Catalog

Nepal
Bringing the Bank to the Village

By David Kruger (dkruger@adb.org)
External Relations Specialist

Background

MOBILE Access to credit is a key benefit of microfinance programs in which the bank travels to the poor

KOLAHARUWA, SUNSARI DISTRICT, NEPAL

How would a $40 loan change your life? For Sabitra Karna, such a loan transformed her hardscrabble existence into a future filled with new hopes and possibilities.

Three years ago, Ms. Karna joined the Ram Janaki Women Centre in Kolaharuwa Village on the plains of Sunsari District in eastern Nepal. She borrowed 3,000 Nepali rupees ($39) and bought two calves.

After raising the calves, she sold them for 5,000 Nepali rupees ($65) and used the profits to care for her three children and build a small hut on borrowed land.

Her loan repaid, her confidence strengthened, and her creditworthiness established, Ms. Karna is now thinking big.

“I have applied for a loan of 12,000 rupees,” she said with pride after a recent meeting of her microfinance group. “I want to start trading, run a small provisions store, and build a house.”

Ms. Karna’s experience is being repeated across southern Nepal through the Rural Microfinance Project, funded largely by a $20 million loan from the Asian Development Bank’s (ADB) Asian Development Fund, a lending window for its least developed member countries.

“We have found that before joining the groups, the people had no land, no house, no cow, no goat,” says Fanilal Chaudhary, Deputy Director of the Nepal Rural Development Society Centre in Biratnagar, eastern Nepal. “After 2–3 years with the group, they have their own land, a house, some livestock.”

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Slowdown Hurts Poor Women

NEW LIVES Small loans have brought Sabitra Karna (left) and Jam Bati Devi Mehta (right) opportunity and the prospect of a self-sufficient future

These are major achievements. Nepal is one of the least developed countries in the world and poverty is a pervasive, persistent problem with about 40% of the population living below the poverty line. In 2002, the economy contracted 0.6%, posting its worst performance in 2 decades as domestic security problems hit the important tourism sector and an irregular monsoon hurt agricultural production. With the slowdown squeezing government finances, the amount of funds spent on development fell 40% below the 2002 target.

With less money for new programs, efforts like the Rural Microfinance Project, which targets poor women in rural areas, become increasingly important.

Rural areas in Nepal, and particularly poor women living in those areas, are inadequately served by financial, technical, and social services. For many women, that reality has led to a life of sharecropping that sees 50% of their output paid to landowners, or a constant struggle to repay moneylenders or lose what little they own.

The Project aims to give women in such situations an opportunity to start anew by providing small loans to some 270,000 households.

“Microfinance depends on the principle that each person has skills and, given the chance, can use them to build their own independence,” says Shankar Man Shrestha, Chief Executive Officer of the Rural Microfinance Development Center, the agency implementing the project. “Even a small credit can bring tremendous benefits in people’s lives.”

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Providing Access to Credit

Ms. Karna’s group in Kolaharuwa demonstrates both the need for greater access to funds and the opportunities that access can bring. The village is far from any commercial bank, and there is no public transportation available. Access to an urban center comes only at the end of an hour-long walk. Two thirds of the 35 group members own no land and most are illiterate, making the prospect of borrowing from a bank difficult.

The Project overcomes these daunting challenges by bringing the bank to the village. Every 2 weeks, a representative from the Nepal Rural Development Society Centre visits the village to give loans, collect payments, and take deposits.

“Instead of the poor coming to the bank, in microfinance, the bank goes to the doorstep of the poor,” says Mr. Shrestha.

This raises the cost of administering the loans and, therefore, the interest rate. Ms. Karna paid interest of 24% on her loan, but says that’s much better than the 60% local landlords charge. As an added benefit, the Project requires no collateral.

The average loan at the Kolaharuwa group is 10,760 Nepali rupees ($140) and most women use the funds to buy and raise livestock or purchase vegetables to resell at local bazaars.

Jam Bati Devi Mehta is now paying off her second loan. After repaying a 5,000 Nepali rupee ($65) credit earlier this year, she borrowed another 10,000 Nepali rupees ($130) to expand her vegetable trading business. She buys vegetables from farmers, carries them to local markets, and sells them for a small profit—enough to make her loan payments, help feed her family, and buy a small plot of land.

For Ms. Karna, Ms. Devi Mehta, and thousands of other poor women across Nepal, microfinance is about much more than money—it is about opportunity and confidence.

“The key thing is access to credit,” says Richard Vokes, ADB Country Director for Nepal. “Access is almost more important to rural households than the cost of borrowing. It is availability that is critical.”

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