Role of Micro - Finance in Poverty Reduction

(A case study of Gramin Bikas Laghubitta Bittiya Sanstha Ltd., Besishahar

Branch)

A Thesis
Submitted to Department of Economics, Patan Multiple Campus
Faculty of Humanities & Social science,Tribhuvan University, Nepal
In Partial Fulfillment of the Requirement for the Degree of
Master of Arts
in
Economics

By
Rajan Prasad Adhikari
Campus Roll No: 47/062
T.U. Reg. No.: 33226-90
Patan Multiple Campus
Patan Dhoka,Lalitpur, Nepal
August, 2019
 Date: 2076.04

LETTER OF RECOMMENDATION

This is to certify that this thesis is submitted by Rajan Prasad Adhikari entitled:“Role
of Micro-Finance in Poverty Reduction” (A case study of Gramin Bikas
Laghubitta Bittiya Sanstha Ltd., Besishahar Branch)has been prepared as
approved by this department in the prescribed format of the Department of
Economics, Patan Multiple Campus, Faculty of Humanities and Social Science. This
thesis is forwarded for examination.

…………………….

(Thesis Supervisor)

……………………………

(Head of Research Department)

……………………..

(Campus Chief)

I
 DECLARATION

I hereby, declare that the work reported in this thesis entitled “Role of Micro-Finance
in Poverty Reduction (A case study of Gramin Bikas Laghubitta Bittiya Sanstha
Ltd., Besishahar Branch)” which I have submitted to the Department of Economics,
Patan Multiple Campus, in partial fulfillment of the requirements for the Masters in
Economics, is entirely my original work prepared under the guidance of my
supervisor. I have made due acknowledgements to all ideas and information borrowed
from different sources in the course of writing this thesis. The result of this thesis
have not been presented or submitted anywhere else for the award of any degree. I
shall be solely responsible for any evidence found against my declaration.

Rajan Prasad Adhikari

Date: 2076.04.

II
 ACKNOWLEDGEMENTS

This thesis simply would not have come about without the help of many people to
whom I want to express my sincere gratitude. I would like to express my first and
foremost gratitude to my thesis supervisor, Prof. Dr. Chakra Bahadur Khadka for his
great insights, perspectives, guidance to my study.

I am very much grateful to my friends Dinesh Bhandari, Branch Manager of Gramin

Bikash Laghubitta Bittiya Sanstha Ltd. Beshishar Branch Shree Ram Pokhrel for the
help of data collection and others. I also am very thankful to all the local people of
Besishahar municipal and Marsyangdi rural municipal for helping me for completing
this thesis.

Lastly, I offer my regards and blessings to all of those who supported me in any
respect during the completion of the project.

Rajan PrasadAdhikari
Date 2076.04....

III
 ABSTRACT
This study examined the role of microcredit at Besishashar municipal. In the study,
specifically focused how income generating activities through microcredit help to
improve their status in households and in community level. This study is based on
eleven semi-structure interviews, two focus group discussions and field observation
and questionnaire.

Findings of the empirical study have shown that the access to small loans for income
generating activities have positive role on empowerment. People’s participation in
micro finance has increased their mobility contributing to the change in the social
values. Further, locals also have active participation in local issues mobilization has
changed community perception on their roles and responsibilities. However, in some
cases, under the pressure of other family members, small loans have been used in
purposes other than income generating.

Analytically, this study underlines that micro finance programs are significant sources
of financial services for poor people, particularly in remote areas where there is
absence of banks and other financial institutions. Although the micro finance has
provided financial services to poor and needy people, it has not been able to meet
their expectations and necessities.

Keywords: micro finance, education, literacy, income, loan, fund, household, poor.

IV
List of Abbreviations

ADB Asian Development Bank

BS Bikram Sambat (Nepali Calendar Year)

CBB Chhimek Bikas Bank

CBS Central Bureau of Statistics

CMF Center for Micro-finance

GDP Gross Domestic Products

ICNL International Centre for Not-for-Profit Law

INGO International Non-Government Organization

MF Micro Finance

MFIs Micro Finance Institutions

MFP Micro Finance Program

NBL Nepal Bank Ltd.

NG Nepal Government

NRB Nepal Rastra Bank

NGO Non-Government Organization

RBB Rastriya Banijya Bank

RMDC Rural Micro Finance Development Center

HCI Poverty Headcount Index

PGI Poverty Gap Index

SPGI Squared Poverty Gap Index

V
List of Contents
LETTER OF RECOMMENDATION ............................................................................ i

DECLARATION ...........................................................................................................ii

ACKNOWLEDGEMENTS ......................................................................................... iii

ABSTRACT .................................................................................................................. iv

List of Abbreviations ..................................................................................................... v

List of Contents ............................................................................................................. vi

List of Tables ................................................................................................................. x

Chapter I: Introduction ................................................................................................... 1

1.1 Background .......................................................................................................... 1

1.2 Statement of the Problem ..................................................................................... 5

1.3 Research Questions .............................................................................................. 6

1.4 Research Objectives ............................................................................................. 7

1.5 Hypothesis............................................................................................................ 7

1.6 Significance of Study ........................................................................................... 7

1.7 Limitations / Scope .............................................................................................. 8

1.8 Organization of Study .......................................................................................... 8

Chapter II: Review of literature ................................................................................... 10

2.1 Introduction ........................................................................................................ 10

2.2 Review of literature............................................................................................ 11

2.3 Research Gap ..................................................................................................... 19

Chapter III: Research Methodology............................................................................. 21

3.1 Introduction ........................................................................................................ 21

VI
 3.2 Research Design................................................................................................. 21

3.4 Sources of Data .................................................................................................. 21

3.4.1 Primary Data: .............................................................................................. 21

3.4.2 Secondary Data: .......................................................................................... 21

3.5 Sample Size and Sampling Procedure ............................................................... 22

3.6 Methods and Instruments of Data Collection .................................................... 22

3.7 Data Management .............................................................................................. 23

3.8 Identification / Specification of Model .............................................................. 23

3.9 Specification of the Variables and its Measurement.......................................... 23

3.10 Technique of Data Analysis ............................................................................. 23

Chapter IV: Micro finance in Nepal ............................................................................ 25

4.1 Development of micro finance........................................................................... 25

4.2 Practices/Models of MF ..................................................................................... 27

4.2.1 Grameen Bank methodology ...................................................................... 27

4.2.2 Community-based models .......................................................................... 28

4.2.3 Village Bank model .................................................................................... 28

4.2.4 Other group and individual lending methodologies.................................... 29

4.3 Providers of MF ................................................................................................. 30

4.3.1 Formal Sector .............................................................................................. 30

4.3.2 Semi-Formal Sector .................................................................................... 30

4.3.3 Informal Sector ........................................................................................... 31

VII
 4.4 Regulations in Micro finance ............................................................................. 32

4.5 Funding and Supporting Organizations of Micro finance ................................. 32

4.5.1 Funding Organizations ................................................................................ 32

4.5.2 Supporting Organizations ........................................................................... 33

Chapter V: Data Presentation and Analysis ................................................................. 35

5.1 Background ........................................................................................................ 35

5.1.1 Outreach ...................................................................................................... 35

5.1.2 Calculation of Poverty Indices .................................................................... 39

5.1.3 Health Services ........................................................................................... 42

5.2 Effect of Micro finance ...................................................................................... 43

5.2.1 Income before involving in micro finance .................................................. 42

5.2.2 Income after Involving in Micro finance .................................................... 43

5.2.3 Loan used sector ......................................................................................... 43

5.2.4 Expansion of Business by taking loan ........................................................ 44

5.2.5 Satisfaction of client with Gramin .............................................................. 44

5.2.6 Improvement in livelihood .......................................................................... 48

5.3 Economic Empowerment Index ......................................................................... 49

5.4. Average Social Empowerment Index ........................................................... 50

5.5 Combined Socio-Economic Empowerment Index............................................. 51

CHAPTER VI. SUMMARY, CONCLUSION AND RECOMMENDATION

6.1 Summary ............................................................................................................ 49

VIII
 6.2 Conclusion ......................................................................................................... 55

6.3 Recommendation ............................................................................................... 57

Bibliography ................................................................................................................ 59

Questionnaire ............................................................................................................... 61

IX
List of Tables
Table 1: Age group ............................................................Error! Bookmark not defined.
Table 2 Education level .................................................................................................... 40
Table 3: Health services .................................................................................................... 41
Table 4 Income before involving in micro finance .......................................................... 42
Table 5 Income after Involving in micro finance ............................................................ 43
Table 6 Loan used sector .................................................................................................. 43
Table 7 Satisfaction of client with Gramin ....................................................................... 44
Table 8 Improvement in livelihood................................................................................... 45
Table 9 Average Economic Empowerment (EE) Index ................................................... 46
Table 10 Average Social Empowerment Index ................................................................ 50
Table 11 Avg. Combined Empowerment Index ............................................................... 51

X
 CHAPTER I
INTRODUCTION
1.1 Background
The origin of micro finance can be traced back to 1976, when Muhammad Yunus set
up the Grameen Bank, as an experiment, in Bangladesh. Since then several micro
finance institutions have come and succeeded in reaching the poorest of the poor, and
have devised new ground-breaking strategies over time. Rural Financial Sector
Analysis (RFSA) outlines that as of mid-July 2009, there were 547,000 group
members and 436,000 borrowers were enrolled in Micro finance Development Banks
in Nepal (Asian Development Bank [ADB], 2010). Micro-Finance is the credit
provided by micro finance to those people who are unable to provide any sorts of
collateral in order to take loans. As of 2012, microcredit is widely used in developing
countries and is presented as having enormous potential as a tool for poverty
alleviation (Cons & Paprocki, 2008). Microcredit are general provide to the poor
people who have no collateral for loan, unemployed and verifiable credit history.

Micro finance plays an important role in fighting the multi-dimensional aspects of

poverty. Micro finance is an innovation for the developing countries. It provides self-
employment opportunity for poor people who are unemployed, entrepreneurs and
farmers who are not bankable because of the lack of collateral, very low level of
income. It has successfully enabled poor people to start their own business generating
income and often beginning to build up wealth. It has the capacity to enhance the
socio-economic development of the vulnerable and marginalized people, especially
women.

Micro finance, a complete provision of financial services, intends to uplift the living
standard of the poor, low income, marginalized, down-trodden and disadvantage
people. It is an economic development approach that provides financial sources to low
income and unemployed clients in groups. The purpose of micro finance is to provide
financial services to the needy people in remote areas who do not have access to
modern physical facilities. Two sources, formal and informal of micro finance, can
play its role in people’s economic life. A survey of Nepal Rastra Bank revealed in
1
1994 that only 20 % rural households have access to formal credit and the remaining
had to rely on informal credit. There is a severe need to meet the demands for the
micro financing by setting up more rural development banks, and I/NGOs to extend
credit. It, of course, plays a crucial role in eliminating poverty and enhances poor
people’s empowerment. Micro finance helps people to enhance their capability and
sharpen their skills and knowledge. Micro finance help widen the range of economic
activities and efforts to augment their income levels. Therefore, the micro finance has
emerged as a promising approach to provide social welfare to the clients as well as to
the society. So, it is not only banking, but a development tool too.

In 1992, the government of Nepal, following a recommendation from the NRB,

established Regional Rural Development Bank (RRDB) in each of the five
development regions of Nepal, modeled on the Grameen Bank methodology. It is
called Grameen Bikash Bank (GBB). The majority of the ownership is in the hands of
government, Nepal Rastra Bank (the central bank) and public commercial banks,
while other private commercial banks have small equity stakes. During the same
period, private initiatives led by NGOs, such as Nirdhan and the central for self-help
Development, also used the Grameen Bank methodology, resulting in a generally
more efficient and successful replication. In the 1990s, with technical assistance from
GTZ, local branches of ADBN under the small farmer Development program, stated
to be reorganized in to federations of small farmer groups, the ‘small farmer
cooperating ltd.(SFCL); each operating as an autonomous cooperative.

