative Bank’ in 1963. By now, the financial institutions of

Nepal comprise central bank, Nepal Bank limited, Commercial Banks, Nepal Industrial

Development Corporation, Agricultural Development Bank, Rural Development Banks, stock

exchange, insurance companies, cooperatives, and private finance companies. Since the last

decade, there have been operated some commercial banks with partner of foreign banks that have

introduced modern banking system in Nepal. These financial institutions are basically

concentrated in urban areas, nonetheless.

Nepal’s rural region saw financial institution when the Small Farmers’ Development Programme

under the Agricultural Development Bank-Nepal was set up in 1975. The Production Credit for

Rural Women programme set up in 1982 was specifically for credit facility to women. The

government opened up Grameen Banking centre in each regional centre in 1992. During the last

decades, several development programmes under the support of international support agencies

and through local non-governmental organizations have been initiated for rural poor to access to

micro credit.

In Nepal, Cooperative Act was endorsed in 1991 and cooperative rules in 1992. The Development

Bank Act was promulgated in 1995 and financial intermediary act in 1998 (Dhakal 2002).

c. Informal private lending groups

On the other hand, in absence of formal credit institutions, informal financial agencies like

individual private groups (merchants, landlords and the like) have been providing loan to the

people in the rural region. Though the procedure for obtaining loan from such groups is flexible

and simple, the interest rate is usually higher than the formal organizations and the traditional

informal institutions like Dhikuti, Guthi, etc (Dhakal 2002).

d. Overview of micro finance

Micro finance simply refers to the provision of financial services to the poor. Such loan is usually

for self-employment activities. It is proven to be an effective and popular measure against

poverty. Microfinance has been used as an inducer in community development activities, or as an

entry point in a community organizing, or as an ingredient in an entrepreneurship development

(CMF 2001). Micro finance program constitutes various types of services, including credit and

savings delivery, sustainability and partnership. Micro finance constitutes three Cs - character,

capacity and capital (CMF 2001). Broadly, there are two types of micro lending throughout the

world. They are individual lending and peer lending.

Micro finance began to identify itself as a distinct development field in the early 1980’s, when its

pioneering institutions like Grameen Bank-Bangladesh3 and Bank Rakyat- Indonesia began to

produce surprisingly positive results. The Grameen bank provides credit services in the form of

peer lending, which follows in forming of solidarity groups consisting of similar nature of small

number of poor members. The rural bank of Latin America is also of solidarity group type. It is

the modification of traditional Rotating Saving and Credit Association (ROSCA) that has been

operated effectively in different countries such as Dhikuti, Ghuthi, Dharma Bhakari in Nepal;

Junta, Stovel and Committee in Latin America; Jammi and Partner in Africa; and Parma in

Pakistan (CMF 2001). Community Based Organization (CBO) is another form of peer lending. It

is slightly bigger in size than peer lending like Grameen bank. CBOs consist of Village Banking

and Savings and Credit Organizations4. Under the support of government in collaboration with the

international agencies, most of the NGOs working in Nepal have been promoted to work for

micro financing.

4. Results and Discussion

a. General Characteristics of the Ceramic Enterprise

In Gadhawa, there is only one ceramic related micro enterprise, known as ‘Laligurash

Micro Enterprise’ operating since 2004. It comprises 24 entrepreneurs of Kumale

(occupational caste of earth-pot making). They all come together and work under one

enterprise. Prior to this, each of them was individually indulged in pottery making, but

the earning from it was not enough to meet their daily livelihoods. Having got skill of

pottery making by the working members as apprenticeship from generation, Micro

Enterprise Development Programme (MEDEP) had felt a deemed need to help form an

enterprise of 24 entrepreneurs of those Kumales. Since established, it has shown

significant performance.

