Microfinance services to be expanded to hills and mountain regions

May 6, 2010

The Enhancing Access to Financial Services (EAFS) project was launched on 8 April by Dr. Yubaraj Khatiwada, Governor of the Nepal Rastra Bank (Central Bank) in the presence of the representatives from microfinance institutions, donors, development partners and other stakeholders. The project provides grant support to selected microfinance institutions to enable them expand their services in 24 districts in the hills and mountain regions covering 54 out of 75 districts in the country. The major objective is to provide access to affordable financing to very remote areas and poor people.

The project is implemented by the Nepal Rastra Bank with technical and financial assistance from UNDP and UNCDF. The first phase of the project cost is US$10 million and UNDP and UNCDF have committed US$ 1.5 million each. 

This is UNCDF's first intervention in microfinance sector in Nepal to promote inclusive finance bringing in its rich experience from other countries. Eight Micro Finance Institutions (MFIs) of the country have been selected through a rigorous evaluation process to become partners in the outreach which is supported by a Performance Based Grant Agreement. These eight MFIs will receive in aggregate over US$ 1 million to help meet the additional cost associated with frontier expansion to reach new rural and remote based clients. The target of these MFIs is to reach an additional total 200,000 rural poor households during the project period - until July 2012. 

Addressing the event, Dr. Yuba Raj Khatiwada, Governor of the Nepal Rastra Bank which is responsible for the oversight and promotion of microfinance institutions stated, "the MFIs have to be more proactive to increase their outreach in the hill and mountain regions with diversified services including crop insurance, health/life insurance etc. The challenges of operating in rural hills are high and the loan affordability of people is low." He further stated that microfinance policy refinement is important for meeting the present economic challenges.

Speaking on the occasion, UNDP Country Director Ms. Anne-Isabelle Degryse-Blateau said, "the project is designed to start making a difference in the lives of the rural poor by creating opportunities for economic development. At present only 4 percent of the rural poor in the hill and mountain regions are covered by microfinance institutions. This project will make credit, closer and more accessible to these deprived people. This will also provide them opportunity to take loans at a reasonable rate of interest, contrary to the current situation where people are paying up to 60% interest rate."

The Government of Nepal has stressed the importance of the microfinance sector and is now in the process of implementing the Microfinance Act 2008 to regulate and develop the sector. Microfinance had been one of the important agendas of the Government to address poverty since 1970s when it first introduced the Small Farmers Development Programme. 

This is the first time that the Government of Nepal at the central level and UNDP have come together to provide access to financial services for the rural poor. 
In the past, UNDP has worked with the rural poor communities through social mobilization programmes in partnership with the District Development Committees and Village Development Committees.

The MFIs feel encouraged by the partnership which enables them to serve a larger section of the rural population in the hills and the mountain regions where they had not been able to reach due to high cost of operation.

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