Microfinance Summit Declaration 2013: Status as of September 2016

# / Institutions / Declaration / Status as of August 2016 / Assessment
1 / Constitution Assembly and its members / Include “Access to financial services for the poor as the primary responsibility and guiding principles of the state for inclusive economic growth ” / As per the new constitution, the guiding principles for the governance of the State have the following points
Guiding Principle
a. Rapid economic growth
b. Maximum mobilization of the available means and resources
c. Participation and development of public, private and cooperative institutions,
d. development of a socialism-oriented independent and prosperous economy
e. Building an exploitation free society by abolishing economic inequality through equitable distribution of the gains.
(Part 4, section 50, sub-section 3).
Policy on economy, industry and commerce
a. Enhance national economy through partnership and independent development of the public, private and cooperative sectors,
(part 4, page 33, section 51 sub-section d-1)
b. Promote the cooperative sector and mobilize it in national development to the maximum extent.
(part 4, page 33, section 51 subsection d-3) / a. Even though there is no specific mention of "access to financial services for the poor" as such in the constitution, it does have an orientation toward serving the poor.
b. Though the constitution does not specifically mention financial services, it recognizes the roles of public, private and cooperative institutions that provide these services.
c. Throughout the constitution there is consistent emphasis on inclusion, equality, and social justice which would have direct implications for inclusive economic growth and poverty reduction.
2 / Government of Nepal (Cabinet Secretariat) / Allocate resources in the coming budget to implement micro-insurance schemes including crop, health insurance etc throughout the nation[1] through MFIs as an integral part of the microfinance / a. In the budget for fiscal year 2072/73, under the section “Financial Reform Sector” (page 39, number 354), a compulsory provision has been made to the insurance companies to dedicate minimum 5% of their insurance services to micro insurance, intended to reduce the risk of agriculture, livestock and other small business.
b. The White paper on the current economic situation and immediate way forward, November 2015 calls for mobilizing cooperatives to expand the government program related to agriculture insurance. / Resources have been allocated for up to 75% subsidy in livestock and crop insurance premiums.
All 16 general insurance companies offer livestock insurance while 4 of them also offer crop insurance policies.
Livestock insurance has grown speedily in Nepal with the assurance of 90% loss recovery. Crop insurance is confined to costs rather than production. It is slowly picking up the momentum where the gap between farmers' claims and insurance company's payments continues to remain high.
Undoubtedly, agricultural insurance has raised the credit worthiness of farmers. Further improvements are needed in publicity advocacy and farmer education, data base (micro area specific) strengthening, mobilization of groups and communities in verification to minimize moral hazard, and targeting subsidies to the poor are needed to enhance mass scale appeal.
3 / National Planning Commission / (3.1) Include microfinance as a priority sector of national development and to that end, ensure that the MFIs are used as the conduit for the planning and implementation of various social and economic development activities. / a. According to 14th National Plan 2072/73 program, the development of the country, especially through optimum mobilization of local resources, was expected to be attained through the promotion and involvement of local cooperatives and community based organizations (though MFIs are not specifically mentioned).
b. The sustainable goals for 2016 – 2030 aimed at raising the proportion of farm households with access to micro-finance from 24 percent in 2014 to 40 percent by 2030.
c. Initiatives are going on to channel government transfers on social security through financial institutions.
d. According to the Nepal FinScope Consumer Survey (2014), it is found that 40% of the adults used the financial services from FSP regulated by NRB. 21% respondents used other formal (non-bank) FSP and yet another 21% used non formal FSP. 37% of adults claimed to have either not used or not known about ATMs.
23% of the adults responded that they used bank (including MFIs) channels in receiving remittance. / a. Though microfinance is not specifically designated a priority sector, its role in enhancing access to financial services has been pronounced.
b. Cooperatives based in the rural areas have increasingly participated in planning and implementing social and economic development activities.
c. The MF banks and FNGOs have themselves made investments’ in social and economic reform programs.
d. Microfinance gave nearly 1.8 million households access to finance. They were equally important in channeling remittances and providing micro-insurance services.
According to the Household Budget survey (2016) by NRB, the contribution of remittance as a source of income in rural house hold is 23.68% while the contribution in urban household is 13.23%.
National Planning Commission / (3.2) Create a national database for the microfinance sector in coordination with Nepal Rastra Bank and a Department of Cooperatives / a. National Planning Commission does not maintain database for microfinance as such.
c. Data on MF Banks are available at the Nepal Rastra Bank, while data on financial cooperatives are maintained by the Department of Cooperatives.
d. The monitory policy aims to have a consolidated microfinance database at the Nepal Rastra Bank.
e. Some credit data on MF banks are also available at the credit bureau. / a. The justification for recommending NPC for this role is unclear.
b. The micro-finance bankers association is working on creating a database of the member banks though the progress has slowed down because of some administrative complexities.
c. The database continues to be unconsolidated and partial.
4 / Ministry of Finance / (4.1) Use the tax received through micro finance institutions for developing microfinance sector and develop mechanism to use the fund in consultation with the microfinance industry. / The practice of disbursement of tax received from MFIs to be used only for the sake of development of MFIs has not been noticed. However, the government has made it mandatory for the A, B and C class banks to disburse at least a given proportion of their total loan portfolio on poverty alleviation component. / a. The rationale for making this recommendation is not clearly mentioned in the declaration.
b. The practice in Nepal is that the revenue from all sources commonly gets deposited in the consolidated fund of the government from where the expenditures approved as part of the budget are normally incurred. Any exception to this rule would call for a very strong justification.