The age of those entrepreneurs ranged from 18 to 44 years, with highest proportion

(54%) lying in 20-30 age group. Eighteen of them were males and 6 were females. Low

3 Mohammed Yunus of Bangladesh has made the Grameen Bank as an exemplary work for poverty reduction. The bank is a grass-root institution. A bank unit is set up with field manager and some bank workers serving 15-22 villages. The manager and workers start by visiting villages to familiarize themselves with the local milieu where they explain them the purpose, functions, and mode of operation of the bank to the local population. They identify prospective clientele and groups of five prospective borrowers are formed. In the initial stage, only two of them will be eligible for receiving loan. The group is observed for a month to see whether the members are conforming to the bank rules. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible for loan. Here, collective responsibility of the group serves as collateral of the loan. 4 Under this approach, the CBOs receive as a revolving fund from support agencies in addition

to the members’ saving and manage it. Matching funds are also provided to such institutions for further lending. CBOs are constantly provided required services on monitoring, information management, auditing, etc by the promoting institutions. They promote primarily self-employment generation.

65

participation of females was due to their responsibility of household chores. The

illiterate entrepreneurs constituted 29.2 percent, while the members with primary

education accounted for 25 percent. Of the total, the married entrepreneurs made up

of 75 percent. The average family size was 4.9, ranging from 3 to 8 family members.

b. Motivating factors

For enterprise, financial service is often an important factor for motivation and so is

the case for the Kumales. They were motivated very much by the financial services

provided by the bank. MEDEP has been an added value for its services in the form of

enterprise skill training, which made them able to kick-start of the enterprise. The

enterprise obtained credit from the Agriculture Development Bank – Nepal located in

the VDC – Gadhawa.

c. Role of MEDEP in obtaining institutional loan

MEDEP provided technical support to the ceramic entrepreneurs to obtain loan from

the Agricultural Development Bank-Nepal. MEDEP facilitated them to organize into the

group; to conduct group meeting, to take various decisions required for successful

operation of the enterprises, and to make the micro-entrepreneurs prepare business

plan for obtaining credit. MEDEP analyzed the loan demand and finally recommended

the enterprise for obtaining loan from ADB/N.

The Laligurash Micro Enterprise had obtained loan from the bank in two phases. It first

obtained Rs 20,000 as loan and Rs 60,000 in the second phase after full repayment of

the first phase loan. The loan was in the form of group lending. The enterprise repaid

the loan with an installment of Rs 3,000 every three-month together with the interest

rate of 11 percent. Duration of loan was 12 months for each cycle. It did not require

collateral. However, the ceramic pottery enterprises had faced the problem of

repayment due to lack of adequate market of their products.

All 24 entrepreneurs had taken training in skill and small business management, while

eight of them have got training on entrepreneurship development.

d. Positive outcomes

The ceramic enterprise has been able to introduce new products and new technology.

By the loan of the first phase, the entrepreneurs bought two electric machines and

then during the second phase they made new kiln and improved the production

system. With these improvements, the small manufacturing (ceramic kiln) began to

produce better quality products like sculptures, bowls, candle stands, cups, mugs,

filter candle, etc. Their quality could be compared with those of ceramic industries of

Thimi, Kathmandu valley.

e. Improved in household income

With the modified enterprising method from traditional to modern, the annual income reached

more than four hundred thousands within three years. The sales of the ceramic products gradually

increased, with the monthly sales of Rs 1,000 to 3,000. The followings were the impacts:

The impact of changed enterprise has clearly seen on increasing average income of the

Kumales. Their average monthly income rose from Rs 1,542 (before) to 2,729 (after). The

income at bottom level increased by just double from Rs 1000 to 2,000 (Fig. 1).

Change in income of the respondents

0

500

1000

1500

2000

2500

3000

3500

4000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Frequency

Inco

me

before

after

Fig. 1: Change in income level of ceramic entrepreneurs

There have been pronounced impacts of the income of the families on buying basic

needs. It was found that the income earned by the entrepreneurs was used on

children education, health care, and better foods. Only one of them had invested

in accumulating land out of the income from ceramic enterprise.

Since all were working in the enterprise, the micro finance was basically for self

employment generation. However, their full time employment depended on the

market demand of their products.

