Feasibility for Bank in Nepal

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Feasibility for Bank in Nepal Powered By Docstoc
					“Make a research on the feasibility of starting a bank for the
                     poor in Nepal”

                        Submitted to

           Sir Anupatt Petchara Yuttachai F.S.G
          Senior Lecturer in Finance and Banking
                   Assumption University
                  Financial Management
          Subject code: FIN4813       Section: 403

                                   Submitted by

                                  Mr. Yoel Thapa
                                  Student Identity
                                  Major: General Management

                            Table of Contents
1) Background of the Study
2) Introduction
   2.1 – Objective of the Study
   2.2 - Statement of the Research Problem
   2.3 – Importance of the topic
3) Review of Relevant Literature and Data
   3.1 - Districts covered in Various Regional (Table)
   3.2 – Status and Activities of GBB (Table)
   3.3 – Status of Loan Disbursement and Recovery (Table)
   3.4 – Key Performance Indicators (Table)
   3.5 – Comparative Balance Sheet

4)    Historical Review of Some kind
     4.1 – Small Farmers Cooperative Limited
            4.1a # Achievement of SFCL
     4.2 - Sana Kisan Bikas Bank Limited
            4.2a # Status of SKBBL
     4.3 - Regional Rural Development Banks
     4.4 – Rural Microfinance Development Center
            4.3a # Status of RRDB
            4.4a # Status of RMDC
     4.5 – Micro credit Project for Women
     4.6 – Jagritee
            4.6a # Programs of Women Awareness
     4.7 – South Asia Poverty Alleviation Program
     4.8 – Various NGOs Initiatives

5) The Research itself
   The Feasibility Study of the Bank
   5.1 – Management Framework
   5.2 – Analysis
          5.2a # Risk Factor Analysis
          5.2b # Financial Analysis
   5.3 – Plans and Policies of the Bank
   5.4 – Strategies of the Bank
   5.5 – Strengths of GBB
   5.6 – Weakness of GBB

6) Conclusions

7) Bibliography

1. Background of the Study

      Poverty is the dominant factor of Nepalese economy. With regard to income,
38 percent of Nepal's population falls below the poverty line at the end of year
2001/2002 and over 90 percent of the poor people live in rural areas. In rural areas
even human development indicators; such as: adult literacy and average life
expectancy, as well as access to basic social services and economic infrastructure
are Frail (NPC, 2004) the condition of lower caste, ethnic groups, and women are
even worse. Therefore, among many challenges to achieve broad-based economic
growth in the country, one key challenge is the concern of socially inclusive
development both for reducing poverty and ensuring social and economic
development. The recent strategy of the Government of Nepal to reduce poverty in
the country focuses on: (i) mainstreaming the excluded groups by taking actions
under all found pillars to ensure equitable access for all, with emphasis on women,
disadvantaged caste/ethnic groups and remote districts; and (ii) providing
assistance through targeted programs to the hard core poor who may not be able to
benefit from general development programs.

      The Nepalese women have minimum access to resources, information and
services in the society. Their status is very low mainly due to lack of economic
empowerment. Though they work very hard in the household and agricultural farm
field their involvement in income generating activities are less due to lack of
education, skill, information and ownership of land and productive resources.
Within this background of the Nepalese society, Grameen Bikas Bank was
established replicating Prof. Mohammad Unus of Chitagaon, Bangladesh's model
who first initiated the concept of Grameen Bank, based on Grameen Financial
System (GBFS) in 1991. In the beginning the organization was set up in the form
of an NGO, mainly, Nirdhan that started the initial work in January 1993 in

Rupandehi district of western Nepal. In July 1992, Government of Nepal decided
to start two rural developmental banks namely Sudur Paschimanchal Grameen
Bikas Bank in Dhangadi and Purwanchal Grameen Bikas Bank in Biratnagar.

      These Grameen Bikas Banks (GBB) were set up with the realization to
improve the economic condition of the rural poor especially rural women by
providing credit facilities on the basis of group liabilities.

      After the establishment of two Regional Grameen Bikas Banks, Western
(Pashimanchal) and Mid Western (Madhya Paschimanchal) GBBs were
established in Butwal and Nepalgung. In 1996, Central (Mandyamanchal) GBB
was introduced in Janakpur. At present, there are five Regional Rural Development
Banks in all the Development Regions in Nepal.

    2. Introduction

      According to the Nepal Population Census Bureau of 2001, Nepal’s
population was 2,31,51,423 with annual growth rate 2.25%. The population growth
rate is very high in Nepal compared to many others countries. The trend of
migration from mountain and hill to terai region (Plain Land) and from rural to
urban is also high. The relationship between population and environment for their
use and on the other, they themselves are affected by consequential changes in the
environment. The consumption of resource is a major cause of environment
change. As just a marginal land is being cultivated, the population growth has led
to shortages of food at places. It has resulted depletion in forest areas, which has
caused frequent landslides, floods as well as soil erosion. High rate of population
growth also warrants increased spending on the social services such as education,
health, drinking water and others basic needs it has increasingly been difficult to
meet the growing demands of people for these services.

      Nepal is land locked country. Many people are depended in agriculture.
Nepalese people got involve in cooperative spirit from the very beginning of the
development of human civilization. Co- operative refers to work together for
common benefits (K.C 1999). It has been accepted as a mechanism for collection
of the scattered small savings and investing them in productive sector for the
benefits of the members or weaker section of the society. Started from UK
(Rochdale: Consumer store) scattered to all over the world in difference shapes and
types in the form of popular movements. The motto behinds cooperatives is ‘Each
for all and all for each’ and it is a system of self – help through mutual help.

      The cooperative organization initially was setup by people together on the
basis of the need felt by them. The business rules formulated the Rochdale
Pioneers are known today as the principle of cooperative established first, have not
been the creation of special law. However, later on the basis of experience special
cooperative legislation came to be enacted in many countries to meet the particular
requirement of the cooperatives organization (Kamat: 2001).