According to Ministry of Finance (2018), Economic growth of Nepal in year 2017 is

7.5 percent which shows that economic growth of the country is satisfactory and the
people who are at the level of below poverty line are growing slowly. Total
consumption to GDP ratio in the FY 2016/17 was 88.0 percent, is estimated to shrink
by 3.0 percentage point to remain at 85.0 percent in the current FY. Total
consumption to GDP ratio averaged 89.1 percent annually in the last ten years. The
respective consumption to GDP ratio of government, private sector and non-profit
institutions is estimated to be 11.7 percent, 71.6 percent and 1.7 percent in current FY
2017/18 (Ministry of Finance of Nepal, 2018). Per capita GDP at current prices is
estimated to increase by 12.3 percent and stand at Rs. 10,3335 (USD 1004) in FY

2
2017/18. It was Rs. 92,031 (USD 866) in the previous fiscal year (Ministry of Finance
of Nepal, 2018). All of these data shows that there is constant growth in the economy
of Nepal but do they really look out for the people below poverty line.

Poverty is a complex and multidimensional phenomenon. It is widespread and

pervasive. Income poverty is considered as deprivation, low education, fragile health
including reproductive health, low nutrition and unemployment, and weak social and
political participation. These are supplementary elements of the deprivation of
capability and empowerment (Sen, 1999). A study argued that the measurement and
the examination of the characteristic causes of poverty at household levels is an
important input into the design of economic policy and poverty reduction. Indeed,
developing countries still have achieved a slower progress in reducing poverty. It is
argued that there cannot be economic development without the reduction of poverty.

NGOs have emerged as the major Self Help Promoting Institutions (SHPIs) mainly
because of NABARD initiatives in 2000-01.Many NGOs provide training on group
dynamism and group management. They also assist in formulation of group bye laws
and group norms. Capacity building of Micro finance members is one of the
challenges for many policy makers and agencies. NGOs have significant contribution
in building capacity of Micro finance members and shaping them to grow for self-
sustainable. Various trainings that are provided by the NGO-MFIs are mainly book
keeping, basic accounting, leadership and group management, skills for income
generating activities, marketing support, etc. Since most the NGO-MFIs deal with
women groups, they have also directly contributed to women empowerment and
gender equality. Not only providing credit, most of the NGOs tie up with various
insurance companies to provide necessary micro insurance product to their poor
members at cheaper premium. NGOs also help members in taking up various social
issues like sexual harassment, torture, alcoholism, dowry, gambling, etc. NGOs also
provide necessary supports for members in maintaining for their proper housing,
hygienic sanitation, drinking water, family planning and children educations.

Since the establishment of the Rural Micro finance Development Center Ltd.
(RMDC) in 1998 (which started its operations in January 2000), the number of
Partner MFIs increased steadily from eight in July 1999 to 60 in July 2008 and to 79
3
by July 2009. RMDC had disbursed Rs.3, 313.87 million wholesale funds to 79 MFIs
and recovered Rs.1, 813.78 million by the mid July, 2009.The number of members
had reached 842,205 in July 2008. The number of borrowers also reached 655,536 by
July 2008. The cumulative loan disbursement and loan recovery amounts reached Rs.
41,508 million and Rs.35,061 million respectively in July 2008. The repayment rate
stood at 97.17% in July 2008. The member's savings reached Rs. 2,229 million with
the 60MFIs in operation in July 2008. Saving balance per member also reached
Rs.2,647. In the beginning of the same decade, the government enacted the
Cooperative Act 1992 which has facilitated the establishment of the saving and credit
cooperatives (SCCs) in the different parts of the country. In the last part of 1990s,
there was noticed tremendous increase in the micro finance outreach in the country
due to the creation of institutional infrastructure such as SCCs, GBBs, RSRF and
RMDC. The decade of 2000 has been a decade of a great booster to the micro finance
industry in Nepal. A large number of MFIs have emerged with the technical
assistance and capacity building support of RMDC. A large number of NGOs have
got financial intermediaries license from NRB. Over 50% of them have been
operating the Grameen type microcredit programs. A large number of SCCs also
cropped up as specialized micro finance institutions following Grameen model. These
institutions, the micro finance banks and the government owned GBBS have the
largest outreach of micro finance (750,000 families). The Sana Kisan Bank Ltd
(SKBL) was established in 2001 with major ownership of the government and the
Agricultural Development Bank to provide wholesale lending to SFCLs. It has aimed
to upgrade and professionalize the operation of SFCLs. Most of the sub-projects of
SEDP have been converted into self-regulated clients owned cooperatives known as
SFCLs. These institutions have an outreach of 111,494 small farmer families. The
SKBBL as of December 2008 provided wholesale loans to SFCLs amounting Rs.
3,229 million and collected Rs. 2,978 million principal and Rs.556 million interest
amounts. The outstanding amount of SKBBL is Rs. 1.52billion and the recovery rate
is near about 93% as of July 2008. The total members covered by 220 SFCLs have
reached 139,368 and the loan disbursement of SFCLs reached Rs. 4,224 million and
the loan recovery Rs.2,779 million by July 2008. Since the 1990s, nonetheless, the
nation’s efforts to amalgam commercial and development models to fight poverty,

4
unemployment, and the gender gap have been futile due to the backdrop of political
and financial instability (Ghalib, 2011). Thus, altogether there are about 14 million
families under the services of the MFIs and other credit programs.

The government institutions in Nepal are often blamed as not being effective in
delivering welfare schemes to poor rural population, as leakages in government anti-
poverty programs are very high (Dix, 2011). The legitimacy of micro finance
programs serving social and economic development embeds on the belief that they are
more effective and transparent than the state apparatus (Fernando, 2006). Micro
finance programs target women as they are seen as an individual who have a greater
impact on household and community development. Also, they are perceived as being
easier to deal with, and they have higher repayment than men (Berglund, 2007).
Further, the focus of microcredit activities to women is due to the rationales of
targeting most poor population in the developing countries, as among total poor
population in the world 70% are women. Women are destitute at home and in
community due to their financial dependency on men. Access to credit increases
income opportunities that improve their economic, social and psychological
wellbeing, thus contributing to overall empowerment (Pandey, 2014). Microcredit
helps the overall community to gain the social as well as economic welfare to the
community.

1.2 Statement of the Problem

Nepal has had a history of implementation of micro finance programs for more than
three decades. During this period, a large number of Micro Finance Institutions
(MFIS) have emerged with government, non-government and donor initiatives. Micro
finance is so intimately concerned with underdeveloped country like Nepal that
improvement in livelihoods can become a fundamental strategy for poverty
alleviation. These programs of micro finance have been materialized in different
modalities in different regions and parts of the country. So regular review and
evaluation of the programs is necessary to choose and formulate new programs that
bring positive change in lives of the targeted people. On the other hand, we have
come to the point that Nepali agricultural system is largely primitive and traditional.
To eliminate the pervasive challenge of poverty, we need transformation of surplus

5
labor of agriculture into entrepreneurs and system of agriculture need to be
industrialized to raise per capita income and accelerate economic growth. For which
micro finance program can be a helpful tool. The major issue that the researcher saw
around the place of survey is that the banks are not ready to give any sorts of loan to
the poor background people due to lack of any collateral. This is where the role of
micro finance comes to play and fund the loan to those people who does not have any
collateral and any income source.

Despite this, the majority of the poor is still left out of institutional micro finance
services. Such programs have only limited impact in terms of increasing the outreach
of micro finance to the poor. The poor living in mountains, hills and interior areas of
the Terai have no access to institutional micro finance services. More than 70% of the
total poor families still depend upon informal sources to meet their credit need or have
no access to any source of credit at all. But, micro finance programs are increasing.
We need an objective study on the effectiveness and achievement of the programs.
Besides, women are involved especially in indoor activities because of our social-
cultural values. Their labor is not measured properly in the GDP. So, this study will
help know about the household women who are engaged in the indoor activities and
non-productive activities contributing to national building process. We also need to
develop plans and programs to meet the predetermined objectives of the micro
financing.

1.3 Research Questions

There are many research questions that I have for this research. Some of the questions
that I have are:

 Are the microcredit programs set by such services provider institutions

effective?
 What are the direct effects of micro finances in daily life of these people?
 Has the living standard of people really upgraded after the intervention of
micro finance?
 What are differences between the previous and current living standard of
people?

6
1.4 Research Objectives
The general objective of the study is to make an assessment of the effectiveness of
micro finance program run by Gramin Bikas Laghubitta Bittiya Sanstha Ltd.,
Besishahar Branch of Lamjung District. The specific objectives are:

 To evaluate the effectiveness of the micro finance program in the area in the
context of poverty reduction
 To analyze the effect of Micro finance in living standard and empowerment of
people’s participants in the study area, and
 To estimate economic status of people before and after joining MFPs in
Besishahar Municipal.

1.5 Hypothesis
The hypothesis that I have created before doing these researches are:

 There is no significant improvement in overall economic empowerment index

of MFI’s members after joining the micro finance program
 There is no significant improvement in overall Social empowerment of MFI’s
members after joining the micro finance program.
 There is no significant improvement in overall Economic and Social
Empowerment Index of MFI’s members after joining the micro finance
program.

1.6 Significance of Study

Almost 83 percent of the total population in Nepal lives in rural areas and subsistence
agriculture is the major occupation. It is associated with low production, income, low
saving, low economic growth etc. Geographically, most of the area consists of Hilly
and Terai regions. Various programs intended to reduce deep rooted poverty have
been identified and implemented in the targeted areas of the country. One of them is
micro finance. It has been going on for some time in the country. Operationally, it is
focused on women both from rural and urban areas. It is true that ignoring half portion
of the human beings, the development aspirations can never be changed into a reality
in a sustainable way. The Government of Nepal has been initiating micro finance
programs promoting the Development Banks, Rural Development Banks, NGOs, and

7
INGOs for the targeted groups. Therefore, the Study is expected to be a significant
input for development planners (GOs NGOs, INGOs) in micro finance sector and help
identify the real problems and offer 20 pragmatic solutions. Besides, it is expected to
give a real picture of the socio-economic prospective of the people participating in the
program.

1.7 Limitations / Scope

People living in extreme poverty (below USD 1.25 a day) have been reduced from 53
percent in 2003-04 to less than 25 percent in 2015 and this will continue to
reduce. This is partly because of micro finance and partly because of remittance. Our
hope is that we can eliminate extreme poverty in Nepal by 2020. The microcredit
provided to the people can use them for the more income by the people. Most of the
loans are provided for farming, raising domestic animals etc. With this, livelihood of
those people below poverty line can raise and can sustain themselves with their
income.

The area that I have conducted the survey is the hilly region. The Besishahr municipal
consist population of 39,356 people in the census of 2011 and area of 127.64 sq. km.
The people that have participated on the program of Gramin Bikas Laghubitta
Bittiya Sanstha Ltd., Besishahar Branch are 900. The sample size is small
compared to the total populations that are taking advantage of microcredit all over
Nepal. The result that we get from this study shows the fraction of population and
cannot represent all the population who are taking advantage of microcredit.

1.8 Organization of Study

Chapter I give the brief introduction about micro finance and its development. It also
highlights the sources of micro finance, historical development of micro finance in
Nepal, institutional development and outreach growth, statement of the problem,
objective of the study, significance of the study and the limitation of the study.

Chapter II deals with review of literature. It reviews about impact of micro finance on
livelihood for poverty reduction, review of related studies, journals, book,
presentation paper, articles, websites and thesis. It highlights importance of micro
finance for the poverty reduction and livelihood improvement.

8
Chapter III explains about research methodology. It gives information about research
design, study area selection, sampling procedure, method of data collection, data
collection, data collection tools and techniques.

