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Mission Drift is a Common Drawback among the MFIs in Nepal

Expressing concern over the growing discrepancies and deviations in microfinance, experts have warned microfinance practitioners and stakeholders to be vigilant in time. In the webinar organized by the Centre for Self-help Development (CSD) on ‘Mission Drift in Microfinance and its Implications’, they concluded that the microfinance system practicing since three decades ago with the main objective of alleviating poverty and reducing unemployment by providing financial access to the poor and deprived communities have been found indulged in maximizing profit rather than serving the poor and deprived family.

Addressing the webinar, the Chairman of CSD Mr. Shankar Man Shrestha said “MFIs have discarded the given objectives of microfinance to improve the living standard of the poor and reduce unemployment. MFIs have forgotten the objectives written in their article of association approved by the Nepal Rastra Bank. They are found more focusing well off families rather than the poor. Now the gap between the rich and the poor is widening. The richest one percent of the world has control over 90 percent of financial resources. Poverty and inequality among people cannot be wiped without improving the lives of the poor. Against this backdrop, Prof. Mohammed Yunus has put forward the same concept of Social Business. Microfinance is a social business brought out for the social transformation f the poor and deprived people.” Shrestha said.

He said “poverty is widespread in Nepal; we can do away with it in a short period of five years if we have will power and strong determination. Even if you invest only two percent of your profit in the poor, they can rise above extreme poverty. Currently, about 1.2 million families in Nepal are still below the poverty line. When calculating the number of MFIs and cooperatives engage in microfinance, there are 6,000 poor people to be served by each of these organizations and 60 poor families to be served by per staff. We can easily eradicate poverty and upgrade the lives of the poor if we are so wise. NRB should make strict follow up of MFIs to ensure if they are serving the poor or not.”

Mr. Ram Prasad Gautam, Director of the Department of Microfinance Inspection, Nepal Rastra Bank said that although some modifications are natural in the flow of microfinance services, should have reached the area of the entire local bodies, But the poorest areas are not yet reached by them. Microfinance should pay attention to self-regulation and self-discipline. They should not deviate from their goal and objectives. If that doesn't happen NRB will intervene and put them on track. Now there are complaints and MFIs have become profit-oriented discarding their very message of serving the poor. Therefore, NRB has issued a directive to them for not to increase dividends by more than 20 percent of profit. If a dividend is provided beyond that they have to make a provision in the general reserve making the same amount of dividend. Also, we have been repeatedly saying that they should reach out to the poor and the poorest. At one time, the interest rate was 24 percent, but now it is not allowed to take more than 15 percent.” Mr. Gautam also said that the NPL of microfinance institutions was increasing and the quality of the loan is degrading.

Another Speaker of the webinar, Mr. Bhuvan Dahal, Chief Executive Officer of the Sanima Bank Limited and Chairman of the Nepal Baker's Association said that microfinance has become a profitable business. "Commercial banks are also accused of raising interest rates; even though we charge a maximum of 15 percent. But microfinance charges more. It is not right to say that commercial banks which were established for the purpose of making a profit should have Return on Equity (RoE) which is about 14-15 percent but in microfinance, RoE is 30 to 40 percent as these are established for the purpose of providing financial service for poverty alleviation. That is why microfinance has been accused of being profit-oriented. ” Mr. Dahal said.

On the same occasion Mr. Basanta Lamsal, President of the Nepal Microfinance Banking Association and Chief Executive Officer of the Vijaya Laghubitta Bittiya Sanstha Limited said that the goals and objectives of microfinance should be modified from time to time. Mr. Lamsal was of the opinion that it was necessary as the time and institutional structure had been changed a lot in the last three decades. He said, “Nepal Rastra Bank and the Company Registrar Office have defined microfinance institutions as financial institutions. But the goal and objectives are set to be serving the poor. NRB forced MFIs to go to remote areas, work with the poor, and at the same time, it has fixed the offered interest rate. What kind of policy is this? It had to be clear.” He also said that all microfinance institutions had lending in an aggressive manner even in the pandemic period and this had increased the risk of credit.

During the discussion, one of the Speakers the Executive Director of the Unique Nepal Laghubitta Bittiya Sanstha Ltd. Dr. Gopal Dahit had agreed that there is mission drift in microfinance. Dr. Dahit said, “All institutions should not be blamed and to be put in the same basket. Some are doing a good. Till date, the majority of the organizations are in the mainstream and have not basically drifted from their missions. Even my organization is serving after the very poor. Some small investments are also being made to the well off class and this has become the main problem. It seems that the microfinance institution has gone out of its way due to neglecting the fundamental process of identification of target group, group formation, credit appraisal, credit disbursement, and utilization.”

The moderator of the webinar Executive Director of the Centre for Empowerment and Development, Dr. Narahari Dhakal said that microfinance has three main goals a financial goal, a social goal, and an environmental goal, and should maintain the balance among the three goals. "It can easily be seen that only our economic indicators have improved. But the social contribution has not been visible. We have not reached the poor; we have been providing financial services only to affluent people of the accessible area. Is this a theoretical deviation or not? Microfinance practitioners need to do self-evaluation.” Dr. Dhakal asked.

Speaking during the open discussion, Mr. Ram Chandra Joshi, the former Chief Executive Officer of the Chhimek Laghubitta Bittiya Sanstha Ltd said that loans alone are not enough for the poor. As it is important to see that they are also provided with knowledge and skills related to enterprises' operation, health, and market management. Both the MFIs workers and the regulatory body should pay attention to this.

Similarly, Mr. Pritha Thapa Deputy Chief Executive Officer of the RMDC has opined that there is no need for the definition of poor for the outreach of microfinance services to the poor. Anybody, even a layman can distinguish who is poor and who is not. Thus, we should not be involved in the judgment of the definition.

The discussion program was organized through online zoom which was attended by 133 officials from the microfinance and financial institutions.

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