Catalog

Wanted: Sound Banking

By Hans-Peter Brunner (hbrunner@adb.org)
Senior Economist

TRANSACTIONS: During women's group meetings, savings and interest are collected and loans provided.

In recent visits to Nepal, an Asian Development Bank (ADB) team has gathered information for preparing an ADB project on providing improved financial services through information technology. The team collected evi- dence of the very real challenges ordinary people face when they try to bank in Nepal—services that people in most parts of the world take for granted.

The two field visits were the first in a series to detail the impact of effective banking on people’s lives in semiurban and rural areas. What stands out from the first visits: People are very adept at figuring out how to apply good financial services to their daily lives. What they want: sound banking services.

Banking for Rural Women

The Centre for Self-Help Development (CSD) is one of Nepal’s more successful microfinance organizations that provides services for women. This nongovernment organization models its operations on the Grameen lending approach.

Customer density is low in this mountainous area, so travel expenses add substantially to banking transactions costs. Women’s group meetings are held only once every two weeks. Savers cannot deposit large amounts with CSD, which is not big enough to transfer sizeable funds between any of its branches, physically (too dangerous) or electronically. CSD relies on the rudimentary fax-telephone network of the major government-owned commercial banks, but few savers fully trust the reliability of those banks and instead prefer depositing their money in joint-venture private commercial banks. These, however, are located only in major towns.

We visited a women’s savers group meeting in the mountain village of Bhimphedi. Thirty women (six groups of five each) were waiting for us at the meeting place, a very modest straw-covered mud hut. At 7 a. m., many of these women had already climbed down the mountain—a two-hour walk to the road. Latecomers must contribute Nepalese rupees (NRs) 10 (US$0.15) to the community emergency fund. We were slightly late so we had to pay.

Clearly, the members were proud of being part of the CSD club. Apart from the common transactions of getting loans and paying back installments and interest, serious life issues also surface. During this meeting, one of the members—who wasn’t present—was being expelled for having acquired a second husband. This violated her vow of personal discipline, which is renewed in a pledge during each biweekly meeting.

After the group meeting, we interviewed several of the savers, including the owner of a small hotel and restaurant. She has arranged for a bank employee to come daily from the district town 30 kilometers away to collect her daily savings of NRs120 (US$1.60). She likes CSD for credit operations because it is easier to make transactions with the center than with the other two state-owned banks in town, which she says are much less customer-oriented and reliable.

Moving cash is difficult. Her husband, who works as a driver in Kathmandu, earns NRs4,000 (US$55) a month. To get the money to his family, he must travel by bus and bring it personally because checks cannot be sent or cashed locally. Checking—or electronic transfers—would really be very desirable. If conveniently located in CSD bank branches, end-user terminals could eliminate intermediaries in financial transactions.

The town of Bhairawa on the Terai is the headquarters of Nirdhan, another major microfinance institution in the Grameen tradition. Nirdhan is computerizing its administration, although electronic banking services are not yet being contemplated. When the team outlined the potential for electronic banking to increase geographical coverage and provide new services for new customers, the Nirdhan president—seeing the enormous potential—said he wants the institution to be part of this effort.

The Spice Man in the Computer Shop

TESTIMONIAL: The spice man (left) and the computer shop owner are proof that elec- tronic banking is the way to go.

The next village on the road features an Internet training center opened recently by an entrepreneur from a neighboring town. We took a chance to find him and were well rewarded.

Selling computers to the 4,000 or so small- and medium-sized enterprises in the area has been brisk business. Over the past 18 months, he had sold about a thousand machines, usually on a stand-alone basis. He said that Internet connections are very expensive by international standards—and typically still too unreliable for doing business and banking.

There was, however, the spice man, who told us his business success story.

Nepal has excellent climatic conditions for growing a variety of spices, which fetch good prices on the international market. He had started his spice business from nothing a year ago to turn over about NRs100,000 (US$14,000) per week.

His main point: “If you need decent financial services for a flourishing business, forget about finding them in Nepal.” Get on the Internet, sell your goods in foreign markets, and collect the money electronically in a foreign account. Good local electronic banking, however, would really help business expansion, he said, adding that a broader range of new financial services is needed in district towns of Nepal. These include opening letters of credit with a bank (preferably electronically) for credit lines, credit card services, checking, and so on. Interbranch banking would also be very desirable.

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