Chapter IV explains about how micro finance was introduced in Nepal, how it is
currently running in Nepal, overall activities that the micro finance does in Nepal. It
highlights the models of micro finance, what are the sectors of micro finance and the
regulations of micro finance in Nepal.

Chapter V present and describes about the general findings of study and impacts of
micro finance in the clients of micro finance program. It highlights impact of micro
finance program on education, sanitation and hygiene, assets and livelihood,
improvement in income through micro finance, expansion of the business and
improvement of livelihood.

Chapter VI concludes the theme of the thesis through key findings and conclusions of
the study. It highlights major findings, conclusions, lesson learnt, policy highlights
and further research. Finally, there are references which I referred while carrying out
my entire research work. It also includes questionnaire used to generate data for entire
research work.

9
 CHAPTER II

REVIEW OF LITERATURE
2.1 Introduction
Many researches have already been conducted on this topic of microcredit and micro
finance in several areas of the country. All of them are done with different objectives.
I have done some research and found out different literatures regarding this topic. The
chapter, Review of Literature has been based upon various reports, manuals,
workshops, papers, proceedings and studies on poverty reduction through the help of
micro finance s undertaken nationally and internationally. Micro-finance has been
successfully used as developmental tool to reduce poverty in many countries. At
present, micro-finance is being increasingly used in the form of development strategy
for achieving the developmental goals. However, the strategy would prove successful
only if it is able to strike balance between development and finance. Clients of micro-
finance institutions are usually poor and low-income people, often living and awful
overcrowded setting or living in remote areas with less access to basic amenities and
education, water, electricity, banking services, health services, market facilities, etc.

When we talk about micro finance, the credit goes to the Nobel peace prize winner
Prof. Mohammad Yunus of Bangladesh. He was the first person who developed the
concept and applied it. An Economist by profession, he established a micro finance
bank in Bangladesh that came to be known as Grameen Bank. The Bank was,
established in the Jobra village of Bangladesh in 1976 as a result of action research
project on Chittagong University. The project later became a pilot project and covered
throughout an entire district. This was undertaken with the financial support of the
Central Bank of Bangladesh. In 1983, an independent financial institution, Grameen
Bank was established under a special law passed for its creation. It is owned by the
poor borrowers of the bank who are mostly women. It works exclusively for them. At
present, 94% of the total equity of the bank is owned by the borrower of Grameen
Bank and remaining 6 percent by the government of Bangladesh. Grameen Bank does
not require any collateral against its micro-loans. The Bank neither wishes to take any
borrower to the court of law in case of non- neither repayment nor it requires the

10
borrower’s signature. It needs group formation of at least five members and the
members can get loan on group guarantee on payment. Responsibility solely rests on
the individual borrower, while the group and the Centre oversee that everyone
behaves in a responsible way and none gets into repayment problem. There is no form
of joint liability i.e group members are not responsible to pay on behalf of a defaulting
member.

2.2 Review of literature

Regmi (2013), had a research program at Goldhunga, Kathmandu on Role of Micro
finance in Poverty Reduction and derived the conclusion that the micro finance is
playing vital role in socialization of community through monthly meeting, trainings,
followings up and loans from group savings have helped members access clean water
supplies, created food including vegetables and fish in integrated models in their
homestead; for both house consumption and income generation improving health care
and reducing daily expenditure of poor households. The study aimed at analyzing
effects of MF on the livelihoods of the poor women Households through enhancement
of livelihood activities and accumulation of livelihood assets contributing to
livelihood strategies in order to reduce poverty of the poor. Participatory methods and
a household survey were carried out in Goldhunga VDC. In the study site, income of
local people comes mainly from agriculture. In specific, the poor whose income
comes mainly from off-farm and non-farm activities have faced difficulties because of
the seasonality of off-farm employment.

The general objective of the study was to make an assessment of the effectiveness of
micro finance program run by Manusi Nepal in Goldunga VDC of Kathmandu
District. The specific objectives were to evaluate the effectiveness of the micro
finance program in the area in the context of poverty reduction, to analyze the effect
of Micro finance in living standard and empowerment of women participants in the
study area, and to provide suggestions for enhancing the effectiveness of the program.

Total group members of the branch were the population of the study, and among them
50 members were selected from 3 centers which are more than 3 years old of ward in
1, 3 and 7 of Goldhunga VDC through simple random sampling and remaining 10
members were taken from quota sampling method for the study. Required information
11
and data for the study were gathered from both primary and secondary sources. The
primary data and information from the respondents collected by conducting
observation, structure questionnaire, interviews, case studies and focus group
discussions.

The key findings of the research were drinking water supply in the family engaged in
micro finance had satisfactory. Almost all of the families had toilet in their home
which showed satisfactory level of personal hygiene in their households. The family
of the study area has got moderate level of health services. Most of the families of the
study area had their own land for agricultural activities. Micro finance clients had
many alternatives of income. Most of the clients had improved their income level by
utilizing loan from the micro finance institutions. Survey shows that most of client
used the loans in agriculture and animal husbandry. So loan disbursement to be made
accordingly in the survey area. It observed from the survey those clients were satisfied
with the service of micro finance institution. The researcher observed that micro
finance institution provided services to poor people especially poor women. Most of
the clients have improved their business by taking loan from the micro finance
institution. Clearly, regulations and membership of WSCGs, social assets; contribute
to improving human assets and interaction between financial assets and human assets.

Chokhal (2013), submitted a master thesis with the objective of the impact of micro
finance program in empowerment of women. The specific objectives of the study
were to find out the economic empowerment of women through micro finance in
Ghatan VDC of Myagdi, to show the problems hindering the way of women
empowerment through micro finance and to forward recommendation for making the
role of women effective in their economic and social empowerment.

The study was based upon both primary and secondary type of data and information.
The collection of primary data had been done through different techniques like
observation, interview, structured and unstructured questionnaire, interaction, and so
on. The collection of secondary data had been done through various published and
unpublished materials related to the subject matter of the study. The study was based
upon two micro finance institutions. The total universe of the study is 314. Similarly,
the study had used 65 respondents as sample size which represent the whole universe.
12
The sample size was about 20% of the total universe that represent the women of
whole VDC including single, married and unmarried from all backgrounds for making
data reliable and valid. Selection of those respondents had done through simple
random sampling method.

The study was used different statistical and mathematical tools like percentage, ratio
and arithmetic mean. Besides, tabulation and diagram is also presented to make the
study more effective and accurate. The major findings of the study were micro finance
has the potential to have a powerful impact on women social and economic
empowerment and living standards of women. He concluded that access to credit may
be the only input needed to start women on the road to empowerment and living
standard. But power is deeply rooted in our social system and values. It permeates all
aspects of our lives from our family to our communities, from our personal dreams
and aspirations to our economic opportunities. It is unlikely that any one intervention
such as the provision of creditor the provision of training will completely alter power
and gender relations. Women often value the non- economic benefit of a group
lending program as much as or more than the credit. Some of the most valued benefits
that women get after taking participation on micro finance program included
increased on women participation in social organization, increased household
decision-making power, able to decrease discrimination within family as well as
society, increased respect and prestige from both male and female relatives and
community members able to generate income and able to uplift living standard of
their families.

The researcher found that 28 percent women were illiterate and couldnot even write
their names. He suggedted to start a literacy class for its members so that they are able
to read and check their accounts. Since they were busy during day time he
recommended to conduct classes during their free time. As the government had
started conducting literacy campaign all over the country since last year, the
concerned program, VDC, DDC, district education office, local level NGOs and
youth clubs and cooperative itself should facilitate them to take part in such literacy
program. Micro finance from socio economic development cooperative has been
found effective for women empowerment. So concerned stakeholders including

13
government have to provide attention for the establishment of such cooperative. Only
establishing cooperative could not solve the problem, the regulating bodies like
division cooperative, central bank etc should monitor and give necessary direction to
the established cooperatives. Further, necessary capacity development activities like
account keeping trainings cooperative management training etc should provide to
cooperative as per needed, from their establishment to operation level. Women
should be provided equal opportunity in each and every sector of development
activities.

Montgomery (2014), conducted research serving the Poorest of the Poor: The
Poverty Impact of the Khushhali Bank’s Micro finance lending in Pakistan, The
researcher used the data of the Khushhali Microfinance Bank and the customers of the
bank. Different indicators such as Poverty Indicators-Consumption/Expenditure,
Social Indicators of Poverty: Education and Health, Income Generating Activities:
Livestock/Microenterprise/Agriculture, were analyzed using chart, bar-diagram and
descriptive method of analysis. The structured questionnaire comprised of questions
related to families’ views of microfinance, in addition to their socioeconomic
physiognomies, as well as social welfare measures of education and health. The
household survey utilized in this research study included a pipeline design, a strategy
used widely in impact assessments (Coleman, 2006) because it offers a convincing
control group.

The major objective of this research was to examine empirically the poverty impact of
Pakistan’s micro finance sector development program by looking at the impact of
Khushhali Bank’s lending program on the welfare of poor households in the country.
Research was based on the results of an original national household survey
undertaken specifically for this purpose during 2005.

The empirical analysis demonstrates that participation in the Khushhali Bank’s

microcredit program has positive impacts on both economic and social indicators of
welfare, as well as income-generating activities, especially for the very poorest
participants in the program. Particularly encouraging is the fact that the bank has
generated these impacts while remaining focused on the goal of financial
sustainability. There is evidence that the program enables the very poorest of its
14
borrowers to increase expenditure on their children’s education, perhaps affecting the
finding that children those households are more likely to be enrolled in school.
Participation in the program overall also has positive impacts on non-expenditure
indicators of children’s health. Participating households are more likely to seek
medical treatment for their children’s health problems and more likely to seek trained
professionals to provide that treatment. For the very poorest households, we see an
increased likelihood of children receiving basic vaccinations. The highest aggregate
impacts of the program on income generating activities were to agriculture, and again
these positive impacts were higher for the poorest borrowers. Participating households
report higher value of outside sales of their agricultural products and the impact of the
program on sales were again even higher for the very poorest borrowers. In addition,
urban borrowers, 70% of whom are below the official poverty line, reported
significantly higher sales and profits the more they had participated in the program.

Neupane (2014), studied the area of Nawalparasi, Nepal with the objective of finding
the economic and education level of the people around that area mainly focused on
the female of that location. . The objectives of the study were to examine the
effectiveness of the NUBL program in the context of poverty reduction and improving
the living standard of small farmers and to analyze the change in educational
condition of the rural people especially women before and after participating in
NUBL in the study area.

The survey with primary and secondary methods by using different semi structured
questionnaires, interviews and group discussions and also taking the references of past
papers as secondary data concluded the researhc on those people around who have
benifitted from the role of micro finance economically.

The conclusion from this research was that micro-finance program serves the
deprived population of the country at their doorstep with the aim of improving their
socio-economic condition. As micro-finance has been considered as an effective and
efficient mechanism to reduce poverty all over the world, however Nepalese micro
finance institutions are not being able to reach the poorest due to inability of proper
identification of the poor and lack of commitment and clear vision of their action.
Despite the financial sector, liberalization policy of the government aimed to
15
encourage financial institutions to contribute in poverty reduction endeavor of the
government, the satisfactory result have not been achieved due to some managerial
challenges encountered by the micro-finance institutions all over the country. The
challenges faced by the institutions vary depending upon the type of financial
institutions as banks, finance companies, NGOs, co-operative societies and self-help
group that are participating in this program with different functional strategies. These
challenges are concerned with strategic, operational, financial and manpower
management. The strategic challenges are related with planning, controlling
mechanism and external policy environment. Unclear vision and mission statement,
lack of commitment, multiple regulatory framework and policy inconsistencies
constrain the sustainable growth of micro-finance institutions in the country.
Inadequacy of resources and lack of linkage mechanism between informal and formal
financial sector, duplication of activities, widening intense competition in urban and
semi-urban areas, inadequate attention towards the loan delinquency management and
control to poor human resources development efforts are perceived as the operational
challenges.

