Microfinance in Nepal

How to develop in third world countries a sector of viable financial institutions with sustainable financial services for the whole populace including the poor? During the 90s an answer to that question is being sought in the field of microfinance, which comprises formal and nonformal financial institutions in cooperative, communal or private ownership as well as governmental and nongovernmental national financial institutions with microsavings, microcredit and microinsurance services. The crucial issue in the current debate is the compatibility of outreach to the poor and institutional viability and sustainability. It is claimed that institutions reaching the poor at not viable, while viable institutions ignore the poor. However, there are exceptions to this rule, also in Nepal. What is their secret of sound banking practices? The project is geared to a study of the system of microfinance in Nepal concerning (a) the economic viability and financial sustainability of various types of institutions with microfinance services; (b) their outreach to the poor; (c) the compatibility of outreach and viability; and (d) the impact of the policy and legal framework on that compatibility. With support from the German Research Council, DFG, the project proposal was jointly prepared in April 1998 in Kathmandu with the project partner, the private University of Kathmandu, in cooperation with the central bank, Nepal Rastra Bank, the agricultural development bank ADBN and GTZ. These institutions plan to cooperate closely in the execution of the proposed project, expecting from the project management a catalytic role. It is expected that through the project, scholars of the Dept. of Finance of University of Kathmandu (as well as graduate students) will be enabled to analyze MFIs, coordinate research of participating institutions, provide financial management training and contribute to both the outreach and sustainability of MFIs in Nepal.