      Though cooperatives movements essentially a voluntary movement which
grows out of the needs and aspirations of the peoples. A number of socio
economics problems, peculiar to developing economics have however made
cooperation’s and agencies encouraged and helped by the state with a view to meet
several of its problems through its efficient working (Pokheral: 1991). The
tremendous increase in state activity together with its increasing power to intervene
in many spheres of life has led to a fascinating situation where government whole
heartedly take – up the cause of fostering cooperation non governmental agency.

      According to Asian Development Bank, World Bank and so many national
and international INGOs, Nepal is one of the least developing countries with per
capital income of $240 per person which is very small per capital income

comparing with the other developed countries. In this situation, when we pursue to
establish a Bank for poor Nepalese, it’s a really dynamic and very important to
understand people’s interest.

      In highly developed countries state part patronage hardly exists for the
encouragement of cooperatives. But in developing countries state participation
becomes essential for the countries economic development and to raise the living
standard of the people. Thus there is a close relationship between the state and
cooperatives (Pokheral: 1998). We can find many arguments that the state has to
play practical role of a guardian just to help and guide but not to rule or control
through active participations as in the working of public enterprises.

      When we prepare a plan for the establishment of a bank to poor Nepalese
people we have need of feasibility study of working areas. In this topic we have
need to fulfill the economic status of poor Nepalese compare. With others bank
such as loan interest rate, saving scheme, saving interest rate, providing overall
sectors of loan and so on. Nepal is geographically very complex country. Because
of the more than 70% area are in hill sides in this country. We have prepared a plan
to provide all kinds of services to poor Nepalese that will foster Nepalese
economic growth.

2.1 Objectives of the Study

      Financing primarily involves identifying sources of funding and allocation
of resources. Through effectively managing expenditures are also equally
important. There are primarily two sources of funding- internal and external.
Internal sources include revenue at both central and district and VDC/
Municipality levels and domestic debt. On the others, the external sources cover

foreign assistance and loans from both bilateral and multilateral sources. Within
these broad categories there are various terms and conditions in mobilizing
resources from those sources. On the side of effective utilization, attempt includes
realistic planning and budgeting exercise and better expenditure management.

      The recent efforts to strengthen planning and budgeting comprises of the
development of country's poverty reduction strategy paper accepted by all
concerned including development partners, medium term expenditure framework
making budgeting exercise more realistic with medium term perspective
development of business plan at the sector level promoting sector wide approach
harmonization       in the procurement       policies   and   measures   in   financial

      The general objectives of a bank for poor Nepalese is to provide credit and
other support services to those sections of the society who remained out of the
reach of the targeted credit problems.

      Some of the major objectives of a Bank for the poor Nepalese are:

    To provide banking facilities and services to the poorest of the poor people
      in the country.

    To provide credit and alleviate poverty prevailing among the poor people.

    To increase economic standard through mobilizing self- economy activity.

    To uplift socio- economic status of the poor people through community
      basic programs.

    To enhance awareness level of the poorest of the poor through training and
      literacy classes.

    To develop institutional mechanism from the grass root level and initiate self
      reliant economic activities for strengthening rural economy.

    To increase national production.

2.2 Statement of the Research Problems

      All branches of economic activities today are fundamentally dependent on
access to financial service. In fact, it is the diversified intermediation and risk
management services of the financial system which have made possible the
development of modern economics. A healthy and stable financial system
underpinned by sound macroeconomic management and prudential regulation it is
an essential ingredient for sustained growth over the years the importance of
financial sectors development and its contribution to nations GDP has been
evident. Financial services sector comprises over 9.91% of the gross domestic
product in the Nepal. The current financial institutions market in Nepal clearly
delineates a developing market with tremendous potential. With two large
economics growing at a massive speed, Nepal has a lot to gain from its neighbors,
China and India. In additional to this, the recent peace agreement and sign of
political stability in the country has further pared a way for prosperous future a
head. Mainly political, legal, economic, socio- cultural, technological environment
has directly focused or influenced the new operating businesses and services.

2.3 Importance of the Topic

      Most jurisdictions impose heavy regulation on the banking sector and entry
requirements are often designed to discourage the establishment of new banks.
Nepal as, highly respected jurisdiction with a modern legal framework and rate the
most business friendly nation in the world by the World Bank in 2005. Banking
services can be offered in and from Nepal by different types of entries, including

but not limited to registered banks, finance, companies, credit unions and building

The major importances of the study are as follows:

   1. Increasing economic growth of poor Nepalese.

   2. Providing very easily loan without any collateral.

   3. It has focus to the lower level of people to promote economic activity.

   4. It also helps to community mobilization.

   5. It helps to build up entrepreneurship development in the society.

   3. Review of Relevant Literature and Data

      Grameen Bikas Banks (GBB) are in operation one each in all five
development regions to provide credit without collateral to deprived rural people
especially for women in-group for their income generation activities.

Table: 3.1 Districts Covered in Various Regional Garmeen Bikas Bank

     Development                    Districts                             No. of
       Region                                                             district
       Eastern   Jhapa, Morang, Sunsari, Saptari, Siraha,                    9
                 Udayapur, Ilam, Dhankuta, Panchthar
       Central   Danusha, Mahottari, Rauthat, Bara, Persa,                  12
                 Chitwan, Lalitpur, Sarlahi, Makawanpur,
                 Nuwakot, Kavre, Dhading
       Western   Rupendehi, Nawalparasi, Kapilbastu, Palpa,                 13
                 Syangja, Tanahu, Kaski, Gulmi, Parbat,
                 Baglung, Lamjung, Gorkha, Argakhanchi
     Mid Western Banke, Bardia, Dang, Surkhet                                4
     Far Western Kailali, Kanchanpur, Dadeldhura, Acham, Doti                5

The status including various activities of the GBB as of Mid January 2005 is
presented in Table 1.