The major recommendations of this research were that if the income level of the
respondent were seen in the study area, the researcher found some women who had
higher level of annual income of their family and there remaind some possibility of
leaving the poorest of poor untouched by the program. So there should be proper
identification and selection of the target group by the MFIs to insure that the really
poor, backward communities are not left behind. To supervise the use of loan and to
provide effective skill to advice on the proper management of the loan, field staffs
should be trained regularly. The clients of the programs received technical as well as
managerial guidance to manage micro-finance program. Literacy program is an
integral part of rural micro-finance program. Curriculum is amended toward
economic orientation rather than conventional one. Volumetric and physical
expansions of transaction are being encouraged rather than productive lending.
Potential market based activities be encouraged rather than replication of the same
activities. Women are more likely to take part in multiple activities simultaneously to
support their families and to improve understanding of women’s skills while
formulating program. Participation of women in the program is ever increasing, which
16
makes them overloaded. Time and drudgery reducing program be integrated. Gender
sensitization training is imparted from the initiation. There is a gender division of
labor at the household level and women lack access to control of resources. Learn
about the relationship of the household level information like- Who does what? Who
control what? Identify and implement strategies for change within the family and
community.

Ishfaq, Khan, & Tazeem (2015), studied on the role of micro finance in poverty
reduction in South Asia and on the basis of results was concluded that in South Asia
micro finance and Literacy plays a major role in poverty alleviation. The main
purpose of this study was to discover the impact of micro finance, literacy, inflation
and economic growth on poverty. For this purpose, panel data regression method had
used.

In this study, the empirical work was based on secondary data for period between
2005 and 2013. The sample of 6 selected SAARC countries analyzed by using Panel
data regression model. Hausman tested whether to use fixed effect model or Random
effect model. The major reason behind selecting those countries was that they share
similar characteristics like colonial expansion, economic growth and culture.
Moreover, these selected countries were the member of same organization SAARC.
Secondary data collected from the websites of central banks of India, Pakistan, Sri
Lanka and Bangladesh, World Development Indicator (WDI), Economic Surveys,
United Nation Development Program (UNDP) and MIX market (Micro finance
Information exchange). Micro finance, literacy rate, inflation, GDP growth, were the
independent variables while extreme poverty, moderate poverty and poverty at
national level were the dependent variables used in the study to examine the impacts
of on poverty.

On the basis of result, the researcher concluded that in South Asia micro finance and
Literacy played a major role in poverty alleviation. Literacy had strongest influence
on national level poverty while micro finance had strong influence in Extreme poverty
(below $1.25). Micro finance was more effective in reduction of extreme poverty
rather than moderate and national level poverty. Access to micro finance contributes
to poverty alleviation. It not only helps poverty reduction at local economy but also
17
poor participants of country. Results suggests that emphasis on micro financial
activities can lead to reduced poverty in South Asia and can make it a prosperous
economy. Education played a positive role in poverty alleviation Micro finance could
help poor to increase income, reduce openness to external shocks. It was also a
powerful instrument for entrepreneurial activities, especially women.

Rai (2015), submitted a master thesis with the objective of the study is to find out the
effectiveness of Mirco-Finance programs in women’s Empowerment in the Taklung
VDC of Gorkha which main objectives of the study were to find out the socio-
economic characteristics of respondents evolved in micro–credit program in Taklung
VDC of Gorkha and to examine the socio-economic impact of Mirco-Finance
program on women in the study area. To examine the improvement of the women’s
Empowerment by the Mirco-Finance programs. In that study had based on the first
hand or primary data observed and collected from the study area using appropriate
data collection tools. Primary data was collected using purposive sampling method.
Descriptive statistical tools were used for data analysis statistical tools was used.

The findings of the study were, credit was the input needed to start women on the
road to empowerment and living standard. It permeates all aspects of our lives from
our family to our communities, from our personal dreams and aspirations to our
economic opportunities. It is unlikely that any one intervention such as the provision
of creditor the provision of training will completely alter power and gender relations.
Women often value the noon- economic benefit of the group lending program as
much as or more than the credit. Some of the most valued benefited that women get
after taking participation in social organization, increased household decision-making
power, able to decrease discrimination within family as well as society, increased
respect and prestige from both male and female relative and community members to
generate income and able to uplift living standard of their families.

Likewise; Mirco-Finance has the potential to have a powerful impact on women’s

social and economic empowerment and living standards of women. Although micro
finance institutions which are established in Taklung VDC is not always empowering
for all women and not able to positive impact on living standards of women, most
women do experience some degree of empowerment and increase in living standards
18
as a result. Empowerment is a complex process of change that is experienced by all
individuals somewhat differently. Women need, what and profit from credit and other
financial service. Strengthening women’s financial base and economic contribution to
their families and communities play a role in their empowerment.

Major recommendations of the research were, the government had started conducting
literacy campaign all over the country since last year, the concerned program, VDC,
DDC, district education office, local level NGOs and youth clubs and cooperative
itself should facilities them to take part in such literacy program. Concerned
stakeholders including government have to provide attention for the establishment of
such cooperative. Only establishing cooperative could not solve the program, the
regulating bodies like division cooperative, central bank etc should monitor and give
necessary direction to the established cooperatives. Further, necessary development
activities like account keeping training cooperative management training should be
provide to cooperative as per need, from their establishment to operation level.
Women should be provided equal opportunity in each and sector of development
activities. The foremost initiation should be taken by government by making plan and
polices that demand women involvement as mandatory. This may take long time but
if there is keen interest of government than it would be possible soon. Training an
income generation activities should be provided to women so, that they can start such
activities from the credit program that will benefit them and their family.

2.3 Research Gap

There had been much research that has been conducted on different aspects of the
micro finance. Most of the research has been conducted on the subject of women and
women empowerment whereas some of the research has been conducted on the field
of poverty reduction of overall general population. All of these researches have been
conducted on different areas of the country or at the whole country level where the
samples are taken from certain area but would not give accurate result. All of the
research has been conducted on different areas of the country and the research gap of
this research among all of other researches that has been conducted is:

19
 This research mainly focuses on the people who took the credit from micro
finance without further subdividing them on the base of gender, age, caste or
religion, whereas most of the research that has been conducted are focused on
certain group such as women, lower caste, etc.
 There are many researches that have been conducted on different part of the
country but this research has been conducted on the Besishahar from Lamjung
District for the first time whereas other researches had been conducted on the
other parts of the country.
 This research uses economic tools such as empowerment index, which the
researcher find very rarely use by researchers for their data analysis.
 The sample and data that I have used are completely different to the data that
has been used by previous researchers so the result may differ from the
previous researches.

20
 CHAPTER III

RESEARCH METHODOLOGY
3.1 Introduction
This researcher is taking primary research method for this particular research and
gathering the information that need to get. The researcher is going to take the different
financial and economic tools and techniques for the analysis.

3.2 Research Design

This study is mainly focused on micro-finance program and case study of Gramin
Bikas Laghu Bitta Bittiya Sanstha Limited program in Besishahar Municipality. It is
intended to find out economic impact and social benefit in specific area. A descriptive
research design is applied to analyze and interpret the quantitative and qualitative data
collected from the concerned field. Loan investment, repayment process and other
development process are related to micro-finance program. Primary and secondary
data are used for the study women, small farmer and staffs of Gramin Bikas Laghu
Bitta Bittiya Sanstha Limited. The present study has been descriptive type of research
design the data collected here are both qualitative and quantitative in nature.

3.4 Sources of Data

The study uses both qualitative and quantitative techniques. Similarly, the study is
based upon both primary and secondary type of data and information.

3.4.1 Primary Data:

Primary Data are collected through field survey through structural closed ended
questionnaire methods. Interview, group discussion, Participatory Rural Appraisal
(PRA) methods are highly used during the field survey case study is also done to
verify the objectives of the research.

3.4.2 Secondary Data:

All information cannot obtain from the field survey for holistic knowledge secondary
source are undertaken. Secondary information are taken through books, Pamphlet,

21
Website, bankers, NGOs/INGOs, Journal dictionaries, atlas, gazette and other relevant
source of information.

3.5 Sample Size and Sampling Procedure

People around the Besishahar municipality has been getting credit in this area since
10 years from Gramin Bikas Laghubitta Bittiya Sanstha Ltd., Besishahar Branch.
Till now 900 are active members and the sample size for this research is 120 people
who has been taking credit and paying back on regular basis. All of the members are
selected in the form of random sampling from three different ward of the municipal
each with sample of 40 for the study.

3.6 Methods and Instruments of Data Collection

Required information and data for the study were gathered from both primary and
secondary sources. The primary data and information from the respondents collected
by conducting observation, structure questionnaire, interviews, case studies and focus
group discussions. Secondary data is also collected from research, articles, relevant
literatures, published and unpublished reports, journals and library help. Because
secondary data and information are also necessary to conceptualize the study, use of
appropriate tools and describes the study area.

To attain primary data, Interviews were conducted with few selected exemplary
members to gather information about their business, microfinance activities and roleof
microfinance to improve living standard of people. Structured questionnaire filled of
all 120 members through field staff of Gramin Bikas Laghubitta Bittiya Sanstha Ltd.
Similarly, field observations as well as focus group discussion with the group also
used to confirm the information provided by the group members. Key information of
Gramin Bikas Laghubitta Bittiya Sanstha Ltd. was collected by top level management
team members, who provided information regarding microfinance program and
impact on the group members. Secondary data were collected from library, websites,
academic institutions and related agencies.

22
3.7 Data Management
All the Collected data will be listed down in the table and formed the average, mean,
median and S.D of each of the data. Those data will further be used to calculate
different necessary calculations.

3.8 Identification / Specification of Model

For this research Income level, Loan taken by the sample, Socio-economic standard,
overall growth of the people will be taken as variables for the research.

3.9 Specification of the Variables and its Measurement

Income level of the sample size will be considered as the dependable variable in this
research whereas the loan taken by the sample people will be the independent
variable.

3.10 Technique of Data Analysis

Different tools such as Mean, Median, Standard Deviation, Standard error, and
economic and financial tools such as Socio-economic empowerment index, Economic
Empowerment Index, Social Empowerment Index. Social Empowerment Index is
used for the evaluation for the overall upgrade of sample people in the society.

Economic Empowerment Index

For the purpose of the study, economic empowerment index is rating score of
economic parameters measured in terms of household assets, household income,
household expenditure, household savings, and loan and housing type of the
members. It can be expressed as:

Economic Index (En) = ∑Ei / ∑Ei(max)

Where,

∑Ei = ith Economic Indicators

∑Ei(max) = Maximum scores ith Economic Indicators.

Social Empowerment Index

23
The parameters used for calculating the social empowerment index for the purpose of
study are self confidence level, skills, social awareness and recognition and ability to
access various public facilities and services. Social empowerment index can be
expressed by the following formula:

Social Index (Sn.) = ∑Si / ∑Si(max)

Where,

∑Si = ith Social Indicators

∑Si(max) = Maximum scores ith Social Indicators.

