Microfinance aims to provide financial services to low-income households to help alleviate poverty. It includes microcredit, microsavings, microinsurance, and money transfers. Studies show microfinance has helped reduce poverty in Nepal by increasing incomes, building assets, stabilizing consumption, and protecting against risks. It has led to improvements like higher annual incomes, more durable house materials, increased food sufficiency, and children's school enrollment among microfinance participants in Nepal. However, the impact of microfinance on poverty reduction remains unclear as evidence is mixed and it has shown to be more effective for some groups over others.
2. Poverty
• People having daily income less than $2
• Not having access to basic requirements
• 25.2% live below poverty line
• Nepal ranked as 12th in South Asia
3. Sources of Poverty
• Lack of Income
• Vulnerability to Income Fluctuations
• Lack of Access
• Powerlessness
4. Microfinance
• Microfinance is the provision of access to high-quality and
affordable financial services to low-income households
• Intended objective of Micro finance
• Income-producing activities
• Building assets
• Stabilizing consumption
• Protecting against risks
• Fighting against poverty
(Brau and Woller 2004:3, Duvendack et al. 2011, Robinson
2001, Yunus 1999)
5. It principally encompasses
• Microcredit
• Micro Savings
• Micro-Insurance
• Money Transfers for the poor
Microfinance
6. How Microfinance helps in Poverty Alleviation
Source: Systematic review of quantitative evidence on the impact of microfinance on the poor in
South Asia, 2015
7. World Scenario
• Poverty reduction was institutionalized in 1944, with the
establishment of the World Bank at the birth of Bretton
woods system.
• MFIs are contributing significantly to poverty reduction in
Bangladesh and other South East Asian countries by
creating income generation and self-employment
opportunities for the poor people by providing
microcredit.
9. Emergence of MF in Nepal
• Started as rural credit in 1956
• Establishment of cooperatives by government in 1963
• 1976, launching of a Sajha Program
• Small farmers development bank by ADBN in 1975
• Enactment of cooperative Act in 1992
10. Emergence of MF in Nepal
• Initiation of priority sector lending by NRB
• Establishment of western and far western grameen bikas
banks in 1992
• Nirdhan and CSD launched microfinance program in 1993
and1994
• Enactment of financial intermediaries Act in 1998
11. • Introduction of BAFIA, classified microfinance as class D
banks
• Establishment of RMDC and SKBBL in 1998 and 2001
Emergence of MF in Nepal
12. MFIs in Nepal
• D Class Development Banks
• FINGOs
• Swabalamban Bikas Kendra
• Development Project Services Nepal (DEPROSC Nepal)
• Jiwan Bikas Samaj
• Sahara (Cooperative Society)
13. A Class Commercial Bank directly involved in Deprived
Sector Lending
• Bank of Kathmandu
• Laxmi Bank Limited
• Prabhu Bank
• NMB Bank
MFIs in Nepal
14. MFIs in Nepal
• D Class Development Banks
• FINGOs
• Swabalamban Bikas Kendra
• Development Project Services Nepal (DEPROSC Nepal)
• Jiwan Bikas Samaj
• Sahara (Cooperative Society)
15. • Basis of operation
• Wholesaler
• Rural Self-Reliance Fund (RSRF)
• Rural Microfinance Development Center (RMDC)
• Sana Kisan Bikas Bank Ltd (SKBBL)
• National Cooperative Development Bank (NCDB)
• Commercial Banks
• Retailer
• It includes all 41 microfinance institution.
MFIs in Nepal
16. Microfinance Vs. Poverty
• Microfinance has helped in reduction of Poverty
• A Story from Kathmandu
“Microfinance leads Sharmila out of Poverty Trap”
Source: State of Microfinance in Nepal, 2009
17. Change in Wealth Status
Wealth Status Before After
Average Annual Income (Rs.) 8723 9417
Average Loan from Money Lenders(Rs.) 479 479
Average Landholding size (Ha) 0.396 0.394
Type of House Roof
Concrete
Corrugated Sheet
Slate
Thatch
Not Specified
12.1
27.1
15.9
36.1
8.8
18.6
35.3
15.0
19.8
11.3
Household Possessing Radio (%) 50.5 55.1
Household Possessing Television (%) 19.6 28.4
Household Possessing Hand pumps (%) 13.8 20.3
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
18. Change in Principal Occupation
Principal Occupation Before (%) After (%)
Agriculture Farming 56.0 48.0
Wage Labor 13.8 11.9
Service 8.0 5.6
Petty Trade 11.1 23.2
No Occupation 2.3 2.5
No Response 3.1 5.6
Trade allows high frequency of cash inflow, affects income
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
19. Change in Food Sufficiency
Food Sufficiency Before (%) After (%)
Less than 3 Months 15.9 7.7
3-6 Months 43.8 25.9
6 Months – 1 year 36.7 49.0
Surplus 3.5 17.3
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
20. Change in Literacy Status
Literacy Status Before (%) After (%)
Illiterate 48.0 10.2
Literate 52.0 89.8
Change in Education Level
Education Level Before (%) After (%)
Non Formal 46 218
Primary 68 73
Lower Secondary 57 60
Secondary 42 43
SLC 23 23
Above SLC 13 13
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
21. Change in Schooling of Children
Schooling of Children Before (%) After (%)
Sending Son to School 80.4 84.1
Sending Daughter to School 76.4 76.4