            Table 3. 2: Status and Activities of GBB (as of Mid Jan. 2005)

                                                 Regional GBBs
S.N.         Particulars                                    Mid         Far      Total
                                Eastern Central Western
                                                          Western     Western
1      No. of VDCs              262     286     272     107         76          1003
2      No. of Centers           1382    1267    1141    560         611         4961
3      No. of Groups            12190 7818      8049    3884        3494        35435
4      Total Members            50737 37001 39293 19420             19513       165964
5      Total Borrowers          48687 36105 38755 13422             10980       147949
6      Loan Disbursed           4909646 1971616 2759037 1015295     897266      11552860
7      Loan Recovery (Rs.       4394370 1709907 2402806 878869      774909      10160861
8      Outstanding Loan         515276 261709 356231 136426         122357      1391999
       (Rs. 000)
9      Group Saving             163334 82569       82934   47941    40054       416832
       (Rs. 000)
10     Individual Saving        37622   7480       4518    3153     1985        54757
       (Rs. 000)
11     Total Saving (Rs. 000)   200956 90049       87452   51093    4239        471589
12     Total Employees          311    247         228     133      113         1032
Source: Economic Survey, Ministry of Finance, 2005

         By mid January 2005, the five Grameen Bikas Bank through their 4961
centers served 35,435 groups. Total VDCs covered was 1003 in 43 districts. A
total of about Rs.11.5 Million worth credit was distributed to 147,949 members
since the operation of these banks up to mid January 2005 for income generating
activities without collateral. Out of the disbursed loan, about Rs 10.1 Million was
recovered and about Rs. 1.4 million remained outstanding. Similarly, the total

savings amounted to Rs. 471589 comprising of collective saving of Rs. 416, 832
and individual saving of Rs. 54, 757.
      The performance status of various regional Grameen Bikas Bank as of mid
January 2005 is as follows:
 Highest district covered are in Western development regional GBB and lowest
   districts covered are in mid Western Development Regional GBB.
 Highest number of VDCs covered is in central development region, which is
   286 and lowest VDCs covered is in Far Western Development Region, which is
   only 76.
 Highest centers are found in Eastern Development Region (1382) and lowest
   centers are found in mid Western Development Region (560).
 Highest number of client group is found in Eastern Development Region
   (12190) and lowest number of client groups is found in far Western
   Development Region (3494).
 Highest number of borrowers found is in central Development region (48687)
   and lowest centers are found in far Western Development Region (10980).
 Highest percentage of outstanding loan has been disbursed in far Western
   Development region (13.63%) and lowest percentage of outstanding loan has
   been disbursed in Eastern Development region (10.5%).
 As regards group saving and individual borrower’s saving amount Eastern
   Development region bank’s status is in the first rank and far Western
   Development Regional Bank is in last rank.
      A total of accumulated losses of Rs. 162.8 million. reached (GBB) by the
FY 200/2001 and to rescue, Government of Nepal and the Nepal Rastra Bank have
decided to make up this loss by way of capital grants to the concerned rural Banks.

Accordingly, Government of Nepal has decided to share 30% (Rs. 50 million) &
NRB the balance of Rs. 112.8 million (70%) (ministry of Finance, 2002).
      Similarly the loan disbursement and loan recovery status as of mid January
2005 is presented in Table 3.

      Table 3.3: Status Of Loan Disbursement And Recovery Among
                       Various Regional Grameen Bikas Banks

Particular   Performance of status of regional Grameen bikas banks
               EDR        CDR         WDR        MWDR     FWDR
Outstanding    10.5       13.3         12.91       13.4
Loan (in %)
   Loan        89.5       86.72        87.08       86.56   86.36
recovery %
  Rank in        1          3            2           4        5
Source: Economic Survey, Ministry of Finance, 2005

      From the above table it was found that highest recovery percentage is in
Eastern Development Regional Bank and lowest recovery percentage is in Far
Western Development Bank.
      The five Grameen Bikas Banks (GBBs) started operations by replicating the
Grameen model for the first time in Nepal with the establishment of the Eastern
and Far Western GBBs in 1992, followed by the central and mid western GBBs in
1995 and finally the western GBB in late 1996. These banks are registered under
the company Act of 1985 and have a paid up capital of NRs 60 million each
provided by Nepal Rastra Bank (NRB), the central bank (66.6%) the government
(9.95%) and selected commercial banks (23.45%). Together, these five GBBs have
the largest outreach consisting of 140, 000 members and 127, 000 borrowers and

outstanding loans of NRs 815 million by the end of 2000. Its stated policy includes
the provision of services to poor and marginal people having less than 0.6 hectare
of land in terai and 0.5 hectare of land in hilly areas.
      Members of GBBs are organized into groups; about two to eight are
federated to form centers at the village level. Up to a maximum of 50 centers are
under the control of a unit office, five of which are than put under the supervision
and control of an area office established in a centrally located area. When five area
offices are in operation, a district office is established to supervise and monitor the
area offices. The district offices finally report to the central office, which is the
apex level policy formulating body mainly engaged in preparing policy guideline
and operational procedures, resource mobilization, training, supervision and
control. The overall management and control of the five GBBs are vested in five
separate Board of Directors comprising five members each, and the daily operation
of this bank is looked after by five different executive directors.
      However, as GBBs expanded their operation during the late 1990's, it has
become increasingly apparent that the bloated organizational structure of GBBs
with around 1, 100 staff were burdened with huge overheads which could not be
fully covered by the narrow spread from its operations. The narrow spread was
itself the result of its low interest rate of 10% charged to its borrowers, which was
the lowest among all the microfinance institutions in Nepal. The problems are
further compounded by poor staff skills, lack of training and an inadequate
management information system. The cumulative effect of these problems was that
the losses incurred by four of the five banks have eroded the entire equity base
leaving these four banks technically insolvent.
      Along with the financial sector reform, the government constituted the Rural
Development bank High Level Coordination and Guidance Committee under the
chairmanship of the deputy Governor of NRB in 2000. Based on the findings and