Combined Socio-Economic Empowerment Index

The combined social-economic empowerment index is the average weighted index of

economic empowerment index and social empowerment index. This index measures
the overall socioeconomic index of members and the study on change of this index
helps in determining the socio-economic impact of micro finance program on its
members. For the purpose of study, formula for calculating the combined index of
socio and economic empowerment is derived as under:

SEIn= w1Sn + w2En

Where,

SEIn =Combine Socio-Economic Empowerment Index

Sn = Social Empowerment Index

En = Economic Empowerment Index

w1 = ∑Si(max) / ( ∑Si(max) +∑Ei(max) )

w2= 1-w1

24
 CHAPTER IV

MICRO FINANCE IN NEPAL

4.1 Development of micro finance
The cooperative movement became the first micro finance vehicle in Nepal in the
early 1960s, as 13 cooperatives supplied flood victims with access to financial
services tailored to their particular requirements. In parallel, rural finance institutions
such as Nepal's Agricultural Development Bank were created to provide assistance to
agriculture for credit and marketing. The two status in 1974, The two state-owned
business banks, Nepal Bank Ltd. and Rastriya Banijya Bank, were directed by the
Nepal Rastra Bank, to spend at least a part of their deposit liabilities in the' tiny
industry' (first 5% to raise to 12%). This marked the start of Nepal's direct credit
scheme. The tiny sector's scope was expanded to include agriculture, cottage industry
and services in 1976 and has since been called the' priority sector.' The credit did not
reach the poor as only important and well-connected individuals were able to access
the program with collateral. This resulted to the growth, through partnerships with
commercial banks, of targeted projects such as the Intensive Banking Program in
1981, launched by the government and the central bank. Under this strategy, in place
of physical collateral, group credit repayment guarantee was used.

Starting in 1975, Nepal's Agricultural Development Bank's Small Farmers

Development Program mobilized farmers' organizations using a credit plus strategy
and was Nepal's first group-based lending experience. Unfortunately, it failed because
of political pressure for rapid development, over-emphasis on credit, elevated rates of
delinquency and unsatisfactory general performance of system. In 1982, the Cottage
and Small Industries Project and the Production Credit for Rural Women all provided
new directions to priority sector lending, focusing on project viability rather than
collateral, and therefore provided a financing window to the poor through commercial
banks collaborating with local development organizations. The commercial banks
perceived this program as more of an obligation towards the central bank than a
business interest. In 1990, the government of Nepal established the Rural Self-
Reliance Fund (RSRF), with the objective of providing wholesale loans to NGOs,

25
cooperatives and financial intermediaries for on lending to the poor. The Micro
finance Department of NRB acts as the secretariat of the RSRF and management
committee headed by the NRB deputy governor oversees the fund. From July 17,
2019 it has transferred to Sanakisan Bikash Laghubitta Bittya Sanstha Ltd.

In 1992, the government of Nepal, following a recommendation from the NRB,

established Regional Rural Development Banks (RRDB) in each of the five
development regions of Nepal, modeled on the Grameen Bank methodology. The
majority of the ownership is in the hands of government, Nepal Rastra Bank (the
central bank) and public commercial banks, while other private commercial banks
have small equity stakes. During the same period, private initiatives led by NGOs,
such as Nirdhan and the Center for Self-help development, also used the Grameen
Bank methodology, resulting in a generally more efficient and successful replication.
In the 1990s, with technical assistance from GTZ, local branches of the ADB/N under
the Small Farmer Development Program, started to be reorganized into federations of
small farmers groups, the 'Small Farmer Cooperatives Ltd (SFCL); each operating as
an autonomous cooperative.

With the promulgation of the Development Bank Act in 1995, Nirdhan was the first
NGO (1998) to transfer its micro finance portfolio into an autonomous micro finance
rural bank (Nirdhan Utthan Development Bank). Since 2000, three other micro
finance rural banks were created through the same process first initiated by Nirdhan,
with DEPROSC Development Bank in 2000, Swabalamban Bikas Bank Ltd and
Chhimek Bikas Bank in 2001. Acknowledging the poor performance of the RRDBs
under public ownership, the central bank started a restructuring program, which will
lead ultimately to the privatization. With a view to provide a source of wholesale fund
to regulated micro finance institutions, the Rural Micro finance Development Center
(RMDC) was established in 1998, and later on opened its lending to other micro
finance providers. In 2001, the Small Farmer Development Bank was established
under the Development Bank Act to provide wholesale funds to Small Farmers
Cooperatives Ltd. (SFCLs).

26
4.2 Practices/Models of MF
Micro finance practices mirror the assorted variety of scene and populace thickness in
Nepal. In the Terai locale (plain); more thickly populated, with better vehicle
foundation and simpler access to customers; the Grameen Bank model has been
adjusted by an enormous number of associations. It is additionally a locale where
conventional money related associations, for example, business and advancement
banks, work. In the slopes and mountains, network based associations, for example,
Self Help, Gatherings, Credit and Savings Associations and Cooperatives, appear the
most adjusted to the remoteness and separation of neighborhood networks.

4.2.1 Grameen Bank methodology

First acquainted with Nepal in the early 1990s, it has been adjusted by an enormous
number of associations, for the most part working in the Terai area (plain), where the
populace is thick and street, showcase and different frameworks are similarly more
created than in the slopes and mountains. The technique depends on companion
gatherings of five individuals fused into focuses of up to ten gatherings. Week by
week gatherings are utilized to gather mandatory installments from individuals to add
to the gathering's asset - joining the two investment funds and credits. The gathering
reserve, overseen by the gathering, might be utilized to make extra credits to
individuals. Credits are made at first to two individuals, at that point to two others
lastly to the last part, with a four to multi week interim between every payment. The
gathering individuals promise each other's advance reimbursements.

Micro finance providers utilizing the Grameen technique will regularly offer general
loans, occasional loans, explicit credits (sanitation, lodging) and the advances issued
from the gathering reserve. Investment funds items are commonly the obligatory
gathering reserve funds, and any extra close to home, deliberate investment funds.
Lately, a few driving micro finance suppliers have begun to move away from the
conventional Grameen model, to concentrate on new practices for Nepal, for example,
a streamlining of activities, the presentation of client benevolent items, and a solid
accentuation on foundation and staff limit building. New items have likewise been
offered to customers by a few associations, for example, small scale protection
covering dangers identified with wellbeing, life and domesticated animals.

27
4.2.2 Community-based models
Savings and Credit Cooperative Societies (SCCS), provide a wide range of savings
and loan products to their members. They will in general serve a wealthy populace yet
in addition poor people, with a more grounded accentuation on the hindered on
account of associations built up by improvement programs. Smaller scale protection
covering dangers identified with wellbeing, life and domesticated animals. They
commonly require compulsory savings, but also offer individual or group saving
products, deposits, and festival and educational savings services. Loans provided by
SCCS have a minimum term of 3 months and can be extended for more than 18
months, covering specific purposes, such as agriculture, microenterprise, housing, or,
in some cases, emergency or social reasons. In addition, as successfully demonstrated
in India, self-help Groups can be linked to commercial banks, an approach taken by
the Banking with the Poor Program implemented by the Rastriya Banijya Bank
(RBB). Despite the institutional challenges and necessary methodological adjustments
to be made, RBB has lent directly to self-help groups under this program. Small
Farmers Cooperatives were also initiated under the Small Farmers Development
Program of the Agricultural Development Bank of Nepal (ADBN), which was the
first Nepali program to use a group-based methodology. The program has faced major
difficulties in terms of portfolio quality (38% NPL) and the dependency of groups
towards ADBN loan capital. GTZ has supported methodological changes to the
ADBN, which is also under restructuring phase, led by the ADB. Under a joint
Nepali-German program, RUFIN, GTZ has provided technical assistance to the
ADBN in transforming the groups into sustainable Small Farmers Development
Cooperatives (SFCLs), now largely financed by an apex bank. Despite the recent
successes in revitalizing the program, problems still persist such as recapitalization
and sustainability issues.

4.2.3 Village Bank model

It was also used in Nepal, with the Women Empowerment Program of Pact Nepal,
between 1998 and 2001. Adapted from the model used in Latin America, village
banks are community managed credit and savings associations designed to provide
financial services to members living in rural areas. This methodology focuses on
empowering relatively large groups of people (20-40 in Nepal) in building their own
28
financial institution, with a savings first approach. First, the village bank promoters, in
this case local NGO partners of Pact Nepal, provided training to the village banks,
focusing on building the capacity of membership and management committees. The
promoters also lend fund capital to build up the ‘external account’ of the village bank,
which is then on lent to members. Repayments from members are collected by the
village bank, which repay its main obligation to the promoters. In parallel, the village
bank members build up their ‘internal account’ through savings and on lend internally
this fund. This model was fruitful in Nepal, as it consolidated preparing in proficiency
and business improvement with budgetary administrations and had the option to get a
huge effort effortlessly. Be that as it may, of the couple of shortcomings, was the
reliance made by the budgetary connections between town banks and advertisers.

4.2.4 Other group and individual lending methodologies

The two public-owned banks, Nepal Bank Ltd. what's more, Rastriya Banijya Bank,
speaking to 95% of the rustic parts of business banks in Nepal, are lessening their
quality in provincial territories. Their branches were impressively debilitated by the
results of the nearby clash and the developing weight from the rebuilding project
bolstered by the World Bank. Under the denied part prerequisite, business banks can
give value or discount assets to micro finance foundations, or loan straightforwardly
to poor people. In the latter case, they normally give credits not surpassing Rs.30, 000
to people or gatherings, regularly with regards to a legislature supported program
(Intensive Banking Program for instance). Government projects, for example, the
Micro-Finance Project for Women (MCPW) give chances to NGOs to get discount
assets for advances to gatherings of needy individuals. With the presentation of this
program, the Financial Intermediary Societies Act 1998 empowered NGOs to give
microcredit to their gathering individuals. With the principal revision of the Act,
NGOs were additionally ready to gain a restricted financial permit from the national
bank and go about as Financial Intermediaries NGOs (FINGOs), and in this way
procured the likelihood to prepare reserve funds of their individuals.

The development of micro finance practices in Nepal still faces many challenges.
There is a need to undertake further research on developing a model adapted to the
hills and mountains. Based on initial research conducted by Centre for Micro finance

29
(CMF), a federative model of Savings and Credit Cooperatives Societies (SCCS)
could significantly increase the outreach of micro finance services in the hills. As in
many countries, deepening the outreach in targeting the poorest is still a difficult task
in Nepal. Moreover, the political context and the current insurgency do not provide
the ideal conditions for micro finance methodologies to be the most efficient, given
the additional costs related to the insecurity situation in rural areas.

4.3 Providers of MF
The micro finance market in Nepal can be divided into three sectors: formal, semi-
formal and informal.

4.3.1 Formal Sector

It is composed of: 28 Commercial banks, 32 Development banks, 24 finance
companies, 91 microfinance, 11 other Institutions and 1 Infrastructure Development
banks are active in Nepal. (NRB, Mid July 2019)The rural micro finance banks are
comprised of a group of nine Grameen Bank replications. The two largest are:
Nirdhan Uttan Bank Ltd and Swabalamban Bikas Bank Ltd., which both originated
from the transfer of the micro finance portfolios of their NGO parent organization,
respectively Nirdhan and the Center for Self Help Development. In addition, Chhimek
Bikas Bank was promoted by the NGO Neighborhood Society Service Centre
(NSSC), while the DEPROSC Development Bank Ltd was established by the NGO
DEPROSC.

4.3.2 Semi-Formal Sector

It comprises savings and credit cooperatives, societies and financial intermediary
NGOs. Savings and Credit Cooperatives Societies (SCCS) have been created through
different processes. The most common being community-based organizations that
have evolved from informal self-help groups to credit and savings organizations
status, and then graduated to become formal Savings and Credit Cooperatives
Societies. Generally, SCCS emerged spontaneously but were sometimes assisted by
local or international NGOs. They usually comprise between; 25 to 200 members,
while the largest could reach 9,000 members. With increased external support to their
institutional development, these organizations could have a very high potential to be
linked to formal source of funds. Some of them have been very innovative in targeting
30
the poor while reaching financial sustainability, and made a positive impact on the
lives of their members.

