Microfinance Industry Report: Nepal

This report presents an overview of the microfinance sector in Nepal, and its financial sector and regulatory environment. The report also provides a snapshot of the different service delivery methodologies prevalent in the country. The National Microfinance Policy passed by the Government in 2007 aims to facilitate an enabling environment for development of microfinance. Opportunities include the presence of retail MFIs and wholesale lending institutions, and the introduction of new products such as microinsurance. Expanding outreach to the hills and mountains of Nepal has presented difficulties. Challenges include:

• Lack of local institutions and reluctance of large MFIs to expand operations in hilly regions;
• Overlap of MFIs in densely populated areas threaten maintenance of quality and promotes unhealthy competition;
• MFIs' reluctance to extend services to migrant workers from remote and rural areas who come to towns seeking seasonal employment;
• Poor awareness about MFI sustainability and a view of microfinance as charity among leaders and political parties;
• Exclusion of the ultra-poor, marginalized castes and the destitute by existing microfinance programs;
• Highly subsidized microcredit programs threaten financial discipline and basic norms of microfinance systems.