recommendations of the high level committee, the government and NRB have
agreed to initiate GBB restructuring. The restructuring process started in October
2001 and is expanded to be completed in 2006. The committee has also issued
productivity norms to all 5 GBBs to enhance productivity in staff and bank
branches action plan based on the productivity norms which were submitted to the
High Level Committee.
Recapitalization of loss- making GBBs: The government and NRB together
recapitalized the four loss- making GBBs, except for Western GBB, capital grants
of NRs162.8 million, of which NRB provided 70% and the Government supplied
30%. This amount has covered the accumulated losses of the four GBBs until the
fiscal year 2001.
Privatization of Western GBB and Eastern GBB: Among the five GBBS,
Eastern and Western GBBs were privatized with NRB share reduced to 35% and
10% respectively. New shareholders include private commercial banks as well as
members of GBBs. NRB intend to divest the rest of GBBs up to 10%. However,
mid Western and Far western GBBs are technically insolvent and unable to be
divested without additional capital injection.
Professional Board of Directors: The government has withdrawn its board
representatives from all five GBBs and replaced them by professional
microfinance experts.
Appointment of Executive Directors of GBBs from the Market: The
government has replaced the executive directors of the three GBBs with experts
recruited from the market. An independent recruitment committee was set up by
the government for this purpose.
Lending Support from Rural Microfinance Development Centre (RMDC) for
On-lending: NRB directed RMDC- and microfinance apex- to provide loans to

GBBs immediately after the recapitalization plan. RMDC has provided the loans of
NRs 20 million starting from April 2004 to profit- making GBBs.
       As the GBBs are the largest microfinance operations in the country, their
operational and financial efficiency is critical for the health and soundness of the
microfinance sector. The restructuring process made some tangible improvement
on GBBs operations and four GBBs are now operating profitably and the level of
losses ot the rest of the GBB are generally declining (tables C.1 and C. 2). It is
expected that as the privatization progresses, it will reduce the fiscal burden of the
government and improve their efficiency to deliver the microfinance services to
their memers.
  Table 3.4: Grameen Bikas Banks, Key Performance Indicators (Rs million)
        Item               EGBB CGBB WGBB MWGBB FWGBB
  Interest Income           75.4 51.2 69.9 24.8  26.3
   Other Income             1.7  5.3  4.1  10.2   4.4
   Total Income             77.1 56.4 74.1 35.0  30.8
 Interest Expenses          26.8 21.8 26.6 8.2   15.6
  Staff Expenses            33.6 23.3 22.5 12.6  13.3
 Office Operating           6.1  7.1  9.2  3.5    3.3
Loan Loss Expenses          8.1       -           4.4       -        0.2
   Other Expenses           1.9      2.9          5.1       -         -

         Item              EGBB     CGBB         WGBB     MWGBB    FWGBB
Total expenditure          76.6     55.1         67.8     24.3     32.3
Profit/loss                0.5      1.3          6.3      10.7     (1.6)
Loans outstanding          498.1    264.7        355.4    141.3    79.3
Number of borrowers        41,996   40,340       40,404   13,066   11,744
Number of staff            301      247          216      133      112
Borrowers per staff        140      163          187      98       105
Yield to portfolio         15.1     19.3         19.7     17.6     33.2
Operational        self-   101      102          109      144      95
sufficiency (%)

CGBB = Central Grameen Bikas Bank, EGBB = Eastern Grameen Bikas Bank,
FWGBB = Far-Western Grameen Biksa Bank, MWGBB = Mid-Western Grameen
Bikas Bank, WGBB = Western Grameen Bikas Bank.
      For the fiscal Year ending Mid July 2005.
Source: Nepal Rastra Bank.
 Table 3.5: Comparative Balance Sheets Of Grameen Bikas Banks as at Mid
                             July 2005 (NRs million)
         Item         EGBB CGBB WGBB MWGBB FWGBB
   Liabilities and
Paid up capital       60.00 60.00           60.00    60.00     58.00
General reserve        0.73     -            3.87     0.35        -
Other reserve          0.60   3.06           0.82     0.70      0.08
Borrowers             363.16 316.76         500.33   223.94    264.65
Deposits              159.54 97.46          92.46    48.96     41.46
Loan loss provision      -      -           30.25       -      51.08
Other liabilities     75.05 12.13           20.86    50.81     84.85
Accumulated loss       6.84     -            0.36       -         -
Total liabilities     665.91 489.42         708.96   384.77    500.62
Cash                    0.92    1.88        2.31       0.86     4.23
Balance with           59.30    77.57       47.82      14.60    8.69
commercial banks
Balance with NRB      54.49   4.34           5.38     8.50      2.08
Loan and advance      498.07 264.72         385.70   141.30    130.33
Investment              0.8  97.61          239.19   137.17    185.8
Fixed assets           2.99   2.1            1.08     4.40      2.02
Other assets          49.34 13.76           26.49    28.56     70.44
Accumulated loss         -   27.44             -     49.38     97.02
    Total assets      665.91 489.42         708.96   384.77    500.62

CGBB = Central Grameen Bikas Bank, EGBB = Eastern Grameen Bikas Bank,
FWGBB = Far-Western Grameen Biksa Bank, MWGBB = Mid-Western Grameen
Bikas Bank, WGBB = Western Grameen Bikas Bank.

4) Historical Review of Some kind
4.1 Small Framers Cooperative Limited (SFCL)
      Another important source of rural finance in the government sector has been
the agriculture development bank limited (ADBL) which until recently was known
as agriculture development Bank, Nepal (ADBN). It is by far the foremost
institution in the sector and as of July 2006, its lending for agriculture has reached
NRs. 105 billion (ADBL, 2006).

      One of the distinctive initiatives of the ADBL has been the piloting of small
farmer Development Program (SFDP) in 1975 whose success led to its rapid
expansion all across the country and helped it to attract international funding as
well. Under this approach small farmers such as owning less than 0.5 ha. Of
cultivated land per family or a per capita income of less than NRs. 2500 (at
1987/88 price), are identified through a household survey and are organized by the
Bank-appointed Group Organizer into mixed or exclusively women small group of
generally 6-7 members in the villages. Initially, they were extended collateral-free
loans for income generating activities on joint liability basis, which meant that if
one member defaulted, the rest had to pay. However, when difficulties cropped up,
the lending became collateral-based, mainly the land.

