Case study

Deficit Subsidy Model: An Effective Financial Service Outreach Model for Rural Nepal

Expanding financial services in Nepal with the deficit-subsidy model
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This case study describes the deficit-subsidy model that Mercy Corps and Nirdhan Utthan Bank Limited (NUBL), a Nepali MFI, used in a three-year pilot partnership to implement the Expanding Access to Finance in the Eastern Hills of Nepal (EAF) initiative. The pilot project aimed at expanding tailored financial products and services to increase financial inclusion in underserved areas of rural Eastern Nepal. Mercy Corps subsidized NUBL’s costs to establish nine new branch offices in Eastern Nepal that have reached over 13,000 Nepalese previously excluded from formal financial services. NUBL used Grameen, Self-Reliant Group (SRG), as well as individual savings and lending outreach models to reach clients. Targeted households either did not have access to financial services, or were unable to comply with the terms and conditions required by commercial banks or MFIs. Mercy Corps and NUBL are building on their experience operating under this model to further expand financial services to rural areas of Nepal. Lessons from the pilot highlight the importance of:

  • Mutual Benefit;
  • Ownership;
  • Replicability;
  • Crowding in effect;
  • Opportunity;
  • Cost effectiveness;
  • Synergy;
  • Sustainability.