Ministry of Finance / 4.2) Ensure inclusion of microfinance sector as a pillar of macroeconomic framework for inclusive economic growth, / a. Inclusive development is the goal of the Nation as stated in the constitution itself as well as in the periodic plans and sector polices.
Private business and cooperatives that largely constitute the microfinance industry have been duly recognized as the main pillars of inclusive economic growth.
b. The monitory policy duly recognizes the role of microficance in poverty alleviation and financial literacy. / a. The government has well recognized the role of microfinance services for poverty reduction and financial literacy in Nepal.
Ministry of Finance / (4.3) Allocate fund and conducting impact assessments and other relevant studies in the microfinance sector, / a. Full-fledged impact assessments have not been conducted so far.
b. Nepal Rastra Bank has initiated to conduct E-mapping of microfinance institutions. In consideration of the results of the E-mapping, NRB plans to conduct further studies on financial access, level improvement, merger/acquisition and operation so as to make necessary policy arrangements (Monetary Policy, 2016/17). / As impact assessments are crucial to inform the government policy on microfinance and to give new directions to the industry, additional follow up with the MoF by the industry would be desirable.
Ministry of Finance / (4.4) Allocate resources for merger of MFIs including five Grameen Bikas Banks. / On 30th Shrawan 2071, Nepal Grameen Bikas Bank was formed after merging five Grameen Bikas Banks. The government allocated a sum of Rs. 35 Crore for this purpose. / Five Grameen Bikas Banks have been merged into one. The merger of some other D class banks is ongoing.
5 / Department of Cooperatives / (5.1) Redefine criteria for membership to ensure scale of operation and develop separate act for financial cooperatives also considering geographical conditions, and / a. The Draft Amendment Bill to Cooperatives Act of 2048 has been under discussion for the last one year.
b. A draft of the Act for the establishment of a strong institution regulating and supervising the increasing number of savings and credit cooperatives, and micro credit institutions will be submitted to the government, as announced in the budget speech of the government. (Source: NRB monetary policy 2015/16). / The process of passing the Cooperative Amendment Bill by the parliament was delayed because of severe disagreements on the contents of the amendment among the stakeholders.
Department of Cooperatives / (5.2) Help facilitate merger of cooperative by developing proper mechanism. / Till date 95 co-operatives have been merged. Only the Cooperatives having the same subject and same motive can be merged. / The merger of cooperatives is very complex and lengthy process taking at least one year for the merger to materialize.
The merger process needs to be further simplified.
6 / Nepal Rastra Bank / (6.1) Ensure laws and regulations to suit the needs of the microfinance sector is enacted. / a. For the first time, the Monetary Policy 2016/17 issued by the NRB fixed the spread rate limit on the credit/loan by MFIs not to exceed a maximum limit of 7% above their cost of fund.
b. NRB monetary policy 2015/16 required that the proportion of total loan flowing to the poor to be 5% for commercial banks, 4.5% for development banks and 4% for finance companies.
c. The monetary policy 2016/17 has required that the commercial banks should themselves directly lend 2% from the 5% of total loans designated for the poor.
d. NRB has drafted and submitted to the government a national financial literacy policy aiming at utilization of services, client protection and financial inclusion.
e. NRB prepared and submitted a Draft Financial Sector Strategy for necessary action to the Ministry of Finance.
f. According to monetary policy 2016/17, NRB has postponed to issue license to new MFIs until the findings of the E-mapping are available. But it is kept open in 9 remote districts[2].
g. A circular issued by NRB on 2072/07/24 for the Microfinance institutions makes it compulsory to set up a “Client protection Fund” by allocating 1% of the Net Profit annually into it. Those MFIs that distribute more than 20% of their net profit as dividend are required to set aside 25% of the amount above this 20% for the Client Protection Fund. / a. MFIs have expressed serious disagreements on some of the provisions made in the monetary policy of 2016/17 such as the spread rate of 7%, the requirement that the commercial banks directly distribute 2% of loan portfolio to the poor without going through intermediaries, and the short time frame given to the FINGOs to convert into MF banks (recently a 2-year license renewal has been granted to FINGOs).
b. The requirement for 2% direct lending has been contested by the commercial banks that claim to be short of infrastructure to implement this provision. Toward the end of August 2016, NRB directed that the banks need to fix 3 monthly targets beginning with 1.25% in the first quarter of the fiscal year to progressively reach the required 2% level by the end of the fiscal year.
c. Dialogue on these contested issues seriously needs to be based on concrete research studies.
6.2) Create conditions to avail sufficient wholesale resources for the MFIs from financial systems to accelerate outreach for meeting the summit goal. / a. NRB directives to MFIs dated 2072 Shrawan states that the MFI practicing wholesale lending can provide the loan up to the limit not exceeding 25% of the primary capital to the same client, firm, company, institution or the group of the members having mutual relationship.
b. Monetary Policy of 2016/17 requires the wholesale bankers to increase their paid up capital to Rs 60 Crore by 2075 Aasar.
c. Commercial banks are required to disburse 5% of their total loans under the poverty alleviation component. While a minimum of 2% needs to be directly delivered to the poor, the remaining 3% can be channeled through MFIs as wholesale loans.
d. RSRF, RMDC, and some commercial banks provide wholesale loans to cooperatives also.
e. Some of the government's priority programs such as the development of alternative energy have made provisions for wholesale lending and loan subsidies. / a. The sufficiency level of wholesale resources is uncertain in the absence of any representative study to determine the demand for wholesale loans.