      The distinctiveness of the SFCLs is that they are three tiered structures. At
the grassroots are the Small Farmer Groups that function as the basic level of the
cooperatives Limited, or SFCLs. The distinctiveness of the SFCLs is that they are
three tiered structures. At the grassroots are the Small Farmer Groups that function
as the basic level of the cooperative for saving mobilization and credit allocation,
which are federated into Inter Groups (IG) at the Ward Level and as SFCL at VDC
level, the last one registered with the government as a regular cooperative. By mid-
July 2006, 200 SFCLs have come into existence with a small farmer membership

of 117,094, the total outstanding loan disbursed to them amounting to Rs. 1.86
billion and a savings deposit of Rs. 563 million. While 12 SFCLs are exclusively
women, overall women's participation in the program stands at 46 percent. Some
basic details about the program are given in the Table 1.

Table 4.1a: Achievement of Small Farmers Cooperative Limited (July 2006)

Activities                                                      Status
No. of SFCL                                                     200
No. of Small Farmer Groups                                      18365
Members                                                         117094
- Female                                                        54200
- Male                                                          62894
% of Women Participation (%)                                    46
Saving (Rs. In Milion)                                          563.23
Handed Over Loan (Rs. In billion)                               1.72
Loan Disbursement (Rs. In Billion)                              4.72
Collection (Rs. In Billion)                                     3.82
Outstanding (Rs. In Billion)                                    1.86
Average Loan Size (Rs.)                                         15,988
Repayment Rate at Cash Basis (%)                                94
Source: SFMFD/ADBL, 2006

      When SPOs were transformed into SFCLs the outstanding loans were
handed over to them which, as seen above, amounted to 1.72 billion rupees.
However, in the meantime 4.72 billion rupees have since been lent to them, which
come to over 40,000 rupees per member, and the size of individual loans on
average is also quite large at almost 16,000 rupees per loan.

      One of the distinctive features of the approach, as in the case of NRB's
RSRF approach is that the ADBL extended bulk lending to the SFCLs which,
coupled with their own increasingly large savings, enable their member farmers to
make fairly large sized investment in their income generating activities such as
agriculture, livestock, poultry, agricultural implements, irrigation, trading and

cottage industries. It should be emphasized that loans are extended only for income
generating activities only which are universally adopted in that most of the
members in the coop do borrow, some more than one loan in different portfolios.
From this perspective, the SFCLs have a very important role to play in rural
finance: on the one hand they function as intermediary between the bank and the
small farmer borrowers; on the other they are the capacity builders of the small
farmers to make them increasingly more self reliant and enterprising. A recent
study of four SFCLs in the country has observed that the tiered structure of the
SFLCs with small group at the base provides a very significant space for the men
and women small farmers for self help development and that “poverty alleviation
is quite effective as a self –help undertaking of the poor themselves and (that) it
involves little or no cost to the government. The fact is that SFLCs receive no
agency no grant of subsidy from the government of any donor agency only assures
the self-sustainability of the approach” (Shrestha, BK, 2004).

4.2 Sana Kisan Bikas Bank Limited (SKBBL)

      In order to attend to the needs of the SFCLs, a specialized microfinance
bank, the Sana Kishan Bikas Bank Limited (SKBBL) has come into existence in
July 2001 with the aim of promoting and strengthening the SFCLs including
wholesales credit /refinancing them and other grassroot microfinance institutions.
So far, as of July 2006, SKBBL has taken over 141sfcls from the ADBL with loan
and interest receivable amounting to NRs889.0 million and NRs 70.8 million. As
of mid july 2006, SKBB too has invested some NRs. 1347.0 million and has
collected NRs. 270.3 million in interest. The present status of the SKBBL is given
in the Table 2.

      In order mainly to attend to the capacity building needs of the SFCLs the
formation of district level federations of SFCLs is underway, and so far only one

such federation has been established in dhading district . After the formation of
district level federation and one apex level federation, the bank will deal only with
financial products/services and federation with non- financial products and

Table 4.2a: Status of SKBBL

      (As of July 2006, Cumulative)

                                                                    NRs. In Million

  1     No. of SFCLs                                             141
  2     Handed Over Loan From ADBL                               889.0
  3     Handed Over Interest from ADBL                           70.8
  4     Loan Disbursement                                        1347.0
  5     Total Loan Collection                                    1275.5
  6     Total Interest Collection                                270.3
        Loan Outstanding                                         960.5
  7     Handed over from ADBL                                    303.7
        New Loan                                                 656.8
  8     Repayment Rate (%)                                       85%
Source: SKBBL Office Files, 2006.

      While the SKBBL (and ADBL too earlier) has been undertaking farmer to
farmer replication program, i.e. to have an existing SFCL to promote another in its
vicinity, the counsultative group to assist the poor (CGAP) with the international
fund for agriculture development (IFAD) has recognized the innovativeness of the
approach by conferring the Rural pro- poor innovative challenge award of US$
50,000 to undertakes such replication in five more VDCs which is already under
way (SKBBL, 2006).

4.3 Regional Rural Development Banks (RRDB)

       Another set of banking institution in microfinance in Nepal is the regional
rural development bank (RRDB) established by the government beginning 1992 in
all the five development region of the country. These banks represent the
government initiative for replicating the Grameen approach of Bangladesh. This is
an all women affair. Small women farmers who have only small land holdings and
are sufficiently literate to be able to write her name can access credit under it. By
January 2006, they are operational in 1018 VDCs of 45 districts in the country. As
inherent in the Grameen approach, the bank work through group of five. Loans are
provided on joint liability basis and rotate among the members. Initially, only two
members are given credit, and the rest get their turn only after the first borrowers
have repaid them being the last to perceive it. Altogether, 147,550 women have
borrowed and the total loan has amounted to NRs 11.76 billion of which Rs. 10.52
billion has been repaid. There are almost 100 (95-100) percent repayment rates in
RRDBs. The average size of loan outstanding is around 10,000 rupees. More
details are given in the table 3.

