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Comprehensive News on Building Pathways to Strengthen the Microfinance Sector

- A Symposium of Board Officials

In over 25 years of service to the financially excluded segments of the society, the microfinance sector has thrived and expanded its outreach to the nooks and corners of Nepal.

In due course of time, various challenges have also risen in the sector that needs to be rectified in a timely manner. Sensing the need of the hour, the Centre for Self-help Development (CSD) organized a two-day Symposium in cooperation with the Nepal Microfinance Bankers’ Association (NMBA) titled ‘Building Pathways to Strengthen the Microfinance sector’.

With the slogan of creating ‘Sound, Sensible and Sustainable Microfinance’, the Symposium of Board Officials was conducted from February 22-23, 2018 in Kathmandu with the attendance of 38 Board Officials representing 21 microfinance banks from across the country. The program aimed at creating awareness on the philosophy and fundamentals of microfinance and promoting a sense of self-regulation and good governance among the policy level officials of microfinance banks.

The Executive Chief of CSD, Mr. Bechan Giri welcomed the delegates and briefly introduced them to CSD and its activities and the objective behind organizing the Symposium. The Inaugural Session was graced by the Deputy Governor of Nepal Rastra Bank, Mr. Shiba Raj Shrestha who inaugurated the ceremony by lighting the traditional lamp ‘panas’.

Chief Guest, Mr. Shiba Raj Shrestha also launched the ‘Program Proceedings Report of Appraising Current Challenges and Issues in Microfinance – A Symposium of CEOs’ organized by CSD in Dhulikhel in the month of August, 2017.

Addressing the gathering, Deputy Governor Shrestha said, “The microfinance sector has been providing services in the rural and remote areas that has changed the face of the rural economy and increased awareness of the women and marginalized communities and created self-employment through entrepreneurship development. Microfinance institutions (MFIs) are providing self-employment to over 1.5 million deprived families and 10,000 plus individuals as their staff. However, unhealthy competition among MFIs will put themat high risk. Insurance of microfinance loans is a must as it will safeguard not only the loanee but the MFI as well. Prudential and sound institutional governance will go a long way in ensuring the financial health of the organization. I appreciate CSD’s effort in organizing this program. A pioneer of microfinance, Mr. Shankar Man Shrestha has a long experience in this sector. I am hopeful that you all will learn a lot from this program.”

Chairman of CSD, Mr. Shankar Man Shrestha requested the Board Officials to observe the activities of their organizations at the grassroots level to realize the true state of their organization rather than being limited to policy formulation. Mr. Shrestha further added, “With the rise in the number of MFIs numerous problems have emerged in the microfinance sector that has jeopardized its future. The Board Officials have an important role to play towards establishing a sound, sensible and sustainable microfinance by following the fundamentals of microfinance to promote social and economic development of the clients.”

“In the Philippines the loan size is capped at Peso 100,000. ASA Philippines, which has approximately 1.5 million clients has only 200 - 250 loanee members with a loan size of above Peso 100,000. The problem of members defaulting comes mostly with collateral loans. I request NRB to push for the Credit Information Bureau (CIB), but you, as MFIs must self-regulate on your part,” said Mr. Shrestha.

Closing his remarks he further added, “During CSD’s last Symposium in August there were 53 microfinance banks, and today there are already 61 microfinance banks licensed by NRB. May be it is time to take a 3 year cooling period and stop issuing new licenses as MFIs are already overcrowded. Why do we grow a family that cannot be sustained? Initially the sector didn’t require a Regulatory Body, but now I feel we urgently need one. Let us research 10 MFIs and see how sustainable they are and then take the next required step to encourage or curb new licensing.”

Similarly, the Chairman of NMBA Mr. Ram Chandra Joshee shared his experience of working in the microfinance sector and highlighted the need for financial literacy to the clients that could address some of the problems persisting in microfinance. He also urged the Board Officials to interact with the members to have a clear picture of what it is and what it ought to be.

The participants were briefed by the Central Bank officials and microfinance experts on the state of microfinance in Nepal, international and national practices and perspectives of microfinance, performance improvement tools and tips, client protection and development measures, financial indicators and analysis and institutional good governance in microfinance.