The entrepreneurs were inspired to form a saving group where they save monthly

Rs 20 with the main aim of meeting the needs in time of crisis. The group was

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formed three years ago. The members were used to take loan from this saving to

meet their needs such as medical expenses, religious rituals, etc.

5. Conclusion and Recommendations

a. Conclusion

Improvement in micro enterprises business in the rural region of Nepal depends on

access to finance, enterprising skill and development, products skill, and products

market and modifying in traditional enterprising method. Peer lending is appeared as

one of the effective methods for improving micro enterprises consisting of a group of

poor entrepreneurs. In rural Nepal, MEDEP is found to be a vital agency for organizing

scattered micro entrepreneurs into consolidated form; for imparting awareness and

skills in enterprising development; and for facilitating access of poor groups to

institutional loan. This has been the case of ceramic enterprise that formed, consisting

of 24 indigenous Kumale entrepreneurs of Gadhawa VDC, Dang District in the mid-

western Nepal. With the access to micro finance of the Agricultural Development

Bank-Nepal, the modern technology for building ceramic kiln adopted by the

enterprise and the modern skill training imparted to the entrepreneurs through the

assistance of MEDEP, the Laligurash Micro Enterprise has turned out to be successful in

improving income status of the entrepreneurs’ households. The efforts have been able

to consolidate scattered micro entrepreneurs into modern, organized enterprise, to

produce ceramic products as market demand, self employment generation, and finally

to improve in the socioeconomic conditions (education, health, foods, etc) of the

entrepreneurs households.

However, the Kumale enterprise has faced the problem of loan repayment and interest to the

financial institution, which squarely depended on the market demand of ceramic products. They

have also faced the problems of marketing of the products, market links, and tuning up their skills

to the market demand of their products.

b. Recommendations

In view of problems the Kumale entrepreneurs faced, following recommendations are

provided:

Market of the Kumale enterprise’s products requires to be expanded beyond their

own district, in other places through imparting knowledge, system and network

(links) of marketing into them time and again by the concerned agencies like

MEDEP, the Division of Industry, FNCCI, NGOs and so on. Possible of links to hotels,

tourism business outlets, cities and periodic markets is to be explored. These are

beyond the capacity of the Kumale entrepreneurs due to their poor education and

enterprising management and micro enterprise.

The enterprise is to be directed towards producing ceramic products as to the

market demand. Private organizations, civil societies and others can play crucial

roles to impart about it into the Kumale entrepreneurs.

Training on account keeping system should be given to them, so that they would

be able to reasonably plan and decide their investment or expenditure patterns.

References

Adams, Graha et al. (1990), Micro Finance Handbook., Washington D.C.: The World Bank.

Baral, K.J. (2001), His Majesty’s government Policy Announcement on Micro Finance Industry. Kathmandu:

Center for Micro Finance.

Baral, K J. (2005), Cooperatives in Nepal: Use and Effectiveness. A paper presented in the Interaction

Program Organized by Royal Cooperatives Ltd. Pokhara. Nepal

CMF (2001), Review of Micro Finance Sector in Nepal. Kathmandu: Center for Micro Finance (CMF).

Dhakal, N. H. (2002), Marketing in Nepalese microfinance institution. Agricultural Credit Bi-Annual

Journal, Vol. 34.

Marguerite, S. R. (2001), Sustainable Finance for the Poor: the Micro Finance Revolution. Washington

D.C: The World Bank.

MEDEP (2001), MEDEP Annual Report 2001. Kathmandu: Micro Enterprises Development Programme (MEDEP).

MEDEP (1999), Micro Finance Programme for the Poorest of the Poor and Poor Women in Hill District of

Nepal. Kathmandu: Micro Enterprise Development Programme.

UNDP (2000), Annual Report 2000: the Year in Review: Micro-Enterprise for Sustainable Livelihood. Kathmandu: United Nations Development Programme.

Website: www.medep.org.np

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