       The table shows that the five banks together have made sizeable coverage,
spread over a total of more than one quarter of the total VDCs in the country in 45

4.4 Rural Microfinance Development Centre (RMDC)

       Registered In 1998, Rural Microfinance Development Centre Limited
(RMDC) is yet another Government promoted Microfinance Institution which is
funded by a loan from the Asian Development Bank. As in the case of the RSRF
and SKBL described above, it too is a wholesales lender to Rural Microfinance

Institution (MFIs) such as Rural Development Banks, Microfinance Development
Banks, Rural Cooperative and Financial intermediary NGOs which provide
microfinance service to the poor with special focus on women, its mandate include
refinancing the MFIs.

Table 4.3a: Status of Regional Rural Development Bank(Mid Jan 2006)

                                                           Mid           Far
S.N      Particular    Eastern    Central   Western                                Total
                                                          Western       Western
 1    No. of centre    1373      1353       1167      577           621           5091
 2    No. of groups    11355     8765       8277      3668          3518          355583
 3    No of members    45615     40686      41951     17464         19503         165217
 4    No. of borrowers 41996     40340      40404     13066         11744         147550
 5    Loan disbursed   5346310 2430926      3298740   1165306       1001459       132427
 6    Total loan repaid 4807003 2122079     2877485   1002146       873055        116817
 7    Total       loan 539307    308847     421255    163160        128404        156097
      outstanding                                                                 3
 8    Personal saving 32062      9733       4744      6255          3528          56322
 9    No. of Branch    36        28         35        22            17            138
 10 VDC covered        251       300        276       109           82            1018
 11 Districts covered 9          14         13        4             5             45

       The productive activities by the village poor contribute to capacity building
of the partner organizations for promoting financially viable and sustainable MFIs.
As of mid July, 2006 RMDC has provided whole sale credit to 45 microfinance
institutions including Regional Rural Development Banks, Cooperatives and
Clubs. The partner organizations (Pos) of RMDC have covered 40 districts, 2180

VDCs and 368,814 members with an outstanding loan of Nrs. 2.3 billion as seen in
the Table 4.

Table 4.4a: Status of RMDC activities

 S.N.                  Particular                           Status
1        No. of MFIs                              45
2        No. of centers                           13,216
3        No. of groups                            73,550
4        No. of members (female)                  368,814
5        No. of borrowers (female)                304,030
6        Loan outstanding (NRs. In billion)       2.3
7        VDC covered                              2180
8        Districts covered                        40
Source: RMDC, Office files, 2006.

        The table shows that RMDC has a very wide coverage, more than fifty
percent of VDCs covered in the country with a significant presence in each of
them, an average of 169 households per VDC, assuming that members in the
project groups represent one household each. The outstanding loan amount is also
sizeable, Rs. 7,600 per loan on average.

4.5 Micro Credit Project for Women (MCPW)

        Even as the PCRW has been lingering around, the Asian Development Bank
funded Micro Credit project for Women which got under way in 1994 with a loan
assistance of SDR 5 million and was implemented in 12 districts. The
distinctiveness of its approach lies in using NGOs as facilitators in micro-finance.
Under this project, 95 partners (87 NGOs and 8 Saving and Credit Cooperatives)
have been involved in "financial and social intermediation", i.e. group formation,
training and delivery of bank credit (Department of Women Development, 2002).
By March 2002 the MCPW has covered 14 districts and provided services to 182
VDCs and 14 municipalities. Commercial banks are able to disburse NRs. 134.932

million (outstanding balance) to 21769 active dients with average loan size of Nrs.

4.6 Jagritee

        The government came up with still another program called jagriee or
Women Awareness and Income Generation Program in 1999/2000 with the
objective of uplifting the socio-economic status and political awareness of women.
The strategies and activities of the program followed the normal microfinance
approach, now more or less firmly established in the country, such as social
mobilization, group approach, compulsory saving, external institutional credit and

Table No. 4.6a: Progress of Women Awareness and income Generation

 S.N.            Particulars             Unit       Achievement
1        District                  No.            75
2        No. of VDC Covered        No.            942
3        No. ofGroup Formed        Group          29356
4        Group Saving              Rs. 000        34,251
5        Saving Mobilisation       Rs. 000        159,394,961
6        Group Members             No.            167161
Source: Annual Progress Report of Women Development Department Oct, 2005.

4.7 South Asia Poverty Alleviation Program (SAPAP)

        SAPAP derives from the South Asian Association for Regional Cooperation
(SAARC) initiative towards poverty reduction and its Nepal component got under
way in 1994. Its objectives are to (i) demonstrate the effectiveness of the social
mobilization approach for a fast scaling up of poverty alleviation efforts, and (ii) to
improve the participatory development planning process in Nepal. Organization

development, capital formational and skill enhancement are the three important
components of its social mobilization process. Village Organization (VOs) are
promoted as organizational vehicle of the program, capital formation is promoted
through member savings, trainings are imported for skill enhancement, and credit
extended to help members to carry out their social/economic plans. The 60 CMCs
in the district are federated. As of December 1999 the program has covered about
6,000 households in 7 VDCs and 207 settlements in Syanja which consists of male
VOs number 27, female 35 and mixed 151. a total of Nrs. 11.75 million has been
generated as capital and 94.3 percent has been mobilized for different activities

4.8 Various NGOs Initiatives

      In addition to the above, there is a large number of NGOs, which have been
involved in microfinance activities in the country. As of January 2006, 47 NGOs
and 19 SACCOSs have taken license for financial transaction from the Nepal
Rastra Bank (NRB, 2006). The non-government pioneers in the field of
microfinance include CEAPRED (Centre for Agricultural Policy Research,
Extension and Development), DEPROSC (Development Projects Services Centre),
SAPPROS (Support Activites for the Poor Producers of Nepal), VDRC (Vijaya
Development Resource Centre) of Nawalparasi, all of them have been in
microfinance for more than a decade, and four of them, Chhimek Bank, CSD,
DEPROSC and NIRDHAN, are Grameen replicates. The status of the four
Grameen replicators are given in the Table 8.