Type of School
Government
Private
85.2
14.8
85.1
14.9
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
22. Change in Consumption of Nutritious Food
Consumption of Nutritious Food Before (%) After (%)
Fruits Consumption
Once in Less than a week 25.5 30.9
Once in more than a week but less than a
month
32.4 34.7
Once in more than a month 42.2 34.4
Meat and Fish Consumption
Once in Less than a week 34.2 35.3
Once in more than a week but less than a
month
38.4 42.2
Once in more than a month 27.3 22.5
Egg Consumption 23.8 28.2
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
23. Change in Social and Political Participation
Social and Political Participation Before (%) After (%)
Membership of Social Organization 7.8 9.8
Attending Meeting of Social Organization 6.5 7.5
Position Held in Political Parties 2.3 2.5
Elected/Nominated in Local Government
Bodies
1.5 1.5
Source: Impact Evaluation of Microfinance Programs in Poverty Reduction
24. Changes
• Decision making role in Family
• Self Confidence
• Awareness of Social Issues
• Awareness in Health Issues and Sanitation
25. Poverty Alleviation in Nepal
• Microfinance is an effective tool for bringing positive impact
on the economic status of the respondents along with their
family members (Adhikari and Shrestha, 2013).
• Microfinance programs have made significant contribution to
reduce poverty (Acharya, 2011).
• Micro-finance leads to social and economic changes in the
borrowers after the participation in the programs (Sharma,
2010).
• There is changes in the wealth status after participation in the
microcredit program (Center for Policy Studies and Rural
Development, 2004).
26. Findings
• In Malasia: Microfinance has positive impact on household
income of women borrowers who spent three years in the
scheme as compared to new borrowers (Samer, Majid, Rizal,
Muhamad, Halim, and Rashid, 2015).
• Africa: There is also no evidence of substantial gains along
other dimensions of welfare, such as education and health in
less then three years period (Banerjee, 2013).
• Africa: Poverty reduction can be achieved through alleviation
measures through the use of microcredit and
entrepreneurship development (Journal of Financial Services
Marketing, 2011).
27. • The number of microfinance institutions has a negative
impact on the Gini index in Central African countries (Journal
of Development and Agricultural Economics, 2011).
• Africa: Extensive use of microfinancing has shown to reduce
extreme poverty among the users of microcredit. (The Clute
Institute International Business & Economics Research
Journal, 2009).
• Bangladesh: Microcredit may be a more effective remedy
against poverty and vulnerability if it is complemented by
other interventions (Zaman, 2004).
Findings
28. • Pakisthan: Microfinance Scheme help people to improve their
living standard and provide them financial opportunity to
expand their business (Ayuub, 2013).
• India: Access and efficient provision of microcredit can enable
the poor to improved quality of life (Bansal and Bansal, 2012).
• Bangladesh: Accessto microfinance contributes to poverty
reduction, especially for female participants, and to overall
poverty reduction at the village level (Khandker, 2005).
• Bangladesh: Study indicates that the extent of positive impact
has not been equal for all program borrowers (Azad, 2004).
Findings
29. Conclusions
• Despite the apparent success and popularity of microfinance
there has been mixed evidence on its effects on the social and
economic wellbeing of the poor (Duvendack et al. 2011,
Stewart et al. 2010, 2012).
• Microfinance is certainly not a medicine for poverty, it has
proved itself as a useful tool to fight against poverty
• It has provided important contribution in the country like
Nepal , Bangladesh and Malaysia but it is not fruitful in the
most undeveloped countries of Africa
30. • Impact analysis of microfinance suggests that the majority of
borrowers who already have some assets (or business skills
and education) are more likely to succeed
• Development of microfinance has improved the living
standard of rural people of Nepal
• Financial system approach and poverty lending approach
both are beneficial for the poor
Conclusions
31. • Attempts to examine the impacts of microfinance (Gaile and Foster
1996, Goldberg 2005, Odell 2010, Orso 2011) have shown that the
methodology, tools and techniques used for assessing the impact suffer
from several drawbacks me recent studies have shown its significant
effect on poverty using household survey data.
• Using panel data at both participant and household levels in Bangladesh,
Khandker (2005) confirms that microfinance programmes have a
sustained impact in reducing poverty among the participants, especially
females and a positive spillover effect at village level, thus contributing
to national economic growth.
Conclusions
32. • Other studies have shown that microfinance institutions
(MFIs) have not reached the poorest of the poor in Asian
countries (Weiss and Montgomery, 2005) or in Bolivia
(Mosley, 2001).
• Thus the relationship between microfinance and poverty is
still in question.
Conclusions