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Institute of micro-finance and cooperative development.

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Leaders of Top MFIs reach a Declaration to combat Current Challenges & Issues in Microfinance

Over the years, the Microfinance Institutions (MFIs) in Nepal have been proactive in providing financial as well as social services to vitalize the financially excluded households in urban, semi-urban and far-flung and remote areas of the country, where formal financial institutions have been reluctant to venture into. It has immensely empowered the participating women and their families enabling them to become self-employed micro-entrepreneurs and raise their level of income and personal savings, shielding them from the icy clutches of the traditional money lenders.

This revolutionary movement has gained momentum and flourished over time. Today the sector is served by 53 Microfinance Banks, 25 Financial Intermediary Non-Government Organizations (FINGOs) and over 150 Cooperatives providing microfinance services with clientele of over 2 million.

However, an increasing trend of organizations joining the microfinance sector, has led the sector to gradually become more profit oriented and the original social mission of microfinance is getting diluted. With the objective to analyze the challenges and issues of the microfinance sector and identify appropriate avenues to make microfinance a Safe, Sound and Self-sustaining social business, the Centre for Self-help Development (CSD) organized a two-day Symposium of CEOs from August 10 – 11, 2017 in Dhulikhel, Kavre.

‘Appraising Current Challenges and Issues in Microfinance’ took place among a gathering of 47 leaders of top Microfinance Institutions (MFIs) in the country.

Welcoming the gathering of Nepal’s top MFIs Chief Executives, Mr. Shanker Nath Kapali, Executive Director of CSD said, “I thank you all for attending this Symposium. CSD has been working towards the betterment of the microfinance sector by conducting various conferences, workshops, interactions, training and exposure visit programs pertinent to strengthening microfinance as a vibrant sector. We hope this program will enable us to face the challenges and come together to find pathways towards solving the problem.”

The Symposium was inaugurated by the Deputy Governor of Nepal Rastra Bank, Mr. Chinta Mani Siwakoti who hailed the Centre’s efforts in organizing a very important and timely program that would discuss the burning issues of microfinance and sort out ways to address them.

Appreciating the sector’s works, Mr. Siwakoti said, “Microfinance’s contribution at the village level cannot go unnoticed. Microfinance has played a big role in poverty alleviation in the country. The Monetary Policy of last year has brought about implications on the microfinance sector, but it will be for the greater benefit of the target group. This year the new Monetary Policy requirement of minimum educational qualification of Board Directors implies that within one month every Board Director should have completed an educational program. Additionally, the staff training fund put aside by each Microfinance Institution (MFI) should be brought into action and staff should receive training as per their need.”

“The sector is getting over-crowded and at the current rate there will be around 107 licensed MFIs. The Nepal Rastra Bank will soon start curbing the issuance of license to new entrants to the sector,” he further added.

Speaking at the opening, Chairman of CSD Mr. Shankar Man Shrestha said, “CEOs are the prime movers of any institution. This symposium aims to discuss and self-evaluate the strengths where we have excelled and the shortcomings and areas where we have faltered. We must make the best use of available resources and strengthen our sector. Sharing of experiences will help us to learn from each other.”

The first day comprised of the paper presentations on ‘Problems, Challenges, Learning, Opportunities and the Future of Microfinance’ from the perspectives of well-established microfinance banks, newly established microfinance banks, cooperatives and FINGOs. The papers were presented by Mr. Mani Kumar Arjyal, CEO of Nerude Laghubitta Bikas Bank Ltd., Mr. Ram Bahadur Yadav, CEO of National Microfinance Bittiya Sasntha Ltd., Mr. Mahendra Kumar Giri, CEO of Sahara Nepal SACCOS Ltd. and Mr. Kiran Tharu, Executive Director of UNYC Nepal respectively.

The sessionswere chaired by Mr. Shankar Man Shrestha, Mr. Ram Chandra Joshee, Mr. Yogendra Mandal and Mr. Rajendra Bahadur Pradhan respectively.

Session chair, Mr. Ram Chandra Joshee said, “There is a vast difference between microfinance in the past and in the present. Initially the microfinance program was undertaken as a social empowerment tool, but now it has become more of a business.”

Commentator on one of the paper, Mr. Basant Lamsal suggested, “Maybe it is time to develop a ‘Time Card for Microfinance’. With the aggressive expansion of microfinance, this may be a tool that can curb the unhealthy approach adopted by some MFIs.”

The paper presentations threw light upon the challenges faced by the sector from four different perspectives of MFIs such as; need for good governance, constraint in sources of fund, lack of effective Credit Information Bureau (CIB), unhealthy competition leading to multiple financing by MFIs to the same client, over indebtedness of clients, overlooked areas within districts, aggressive expansion of branches, lack of professional and trained staff, increasing trend of staff dropout, clients drop out, weak client selection, abundance of inactive clients, social discord and so forth.

During the latter part of the day, the participants were divided into four groups to discuss the key problems and challenges faced by the sector. The groups discussed on topics such as lack of skill development among clients, focus on quantitative expansion over quality service, missing strategies to develop a second generation of members, inability to receive public deposits, increasing dependency on external sources of fund etc. and together identified the responsible stakeholders and found strategies to overcome these challenges. All four groups presented their findings to the gathering and were followed by open floor discussions.

The morning of the second day began with an interaction with the Executive Director of Nepal Rastra Bank (NRB). Mr. Upendra Kumar Paudel, who heads the Microfinance Promotion and Supervision Department at the NRB presented on ‘State of Microfinance and Discussing Microfinance related Policies, Regulation and Supervision’ and interacted with the participants. As per Mr. Paudel as of Chaitra end 2073, MFIs were providing services to approximately 22.5 lakh members of which 15 lakh were loanees. Servicing all 75 districts of Nepal these ‘D’ class MFIs were providing employment to around 8,500 individuals. Mr. Paudel stated, “The Central Bank is there to facilitate the microfinance sector and not hinder your progress and work. Policies and regulations are made to keep the sector in check. The E-mapping initiative by NRB and UNCDF is almost complete and this will help identify the financially excluded areas.” He further assured, “The NRB will not be issuing license to new entrants in the market from this year onwards. The market is getting overcrowded and with FINGOs converting into MFDBs the microfinance sector will reach saturation.”

A fifth group of participants developed a Joint Declaration which was later read out and revised with slight modifications by the CEOs present and passed unanimously. The 11 point declaration aims to strengthen the sector by identifying the areas MFIs faltered in and in finding a way forward.  It is hoped that the MFIs will put their commitment into action.

Speaking to the gathering during the closing session, Chairman, Mr. Shrestha questioned, “How to safeguard our sector and make it healthy? The damage that will occur in this rush to profit maximization will be irreparable. We must learn to focus on quality over quantity of our service. Earlier, we would boast about the quality of Nepal’s microfinance sector. But today it is riddled with problems and challenges. We have greatly contributed towards women empowerment and poverty alleviation but we have no proof of data or research. Let us take upon ourselves to develop a minimum of 5 micro-entrepreneurs per institution and be a model to others to learn from. We all have the PHD – Patience, Hard work and Determination, all we need is the motivation.”

He concluded saying, “A CEO is the prime mover of any organization. A CEO should have the Concept, Confidence, Character, Culture, Common sense, Competence and Commitment to lead an organization towards greatness. I wish you all success in your endeavor and commitment you have shown in this Symposium!”

The gathering of CEOs greatly appreciated CSD’s initiative in undertaking this pertinent program and requested that such forums be held every year.

 

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