      More than 130 thousand women have borrowed loans amounting to NRs
6.28 billion of which NRs 5.22 billion has been repaid. The average size of loan
outstanding comes to about NRs. 8000.

5) The Research itself:

Feasibility Study of the Bank

       To operate the Grameen Bikas Bank successfully, location of the Bank
should be suitable. So, we will choose the poorest and remote area of the eastern
part of the nation. First of all we will select the 25 VDC, which are very remote
and back in economic condition. Such as Solukhumbhu, Taplejung, Pachthar,
Bhojpur etc. we can take competitive advantage by starting. Rural banking in those
areas we can easily predict the expectation of people which will help us to work as
per the desire of people. These are the mainly remote areas and the people’s desire
to improve economic status of their family.

       The head office of the bank is located in a Itahari. Itahari is the main city of
eastern reason and Motto of eastern area of Nepal. Basically, transportation,
communication, electricity, water supply and others primilary services are
available in Itahari. It is located in Sunsari district.

5.1 Management Framework

       Every organization needs effective management body or structure to run the
bank successfully. Without proper management, it is difficult to run the bank and
there exists more challenges. To get started a bank, we will hire some employees to
run the bank.

              The operation management structure will be as follows:

                                                General Manager

   MKT                    Finance               H. Resource            R/D          Field
   Manager                Manager               Manager                Manager      Manager

Assistance            Assistance            Assistance           Assistance       Assistance
of District           of District           of District          of District      of District
Manager               Manager               Manager              Manager          Manager

Supervisor         Supervisor            Supervisor               Supervisor         Supervisor

                                            Internal Management

       Risk                                 Internal Audit                       System Risk
       Management                           Team                                 Management



      In free market economy there exist potential threats from the each other
organization. Everywhere is the problem but can be minimized by efficient and
effective management. Some problems which our bank has to face can be
maintained as follows:

   a) Market and Competition Problem defined by our market from Mechi (East)
      to Sagarmatha (West) have many co- operatives and small banks running. It
      is difficult to win the share of the heart of the people in those areas.

   b) Finance which we need to invest in the poorest area of eastern part of Nepal
      is large money and is not sufficient.

   c) Transportation Problem created by infrastructure diminishes the banking

   d) Political instability may cause abnormal loss.

   e) Government rules, regulation and policies may create problems.

   f) Lack of Investment in Productive Sectors could happen, leaving the bank
      with lower rate of repayment.

   g) Lack of Incentive for Employees could happen because the working
      locations are remote.

   h) Irregular mobilization of Deposits and Recovery of Loan, sometimes the
      provided loan does not show interest to recover on time.

   i) Frequent inspections are required.


      It is main body of the organization. In financial analysis, there are so many
studying areas. Those areas are as follows:

   a) Total Capital

      The total of the bank will be 50 million.

   b) Requirement of Loan

      A working capital loan of 20 million will be taken from a government bank.
      This loan will be term loan and will be matured in 15 years. Similarly, other
      loan will be 10 million borrow from commercial bank and remaining amount
      will be conducted by issue share and collect 20 million.

Deposit Rate

      Grameen Bikas Bank offers vary attractive rates for deposits

Low Interest Rate

      Government of Nepal has fixed interest rate for government run micro credit
programs at 11% at flat rate. It amounts to about 22% at declining basis. Garmeen
Bikas Bank interest rate is lower than government rate. All interest is simple
interest calculated on declaiming balance method. is 8.5% maximum rate is 12%.

   c) Profitability, Solvency, Liquidity and Stability has been the major interest
      for our Financial Part.

   d) The Past Performance of Grameen Bikas Bank and other cooperatives show
      a positive response and opportunity to be established.

   e) Profroma Balance Sheet

   Liabilities/Capital        Amount              Assets            Amount
Share Capital     20m                             Assets             20m
Loan:                                           Investment           35m
From Government                                    Cash              15m
Commercial Bank                                   Stock              25m
Total Capital     50m           50M

Creditors                       18m
P/l A/C                         27m
                                95m                                   95m

   d. Analysis of Current Assets

      Current Ratio = Current assets/current liabilities

                    = 35/18

                    = 1.94: 1

      The current ratio will be highly essential promote to run the Bank. 13.

5.3 Plan and Policies of the Bank

      During the last decade of the 20th century it has become accepted that micro-
finance and Grameen Bikash Bank is one of the most significant contributors for
poverty alleviation. In Nepal, although the poverty model has been used in the hill
and Terai regions the standard of living varies. Regulating and supervising and
needs make national policy in micro finance. In Nepal, experience shows that
private sector managed micro finances are better off than government owned micro
finances. So it has become necessary to hand over all Grameen Banks to the
experts of micro finance.

   The policies and plans adopted by the Bank are as follows:

 To provide services to the poor and marginal people having less than one
   bigha (0.6 hectare) of land in Terai and 10 ropani (0.5 hectare) of land in
   hilly areas.

 To provide credit and banking services to poor woman on priority basis.

 To organize the members in to group and provide credit on group liabilities
   without any collateral securities.

 To disburse credit to the largest people with primary focus on using
   traditional skill and physical assets and assist them to increase their income
   with in short period.

 To include the beneficiaries to participate in the regular saving scheme
   (collected every week).

 To have bottom up planning under prefect decentralization frame work (the
   planning process allows the beneficiaries to participate in local level
   planning, implementation, supervision and monitoring of the program).

 To develop co- ordination with line agencies to transfer technology in the
   rural areas.

 To fix the loan re payment schedule for every week and the collection of
   loan repaid as per the repayment schedule.

 To involve women with first priority for the participation in banking

 To mobilize credit through group comprising of fire person in each group.

5.4 Strategies of the Bank

      To implement the plan and policies, the bank adopts following strategies;

    Beneficiaries are organized into groups. Each group comprises of five
      members of either six from different households.