Some prominent cooperatives are the Women’s Cooperative Society and BISCOL,
both combining Grameen Bank methodologies and cooperative principles with their
micro finance clients. Some SCCS are also supported and funded by organizations
such as the Rural Micro finance Development Centre, Rural Self Reliance Fund
operated by the central bank, and small enterprise development department of
commercial banks. Some cooperatives, called Small Farmers Cooperative Ltd
(SFCLs) are federations of small farmer groups organized under the Small Farmers
Development Program of the Agricultural Development Bank of Nepal, with
technical assistance from GTZ. 149 of them are formally registered according to the
Cooperative Act, 11 of them have obtained limited banking license from NRB. They
can access wholesale fund from Sana Kisan Bikas Bank, an apex institution in the
field of wholesale lending, and the RMDC and RSRF, other apex funds.

4.3.3 Informal Sector

It gathers informal community-based organizations at different stages of
institutionalization, such as self-help groups and informal savings and credit
organizations. Moneylenders, traders, friends and relatives can also be included in this
group as they provide an informal source of finance used by the majority of the poor
population in Nepal. Dhukuti are informal groups that pool funds to extend informal
credit to their members. Despite the vibrant micro finance landscape in Nepal, there is
still a scarcity of MFIs in Nepal. A very few cooperatives can be considered MFIs, as
they lack focus and institutional capacity. Most NGOs are also at an earlier stage of
development, with gaps in terms of systems, leadership, staff development and
organizational structure. The growth of micro finance in Nepal is therefore
constrained by the lack of new micro finance providers, the difficulties of public
owned RRDBs and the government promoted projects, for which the quality of their
portfolio has severe impact on their sustainability. NGOs operating as financial
intermediaries are also limited in their growth, as commercial borrowing requires a
personal guarantee from their directors. Overall, the scaling up of existing MFIs is
also dependent on political and security issues and the high capital requirements.

31
4.4 Regulations in Micro finance

Priority sector lending program: The central bank (NRB) imposes ‘priority sector’
lending to commercial banks, which entails lending a certain percentage of their
deposit liability to deprived population. The ratio of priority sector lending has
increased from 5 percent to 12 percent, of which, 0.25 to 3 percent must be invested
in the ‘deprived’ sector, targeting the poorest of the poor.

Development Banks Act 1995: The two apex organizations as well as the five
Regional Microfinance Rural Development Banks (RRDBs) and the four private rural
micro finance banks are registered under Development Bank Act 1995. This Act was
merged under BAFIO-2014.

.Cooperative Act: Cooperatives are regulated by the Cooperative Act 2074 and
supervised by the Ministry of Agriculture, Department of Cooperatives. Out of
various types of cooperatives savings and credit cooperatives are providing micro
finance services. There are 8000 registered Cooperatives of which 3503 are savings
and credit cooperatives.

4.5 Funding and Supporting Organizations of Micro finance

4.5.1 Funding Organizations

Each having a specific purpose and clientele, wholesale lending organizations
provides a substantial amount of lending to micro finance providers. The Rural Self-
Reliance Fund (RSRF) was established in 1990 by the government of Nepal to
support organizations providing financial services at a grassroots level in rural areas.
These included: Savings and Credit Cooperatives, NGOs, and Grameen replications.
RSRF is managed by Nepal Rastra Bank, with a portfolio of Rs. 19.2 million
outstanding as of mid-January 2004. From 17 July, 2019 it is managed by Sana Kisan
Laghubitta Bittiya Sanstha ltd. The Rural Micro finance Development Centre Ltd.
(RMDC) provides wholesale funding to regulated micro finance organizations that
comply with a strict set of criteria related to their institutional capacity, focusing on
the poor and financial performance. As of January 2004, RMDC had Rs.956 million

32
in loans outstanding, approximately 47 percent with private Grameen Bank
replications. RMDC has had difficulties in disbursing all of its available funds due to
the small pool of partners able to satisfy its criteria (on institutional development,
sustainability and poverty focus), and the cap put on the level of lending to each
borrower institution (Rs. 40 million). Moreover, its lending rate (6.5 percent) is in
direct competition with the commercial bank’s low interest rate (4 percent) under their
deprived sector lending obligations. Moreover, RMDC has been a key stakeholder in
the development of micro finance in Nepal, by providing training services to
thousands of officials, MFIs staff and clients, and by influencing policies and
regulations for micro finance.

Sana Kisan Bikash Bank (Small Farmer Development Bank) was established in 2001
by the Agricultural Development Bank of Nepal (ADBN) to outsource the wholesale
funding to Small Farmers Cooperatives Ltd (SFCL), which was formed after the
transformation of Small Farmers Development Projects, promoted under the Small
Farmers Development Project, into cooperatives. SKKB is owned by: ADB/N, the
Ministry of Finance, two commercial banks, and a group of SFCLs. It is envisaged
that SFCLs majority ownership will grow over time. In Nepal US AID focuses on
education, gender and micro finance programs. It has provided substantial funding to
Pact Nepal for the Women Empowerment Program until 2001. US AID will continue
to promote micro finance and education through recent grants to World Education to
support the WEEL project (Women Economic Empowerment and Literacy) and to
Save the Children under the IGP grant program.

4.5.2 Supporting Organizations

The Centre for Micro finance is one of the key organizations supporting micro finance
in Nepal. It aims at strengthening the micro finance sector through capacity building,
research and consultancy services. It is also involved in policy development, an
innovation catalyst (partner in a micro insurance pilot scheme), and impact
assessment. CMF currently partner with Impact, an international project focusing on
the social impact of micro finance, funded by the Ford Foundation and implemented
by three UK universities. The Institute for Integrated Development Studies (IIDS),
established in 1990, is an independent research institute, under NGO status, focusing

33
on development issues in Nepal. It undertakes research studies as well as action-
research programs. In micro finance, it implements the ‘Self-Reliant Development of
the Poor by the Poor program’, which covers 18 village development committees in
Western Terai and has reached 3,000 beneficiaries from the poor and underserved
communities. The program supports the formation, development and transformation
of self-help groups, which ultimately become registered cooperatives with access to
external capital. IIDS also provides self-help groups with credit for development
activities and the constitution of revolving loan fund for income generating activities.
Approximately 180 groups have been supported, some of them operating under
cooperative rules and accessing funds from RSRF. IIDS has also provided technical
assistance and capital funds to women’s groups.

Over the years, local micro finance networks have been established in Nepal, such as
the Micro finance Association of Nepal (MIFAN), the Grameen Replications Network
and several cooperative networks and federations. However, they are now mostly
inactive, due to a lack of funding and the diversity and geographical isolation of their
members. Plan International, an international NGO, encourages the creation of a
national micro finance forum, which would involve policy makers, academics and
micro finance providers. This forum would focus on issues such as product
development, pro-poor methodologies, regulations and standards. Plan also supports
micro finance providers in increasing their outreach, and provides Nirdhan with
financial assistance in establishing linkages with self-help groups and building the
capacity of cooperatives. It also collaborates with the Women Credit Union. Through
collaboration with Nirdhan, Plan provides capacity building assistance in monitoring
the impact of financial products in the lives of clients and their barrier to growth. Plan
also manages the education component of the credit plus approach implemented by
Nirdhan.

34
 CHAPTER V

DATA PRESENTATION AND ANALYSIS

5.1 Background
This chapter focuses on data presentation and analysis. The chapter firstly presents
informant’s background, emphasizing age; marital status; level of education,
occupation and access to productive resources. Moreover, with the perception that
people’s access to credit has potential to change gender relationships, this chapter also
attempts to tap into the informant’s reflections on how micro loans has impacted in
the context of poverty reduction, in living standard and their households.

5.1.1 Outreach
Analysis of the Effects of Microfinance on Poverty Reduction: Overview

Outreach of micro-finance program is defined as the coverage of target population by

the MFls and scale of their loan operation. This requires clear definition of who the

target people are and what is their total population. There is no disagreement that the

'poorest of the poor' or the 'ultra poor' constitute the target group but the estimates of

their number vary as different organizations have come out with different figures.

Previous studies have based the estimation of outreach of micro-finance programs on

two basic assumptions. First, total number of households below the poverty line is

calculated by applying the NPC estimation of 38 percent population below the

poverty line (NPC, 2002) and adjusted by national average family size of 5.44 as per

the Population Census of 200 I (CBS, 2002). Secondly, all the households borrowing

from MFIs fall below the poverty line.

Calculation of Poverty Indices

Table 1 Poverty Indices in percentage (FGT)

35
 Before Loan After Loan

Variables HCI PGI SPGI HCI PGI SPGI

(%) (%) (%) (%) (%) (%)

In Gender

Male 87 40 29 78 28 25

Female 95 40 29 86 28 25

Age Groups

Age (22 to 31 years) 87 40 29 75 28 25

Age (32 to 41 years) 93 39 29 86 27 24

Age (42 to 65 years) 93 37 28 85 26 24

Family size

Family members (0 to 14) 75 38 28 49 27 24

Family members (15 to 64) 99 40 29 97 28 25

Family members (65& above) 100 25 20 100 17 18

Education

Education level (Illiterate) 91 40 29 77 28 25

Education (1 to 5 years) 91 38 28 83 26 24

36
 Education (6 & above) 90 40 29 88 28 25

Income Before Loan in PKR

Income (1-11000 thousand) 96 39 29

Income (11001-17000 thousand) 93 39 29

Income (17001 thousand & above) 78 40 29

Income After Loan

Income (1-11000 thousand) 86 28 25

Income (11001-17000 thousand) 83 27 24

Income (17001 & above thousand) 74 26 24

Residence status

Owned house 90 40 29 79 28 25

Rented 93 39 29 85 27 24

Over all 91 40 29 81 28 25

As shown from the table that the poverty before the loan was noted 91 percent and

after taking the loan it was reduced by 10 percent and reached to 81 percent. The

Poverty Gap was noted reduced from 40 to 28 percent as well as the severity of

poverty was also noted reduced from 29 to 25 percent.

37
The Head Count Index (HCI) before the loan for was noted 87 percent and after

taking loan it reduced to 78 percent.. The depth of Poverty were noted 40 percents

well as the severity of poverty was also noted same for male and female 25 percent.

The first age group that was between 22 to 31 years, was noted 87 percent poor while

the poverty index reduced after taking loan to 75 percent. The depth of poverty for

age interval 22 to 31 years reduced from 40 to 28 percent as well as the severity of

Poverty was also reduced from 29 to 25 percent. The poverty index in second age

group from 32 to 41 years declined from 93 to 86 percent. The depth of poverty in this

group declined from 39 to 27 percent as well as the severity of poverty also decreased

from 29 to 24 percent. Before loan the poverty index in the third age group that was

between 42 to 65 years was noted 93 percent it reduced to 85 percent after taking

loan. The depth of poverty was noted 37 percent before and it also reduced to 26

percent after taking loan. The severity of poverty also declined from 28 to 24 percent.

It was noted that family size puts a significant impact on poverty, it was noted that as

the family size increases the poverty index also increases no matter it was before

taking loan or after taking the loan. Though the results shown that before taking loan

it was severed and after taking loan it reduces a little. The first group of family size

that was between 1 to 3 members was noted 75 percent poor before taking a loan and

the poverty index reduced from this family size to 49 percent after taking loan. The

depth of poverty for this family size group was reduced from 38 to 27 percent as well

as the squared poverty gap also declined from 28 to 24 percent.

Results and Discussion

38
This study aims to find out the overall impact of micro-finance on poverty reduction

by assessing the different dimensions of impact on poverty. This report shows that

there is a positive impact of micro-finance on poverty reduction. The study report

states that micro-finance can enable poor people to enhance their access to financing

for the income growth and welfare improvement through micro-enterprise

development, increased ability to address vulnerability and economic empowerment.