The gathering of officials greatly appreciated the sessions and wholly participated in the panel discussion on current issues in microfinance. The officials raised questions related to access of funds, the perilous situation of the sector due to duplication of clients and over crowdedness of MFIs, the risk factor of ‘cash in transit’,  incentives to reach the ultra-poor in far-flung villages and so forth.

 

The Closing Session was graced by the Former Governor of NRB and current Member of the Upper House of Parliament Hon. Dr. Yubaraj Khatiwada as Chief Guest.

During the session, Resolution Committee Chair Dr. Purushottam Shrestha read out the 18 point resolution passed by the forum. The resolution identified pathways that would strengthen the microfinance sector by abiding by the philosophy and fundamentals of microfinance, increasing field movements by the Board Officials, maintaining a growth record of clients, organizing public audits that would include local representatives and authorities, reducing over burdening of loans to clients and undertaking client protection and development measures.

Speaking on behalf of the participants Mr. Ram Chandra Banjade, Board of Director, Swarojgar Laghubitta Bikas Bank Ltd. said, “This forum has witnessed participation from various areas of the country to tackle the problems and challenges this sector is facing. It has been exceptionally fruitful and helpful in taking positive steps to secure the future of the sector. I am hopeful for the support and facilitation that the CSD family has provided through this Symposium in future programs as well.”

Another Board of Director, Mr. Satya Narayan Chaudhary of Forward Community Microfinance Bittiya Sanstha Ltd. expressed, “In my five years as Board Director, I have participated in various international forums, but this is the first such event where I have greatly benefitted from the sessions and have learnt things that will definitely help me in guiding my organization towards the right path. I really appreciate CSD’s efforts in bringing us together. This forum has improved our understanding of the rules and regulations of the Central Bank and strengthened our relation. Microfinance has been working as a network in the grassroots through our microfinance women members and bringing changes in the financial and social scenario. I am optimistic that CSD will organize such programs in the coming days also.”

Mr. Prakash Raj Sharma, Vice-Chairman of NMBA remarked, “With a financial outreach to 40% of the population, microfinance has contributed in both financial inclusion and financial literacy. If we fail, thousands of families, staff and clients will be affected. We face a resource and pricing constraint, but we must follow the triple ‘P’ mission of microfinance - Profit, People and Planet. Unhealthy competition has led to multiple financing and over-indebtedness of clients, but sound institutional governance and professionalism of management is necessary as weare answerable to the people. I am thankful to CSD for spreading awareness and knowledge to the Board Officials.”

Addressing the forum, Chief Guest of the Closing Ceremony, Hon. Dr. Yubaraj Khatiwada expressed his appreciation of the self-consciousness and self-motivation reflected by the passing of the resolution by the participants. “It is time for a gear change in the financial institutions of the country. Along with the growth in the balance sheet of the MFIs, there should be equal growth in the income of your members. The idea is to lay grounds for a healthy and sound sector. If it were up to me, I wouldn’t allow IPOs but instead allow the women members to become the shareholders. Then this whole rush towards profit maximization would not exist,” said Dr. Khatiwada.

Speaking of the issue regarding interest cap in the sector, Dr. Khatiwada said, “Since the MFIs in Nepal are not a homogenous group, a one interest rate fits all is not possible. Self-regulation will be the answer to most questions. Once commercial banks begin microfinance you will face stiff competition and your resource will dry out. Microfinance will be sustainable only when it can withstand huge shocks so that there is no spillover of crisis.”

Dr. Khatiwada stated that microfinance is indispensable in empowerment, bankability and cultivating savings habit. He ended expressing his wish to see a more women inclusive leadership of microfinance institutions as well.

Speaking from the Chair, Mr. Shankar Man Shrestha noted, “The zeal and enthusiasm I have found among you is energizing. The forum has passed the resolution and I hope that it will be implemented with great sincerity. Microfinance has brought about not just an economic but also a social revolution. Efforts must be made to capacitate our members. In the Philippines, field officers would discuss interesting topics with their members each week. Their profit earned is not distributed as dividend but instead ploughed back into reserves and expend to support clients to build up their knowledge, skill and capacity. This in turn boosts the operation of the MFIs.”

Mr. Shrestha further added, “It is not too late to rebuild our tarnished image. I urge the Board Officials to be more active and invest in the MFIs that they are guiding and developing. It has been a great discussion and I am thankful to our participants for their active participation and Chief Guest Dr. Khatiwada for gracing this occasion that has boosted the morale of the Board Officials.”

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