The result showed the poverty situation of the respondents. All the components were

calculated in percentage and given in the above table

5.2 Analysis of the Effects of Microfinance on Livelihoods

The impact of MF on livelihoods was focused on the changes of livelihoods assets

and the use of livelihood assets to cope with vulnerability. The provision of MF can

assist the poor the means to protect their livelihoods against shocks and to build up

and diversify their livelihood activities that if MF is to fulfill its social objectives of

bringing financial services to the poor, it is important to know the extent to which its

wider impacts contribute to poverty reduction. Social networks play an important part

in helping clients escape from poverty. Access to social networks provides clients

with a defense against having to sell physical and human assets and so protect

household assets. A study of 16 different MFIs from all over the world pointed out

that having access to MF services led to an enhancement in the quality of life of

clients, an increase in their self-confidence, and has helped them diversify their

livelihood security strategies and thereby increase their income 30 Health care and

education are two key areas of non-financial impact of MF at a household level.

Stated that from the little research that has been conducted on the impact of MF

interventions on health and education, nutritional indicators seem to improve where

39
MFIs have been working. MF interventions have been shown to have a positive

impact on the education of clients’ children because one of the first things that poor

people do with new income from micro-enterprise activities are to invest in their

children’s education Moreover, regarding women empowerment, it is a key objective

of MF interventions. Women need empowerment as they are constrained by the

norms, beliefs, customs and values through which societies differentiate between

women and men. MFI cannot empower women directly but can help them through

training and awareness rising to challenge the existing norms, cultures and values that

place them at a disadvantage in relation to men, and to help them have greater control

over resources and their lives that access to MFI can empower women to become

more confident, more assertive, more likely to take part in family and community

decisions and better able to confront gender inequities also made this point when they

referred to the “naivety of the belief that every loan made to a woman contributes to

the strengthening of the economic and social position of women”. MF projects can

reduce the isolation of women as when they come together in groups they have an

opportunity to share information and discuss ideas and develop a bond that was not

there previously

Education

Table 1 Education level

Grade Total Percentage

Illiterate 24 20.00

Literate 44 36.67

Below 10 class 28 23.33

SLC 16 13.33

40
College Level 6 5.00

No Response 2 1.67

Total 120 100

Source: field survey, 2019

Micro finance has played role to make people literate above table shows that illiterate
people are only 20.00 percent. And also shows that highly educated person have
opportunity rather than micro finance industry, when we compare with the national
data literacy rate of Nepal that stands only at 64.7 percent Micro finance helps to
illiterate and literate person to create self-employment and earn their livelihood
through financing in income generating activities.

5.1.4 Health Services

Table 2: Health services

Particulars No. of respondents Percentage

Adequate 40 33.33

Moderate 72 60.00

Little 4 3.33

Have not got 2 1.67

No response 2 1.67

Total 120 100

Source: field survey, 2019

By the above table we can see that the respondents have got health services
satisfactorily. 33.33 % respondents have got adequate health services, 60 %
respondents have got moderate health services, 3.33 % respondents have got little
health services and 1.67 % respondents have not got health services. When we
compare with the national data, 69 % of people with acute illness reported to have
consulted some kind of medical practitioner in the country. There is a discussion
about personal hygiene and health matter which has positive impact on their family's
health.

41
Factors that Improve the Living Standards

Provision of loan facilities and acquiring the necessary skills on how to manage the
funds to generate extra income and gain profits serves as a way to improve living
standards. Availability of water for irrigation and electrical power to a society will
increase entrepreneurial activities which in turn work to improve living standards. A
community or a household that is financially empowered will be able to educate their
children, have an access to clean water, electricity as well appropriate housing which
are the basic measures of poverty (Mosley & Rock, 2004). Entrepreneurship plays an
important function in economic growth, therefore micro credit should be utilized as a
source to 14 finance small entrepreneurship and give the necessary skills to improve
the standards of living.

5.3 Effect of Micro finance on Economic Status of people

In this regard an attempt has been made here to estimate the outreach of MFPs at the

national level by using latest data on number of borrowers covered by the programs..

As of mid-January 2014, the MFls combined together had provided loan to 328,452

clients. Assuming that all these clients are eligible poor and taking the NPC estimate

of 38 percent of the population/household as living below poverty line (0.38 X

4253220=1616224), the outreach turns out to be 35.2 percent (568212/1616224X

100=35.2). This estimate is lower than the estimate of Sharma (2003) made with

reference to mid-January 2003 data. This may be attributed to narrowing down of

operation by the MFls due to heightened security problems and drop out of members

from the group, which is estimated to be around 10 percent.

5.3.1 Income before involving in micro finance

Table 3 Income before involving in micro finance

Particulars/ per year No. of respondents Percentage

Below 10000 2 1.67

42
10000-50000 70 58.33

50000-100000 42 35.00

100000+ 4 3.33

No response 2 1.67

Total 120 100

Source: field survey, 2019

Above table shows that before joining the micro finance program 1.67 % respondents
earn below 10000 annually, 58.33% of respondents who earn NRS 10,000
to50,000annually, 35% respondents earn NRS 50000 to 100000 annually and only
3.33% respondents earn more than NRS 1,00,000 annually.

5.3.2 Income after Involving in Micro finance

Table 4 2 Income after Involving in Micro finance

Particulars/ per year No. of respondents Percentage

Below 10000 2 1.67

10000-50000 32 26.67

50000-100000 68 56.67

100000+ 14 11.63

No response 2 1.67

Total 120 100

Source: field survey, 2019

Above table shows that after involving in micro finance program (at least three year)
1.67 % respondents earn below 10,000 annually, 26.67% of respondents who earn
NRS 10,000 to50,000 annually, 56.67% respondents earn NRS 50,000 to 1,00,000
annually,11.63% respondents earn more than NRS 1,00,000 annually. This shows
there is significant improvement in their income by involving in micro finance
program.

5.3.3 Loan used sector

Table 5 Loan used sector
43
Particulars No. of respondents Percentage

Agriculture 16 13.33

Animal husbandry 80 66.67

Other Business 11 18.33

No response 1 1.67

Total 120 100

Source: field survey, 2019

Above table shows that 13.33% respondents used their loan in agricultural
productions, 66.67% respondents used their loan in animal husbandry and 18.33%
respondents have used for other business rather than agriculture and animal
husbandry. It shows micro finance program has added capital in their profession
which they have been doing. Similarly, it has also given the opportunities for other
business if they do not prefer their old professions.

5.3.4 Expansion of Business by taking loan

Table 6 Expansion of Business by taking loan

Particulars No. of respondents Percentage

Yes 108 90

NO 10 8.33

No response 2 1.67

Total 120 100

Source: field survey, 2019

Above table shows that 90% respondents' business has been expanded by talking loan
and only 8.33 % respondents' business has not been expanded. It shows that clients
have benefited for expansion of their business and get income accordingly.

5.3.5 Satisfaction of client with Gramin Bikas Laghubitta

Table 7 Satisfaction of client

Particulars No. of respondents Percentage

44
Maximum 56 46.67

Moderate 58 48.33

Less 6 10

Total 120 100

Source: field survey, 2019

Above table shows satisfaction of client with Gramin in which 46.67 % respondents'
stand with maximum satisfaction, 48.33 % respondents stand at moderate satisfaction
and only 5% respondents stand at less satisfaction with Gramin. It is seen that clients
are satisfied with micro finance program of Gramin.

Improvement in livelihood
Table 8 Improvement in livelihood

Particulars No. of respondents Percentage

Yes 120 100

NO 0 0.0

Total 120 100

Source: field survey, 2019

Above table shows the improvement in clients' livelihood in which 100% respondents'
livelihood has been improved with micro finance program. It shows the positive
impact of micro finance program to improve their livelihood. There are different are
aspects of livelihood improvement like increment in their income, their personal role
in family and society, improvement in education of their children, improvement in
health and sanitation, increment in consumption, increment in assets and increment in
savings etc. The respondents have improved in these aspects which show the positive
impact on the clients’ micro finance program operated by Gramin in Besishar
municipal of Lamjung District.

5.4 Economic Empowerment Index

Economic empowerment Index for 120 selected samples is calculated from the data of
the situations before and after joining the micro finance. The study revealed that the

45
average economic empower index increased before joining the micro finance from
33.65 per cent to 43.54 per cent showing improvement in economic status of the most
of the sample micro finance members.

5.4.1 Average Economic Empowerment (EE) Index

Table 9 Average Economic Empowerment (EE) Index

Particulars Before Joining After Joining

N 120 120

Range 69.44 69.45

Min. 16.67 19.44

Max 86.11 88.89

Mean 33.65 43.54

S.D 13.9524 15.7344

Std. error 1.2737 1.4363

Source: field survey, 2019

Further analysis of frequency distribution revealed that number of sample members

having economic empowerment index less than 40 per cent has been reduced from 91
(75.83 per cent) to 59 (49.16 per cent) after joining the micro finance program. Thus,
it is observed that micro finance helps in improving the economic empowerment of
micro finance members.

5.5 Average Social Empowerment Index

Table 10 Average Social Empowerment Index

Particulars Before Joining After Joining

N 120 120

Range 53.54 41.54

Min. 23.08 47.69

46
Max 76.92 89.23

Mean 45.1663 68.6412

S.D 9.5194 8.5586

Std. error 0.8690 0.7813

Source: field survey, 2019

It is found that number of micro finance members having social empowerment index
above 40 per cent increased from 82 out of 120 sample items (68.33 per cent) to 120
(100 per cent) after joining the micro finance program. It is observed that there is
some improvement in social empowerment index after joining micro finance program.

Combined Socio=Economic Empowerment Index for 120 selected micro finance

members, are calculated from the data of the situations before and after joining the
micro finance by using the above equation of Combined Socio-Economic
Empowerment Index.

Table 11 Avg. Combined Empowerment Index

Particulars Before Joining After Joining

N 120 120

Range 58.41 47.53

Min. 21.78 40.59

Max 80.20 89.23

Mean 41.0631 59.6932

S.D 9.6809 9.6771

Std. error 0.8837 0.8834

Source: field survey, 2019

47
It is found that the average combined empowerment index increased from 41.06 per
cent before joining micro finance to 59.69 per cent showing positive socio-economic
impact of micro finance on its members.

Table 12 Frequency Distribution of Combined Empowerment Index

Combined No of Individual MFI’s SHG Members

Empowerment
Index Before joining MFIs After joining MFIs

Number Percentage Number Percentage

Below 20 - - - -

20-40 59 49.2 - -

40-60 58 48.4 60 50.0

60-80 2 1.6 55 45.8

80-100 1 0.8 5 4.2

Total 120 100 120 100

Source: field survey, 2019

It is also found that number of SHG members having combined empowerment index
above 40 per cent increased from 61 out of 120 (50.80 per cent) to 120 (100 per cent).
It is observed that there is some improvement in majority socio-economic status of
SHG members after joining the micro finance program.

48
 CHAPTER VI

SUMMARY, CONCLUSION AND RECOMMENDATION

6.1 Summary
In this chapter, key findings of our work and study have been discussed. The goal of
this research was to study the impact of microfinance on reduction of poverty through
improvement of living standards and increasing empowerment of poor and
marginalized quarter of the society.

This study aims at evaluating the impact of micro-finance programs on poverty

reduction. Within this basic objective, the study examines the outreach of micro-
finance programs and coverage of poor, socio-economic impact on beneficiary
households, gender empowerment and sustainability of micro-finance institutions and
groups. These issues are examined in terms of government and non-government
programs as well as in terms of hills and terai Sustainability of MFls is analyzed with
reference to GBBs. Critical issues that seem to be derailing the micro-finance
programs and institutions from pursuing the right course of action and other
hindering the growth of micro-finance programs are thoroughly examined and
appropriate policy actions are suggested to mitigate these.

The study is based on secondary as well as primary data and information. Primary
data were collected from a sample of 120 micro-finance clients of the total sample
respondents, 79 belonged to government programs and 21 belonged to non-
government programs Micro finance program has been designed to uplift the poorest
of the poor from the society people who are disadvantaged, socially backward, and
economically weak. From the sector survey it shows that majority of members are
illiterate they're not qualified and skilled. The finding and outcomes of MFPs are
listed below:

 Micro finance has provided the banking services to those who are under
served from the traditional banking services.

49
 Micro finance has helped to increases the income level of the poor. On the
other hand, it helped to utilize the skills and optimum mobilization of
resources that present in local level.
 Micro finance initiative to empower the women and take engage in the
community development activities.
 Micro finance has supported the needy one that cannot afford the banking
services who are poor small clients of small loan.
 Due to the micro finance women and indigenous groups of deprived sectors
are greatly benefited.
 Micro finance has become the tool for the poverty reduction in rural part of the
country.
 It is also helpful to develop entrepreneur skills in the local level. It supports to
develop the micro enterprises.
 The consumption and clothing pattern have also changed with the involvement
in the program of micro finance
 It has done a great task of creating the employment by providing loan in rural
areas.

50
6.2 Conclusion
It was concluded from the analysis that provision of loan facilities and acquiring the
necessary skills on how to manage the funds to generate extra income and gain profits
serves as a way to improve living standards. Also established from the study is that a
community or a household that is financially empowered will be able to educate their
children, have an access to clean water, electricity as well appropriate housing which
are the basic measures of poverty. The micro finance aims to serve general and
poorest of people at their doorstep and make them used to with banking services and
facilities. The challenges faced by the institutions vary depending upon the type of
financial institutions as banks, finance companies, NGOs, co-operative societies and
self-help group that are participating in this program with different functional
strategies. These challenges are concerned with strategic, operational, financial and
manpower management. The strategic challenges are related with planning,
controlling mechanism and external policy environment. Unclear vision and mission
statement, lack of commitment, multiple regulatory framework and policy
inconsistencies constrain the sustainable growth of micro-finance institutions in the
country. Inadequacy of resources and lack of linkage mechanism between informal
and formal financial sector, duplication of activities, widening intense competition in
urban and semi-urban areas, inadequate attention towards the loan delinquency
management and control to poor human resources development efforts are perceived
as the operational challenges.

Training for improving farming techniques and micro-enterprises has helped members
to shift from the traditional agriculture to cash crop production, which yields higher
returns. Awareness of healthcare, including women and children’s health, family
planning, sanitation and reduction in smoking, alcohol consumption, etc., have
increased. At monthly group meeting, women discuss health issues which they follow
in their day-to-day lives. The availability of loan from micro finance has helped in
reducing the interest rate charged by moneylenders from 60 percent to 36 percent.
Competition in the financial market has helped to improve the quality of services and
it reduces the interest rate but it is still too high. Members have become more aware
of gender equality (participant of the Focus Group Discussion said that man and
women are equal in social aspects, it is wrong to wait for the birth of a son and
51
increase family size), human rights and women rights issues. They know that
violence; both physical and mantel against women should not be tolerated besides the
income generating projects group members are taking credit from within the group at
the time of emergency. So group saving has become their good source of money
otherwise they would have to go to the moneylender and it is accumulating the source
of future use. They all left that it has culminated a good habit of saving weather the
source of saving is from project income or any other sources. A positive change is that
more women have become capable of putting their views and concerns in the family
as well as in the group. Similarly, more women are now interested in knowing about
the issues and problems of wider social interest. This change is more visible in terai
and among the clients of non-government programs

On the whole, the low impact of micro-finance on reducing the poverty level of the
clients may be due to MFls' obsession with the expansion of loan, ignoring the
intricacies the economic equation of the borrowers and the necessary support services
to operate the micro-enterprises profitably. Emphasis is laid on increasing the number
of clients, extension of repeat loans, and maintaining repayment schedule, being
unconcerned about how the loan is used and debt servicing is managed. The timely
servicing of debt and taking repeat loans may not necessarily imply productive and
profitable use of the loan. Besides, the MFls have not given due attention to address
various problems, such as training, technical support and market facilities which are
necessary for profitability of micro-enterprises.

52
6.3 Recommendation

Based on the above discussions, the following suggestions have been recommended
for the NRB, commercial banks and Nepal Government in the context of;

(i) Poverty alleviation,

(ii) Uplifting living standard through microfinance and

(iii) Analyzing economic status of people

NRB

• Stop direct involvement in running and managing MFIs.

• Stop owning MFIs and handover presently owned shares of such institutions to the
private sector through appropriate and transparent mechanism.

• Innovate other alternatives that would take the responsibility of supervising MFIs.

• Act as facilitator.

• Rather than taking developmental activities, take promotional roles through

appropriate policy measures that will create favorable environment for MFIs to enter
the microfinance market, grow, develop, and attain the financial viability.

Commercial Banks

• Continue lending in both the priority and deprived sectors till MFIs are Sufficient in
number and strong enough to provide sustainable microfinance services,

• Provide wholesale loans to (i) the microfinance development banks, (ii) the licensed
FI-NGOs and SCCs, and (iii) the SCCs with NEFSCUN's membership, which are
operating at a profit and with good governance. Financing loss making institutions
would be too risky to the CBs.

53
Nepal Government

• Demonstrate firm commitment towards poverty alleviation through action.

• Stop direct involvement in running and managing MFIs.

• Stop owning MFIs and handover presently owned shares of such institutions to the
private sector through appropriate and transparent mechanism.

• Stop nominating government staff as Chairperson, Executive Director or the

member of the board of MFIs.

• Encourage private sector to establish specialized training institutions for MFI's staff
and for the MFI's potential client

54
Bibliography
Asian Development Bank [ADB]. (2010). Rural finance sector development cluster
programme. Asian Development Bank.

Berglund, K. (2007). The Effect of Micro finance on the Empowerment of Women and
its social consequences; A study of women self-help-group members in Andra
Pradesh. Department of Economic History. Uppsala University.

Chokhal, N. R. (2013). Impact of micro finance program in empowerment od women.

Journal of Economics, 108-155.

Cons, J., & Paprocki, K. (2008). The Limits of Microcredit—A Bangladeshi Case
(Vol. 14). Goldin Institute.

Dix, S. (2011). Corruption and Anti-corruption in Nepal: Lesson learned and

possible future initiatives. Norad Report .

Fernando, J. (2006). Introduction: Micro finance and Empowerment of Women in

Micro finance . New York: Perils and Prospective.

Ghalib, A. K. (2011). Estimating the Depth of Micro finance Programme Outreach:

Empirical. SSRN Electronic Journal. doi:10.2139/ssrn.1895295

Ishfaq, S., Khan, I., & Tazeem, A. (2015). The Role of Micro finance in Poverty
Reduction: Evidence from South Asia. International Journal of Management,
Accounting and Economics , 1191-1198.

Limbu, D. S. (2014). ROLE OF MICRO-FINANCE IN POVERTY REDUCTION

AND. Kathmandu: Tribhuwan University.

Ministry of Finance of Nepal. (2018). Economic Survey 2017/18. Retrieved from

https://mof.gov.np/uploads/document/file/for%20web_Economic%20Survey%
202075%20Full%20Final%20for%20WEB%20_20180914091500.pdf

Montgomery, H. (2014). Serving the Poorest of the Poor: The Poverty Impact of the
Khushhali. doi:10.4337/9781847203168.00014

55
Neupane, R. K. (2014). THE EFFECTIVENESS OF MICRO FINANCE IN
NEPALESE ECONOMY. Kathmandu: Tribhuwan University.

Pandey, J. (2014). “Women empowerment through Self-help Group: A

TheoreticalPerspective”. Journal of culture, Society and Development. (Vol.
4).

Rai, B. (2015). Effectiveness of microcredit programs in women's empowerment.

Kathmandu: Tribhuwan University.

Regmi, B. N. (2013). ROLE OF MICRO FINANCE IN POVERTY REDUCTION .

Kathmandu: Tribhuvan University.

Sen, A. (1999). Development as Freedom. Oxford.

56
Questionnaire
Questionnaire no:-……………………….. Date:-
2076/…./…
Respondent'sName:-………………………Address:-………………………………..

1. Personal Profile

1.1 Age

1.2 Your marital status (Tick)

a) Married b)Unmarried
c) Divorced d) Widow

2. Family information

2.1 Your current family member (Tick)

Children: - 0-14 years Male Female

Adult: - 15-64years Male Female
Older: - 65and above Male Female

2.2 Members who earn from (Tick)

a) Government services b) Business

c) Private firm/industries d) on own farm

e) Other (specify):-………………

2.3 Who is the head of your family? (Tick)

a) Self b) Others

3. Economic Background 3.1 Do you have land of your own? (Tick)

a) Yes b) No

3.2 What was your main occupation?

57
Sector Before Income Current Income

Agriculture

Business

Private sector job

Government sector
job

4. Participation in micro-finance

4.1 How did you know about the MF Program?

………………………………………………………………………………………

4.2 How did you enter in the group?

…………………………………………………………………………………………

4.3 What is your position in the group?

…………………………………………………..

58
4.4 How did you feel to enter in the group? (Tick)

a)Difficult
b) Normal c)
Easy

5. Loan received, use and repay

5.1 From where do you receive loan?

Sources Before After

Amount Rate of interest Amount Rate of interest
Local money lender
Co-operative

Bank
Micro finance

5.2Who decided utilization of the loan? (Tick)

a) Self b) Family head c) Common decision

5.3 Why did you join this program? (Tick)

a) To earn more income and to improve family condition.

b) To have company with friends.

c) To be self-dependent.

5.4 What is the expense on following?

S. No. Areas Before (Amount) After (Amount)

1 Consumption expenditure

2 Celebration of festival

3 Luxurious goods

59
4 Health and services

5 Farming

6 Business

7 Real state

8 Others

5.6 How do you pay back the loan? (Tick)

a)Partially b)at once

c) Not paid yet

5.7 Have you ever faced difficulties to pay back the loan and interest?

a)Yes
b) No

If yes, what are the difficulties? How did you solve it?

…………………………………………………………………………………………

5.8 Have you joined any literacy class?

a) PraudSikshya b) Primary licance

c) Secondary level d) Above Secondary

6. Family Status

6.1 What changes has been occurred after joining this program?

S. No. Items Before After

1 Access on electric device

2 Expenses on luxurious goods

3 Expenses on entertainment

60
4 Travelling

6.2 How do your family members and relatives deal with you after joining the group?
(Tick)

a) Appreciate b) Neutral c) Criticize

6.3 In your opinion, what are the main benefits of joining MF group?
………………………………………………………………………………………….

7. How you took loan?

7.1 How do make your investment? (Tick)

a) Without collateral b) With collateral c) With risk bearer

7.2 How do you return back the loan? (Tick)

a) With low interest rate. (......... %) b) Without interest rate.

c) Installment payment. d) Full payment.

8. Trainings

8.1 Have you taken any training from micro finance program? (Tick)

a) Yes b) No

8.2 How helpful has the training you received form MFI been in your enterprise
operation? (Tick)

a) Very helpful b) Helpful

c) Not helpful d) Others………………………

8.3 Has the training increased your skill? (Tick)

a) Very much increased b) Normally increased

c) Not increased

61
8.4 After receiving the training, has your confidence on income generating activities
increased? (Tick)

a) Yes b) No

8.5 Do you think your employment opportunity in labor market has increased due to
training you received from MFI? (Tick)

a) Increased b)Decreased
c) Constant d) Don’t know

9. Effectiveness on poverty reduction

What changes has occurred on the following headings

Particulars Before (Amount) After (Amount) % change

Saving

Consumption
pattern

Education

Health and services

10) What types of benefits you have from this MF?

Particulars Have it Have not

Economical independent

Social awareness

Literacy program

Basic skill development

Decision power
development program

Gender equality

62
12) What social and economic changed has been appears from MF?

Status of respondent Before Joining After Joining

Investment Output Investment Output

Agriculture

Business

Celebration of
festival

Employment

Donation

Participation on
social work

Education

63