    Training is considered as an integral component of the program to enhance
      the knowledge and skill of the beneficiaries. The training is focused on
      banking program, procedures, literacy, awareness, skill development, child
      immunization, health and sanitation.

    To poorest of the poor members will be prioritized to receive credit at a
      time. Credit ceiling has been fixed to Rs 5000 at the beginning. The
      borrowers need to pay the loaned amount on weekly installment basis
      attend meetings regularly and follow the group norms for at least 8 weeks to
      enable additional 2 weeks of the group for borrowing.

    Group member need to deposit Rs. 1 per day for 9 day’s during training

    Borrowers are obliged to deposit of the credit amount in the group fund.
      Each member is allowed to use group fund for emergency need.

    Beside compulsory savings, each member must deposit Rs 1 every week as
      their individual savings.

    Members should repay the loan every week @ 2% of the capital amount i.e.
      amount borrowed should be paid in 50 equal installments.

5.5 Strengths of Garmeen Bikash Bank in Fulfilling Millennium development

     Focus of the bank for the poorest of the poor people.

   Priority given for the disadvantaged women.

   Loan provided without collateral securities (group guarantee).

   Organization building through group formation system.

   Focus on income generating activities for the rural women.

   Provision of compulsory training to recent loan and skill development.

   Provision of community development activities and rural development
     activities by mobilizing communities.

   Provision of saving fund (regular individual and group savings).

   Convenient place of banking transaction where the members of the group
     usually gather.

   Creates    employment      generation    opportunities      to   the   rural   poor,
     disadvantaged and marginalized sections of the society.

   Development of entrepreneurship among the community people.

   Assist to increase socio- economic status of the poor people since it has a
     significant impact on their income and in others social status of the

   Improvement in economic activities, consumption pattern, sheltering and
     clothing leading to high living style of the rural poor.

   Increase literacy rate of women and provides general awareness among the
     rural communities.

    Develop leadership quality of the poor people by making them able to look
      forward confidently.

    Generate a movement among the poor women to discover and use their
      hidden potential for earning a better living.

    Positive impact on health and sanitation.

    Decrease female’s dependency on male family members from the above
      discussion there is definitely a positive impact of Grameen Bikash Bank for
      reduction of poverty in rural communities helping to fulfill millennium
      development goal.

5.6 Weakness and challenges faced by Bank

      Though Banks were proved effective institutional mechanism for promoting
micro- finance service to the rural poor, they are facing serious problem of
sustainability due to high administrative and service delivery cost. Others major
problem is absence of self regulatory mechanism of the banks and fully committed
professionalism (Pradhan, 2004). Another challenge for the sustainability of the
banks is the low recovery rate of the loan, since the borrowers could not make
profit from the credit, as the market is limited in rural areas and lack of modern
appropriate technical as well as entrepreneur skill among the borrowers.

      On the basis of various reports and findings of the study the challenges and
weakness of the banks will be listed as follows:

    Weak management of the bank.

    The rules and regulations of the bank are not strictly followed.

 Micro-credit services from the NGOs and other financing institutions are
   creating competition with the activities of Grameen Bikas Bank.

 Most of the branches of the banks are getting losses due to high operational
   costs and low loan recovery rate.

 Administrative processes are not transparent.

 High interest rate (20%)

 Difficulty in identification of poorest of the poor and the extremely poor
   have been mostly left out from it’s beneficial operations.

 Loan repayment is not encouraging.

 Deteriorating financial position due to negative profitability position of the

 Lacks co- ordination among the branches of the banks.

 Ineffective system of monitoring and evaluation.

 Operating in limited areas and limited out reach.

 In sufficient skill and technical training to the borrowers.

 Lack of market facilities in the rural areas.

6. Conclusion

      Grameen Bikas Bank is very popular among the rural poor, as it helps them
to uplift their socio- economic condition. Due to high interest rate of the bank and
low profit margin from the income generating activities, they are not being able to
repay the loan in time. Some effective mechanism from the bank of poor provides
assistance such as repayment at installments would be developed so that the poor
could pay the loan in time by mobilizing the loan amount they received from the
bank. Unit Office for a region that controls Group finance, giving loan without
collateral will have effective management. The bank should fix the objective of
cost minimization and maximization of out standing loan. So that bank would not
face a problem of losses. Privatization or Commercial Bank Share with the bank of
poor will regulate modern designation with strong corporate body. Similarly,
entrepreneurship as well as skill development training like better poultry
techniques, using technology for Irrigation should be provided to the borrowers
that would increase the productivity from the loan. Last but not least, co-ordination
among various branches of the bank should be established and effective monitoring
and evaluation should be regularly performed.

7. Bibliography

Bartle, Phill Phd (2006), “Community Empowerment: Savings Mobilization”
      Reference Document;


Bass, Jacqueline & Henderson, Kerena (2002), “Innovations in Microfinance: The
      Microfinance Experience with Savings Mobilization-“ The Technical Note
      Presented at the Conference on “ Advancing Microfinance in Rural West
      Africa” in mail.

Christen R.P., Lyman Timothy R., Roesenberg Richard, “microfinance consensus
      Guidelines: Guiding Principles on Regulation and Supervision of
      Microfinance”- CGAP, 2003.

Elser Laura., Alfred & Wishiwski, Sylvia (1999), “ Comparitive Analysis of
      Saving Mobilization Strategies”, - Eschborn, CGAP

Iris Center, (2006) “Microfinance Regulation in Seven Countries- A Comparative
      Study”- Published by Sa-Dhan Microfinance Resource Centre.

Kate Druschel, (2006), “Overcoming Regularity and Legal Constraints to Saving
      Mobilization”- Grameen Foundation, USA.

Mix (Microeconomics Information exchange) (2006), “Performance and
      Transparency: A survey of Microfinance in South Asia”- CGAP & the
      World Bank.

Shrestha, P. (2006). "Financial Performance of Microfinance Institutions with
      Special Reference to Small Farmers Cooperative Limited (SFCL) in Nepal."
      Ph. D Dissertation Submitted to Tribhuvan University, Kirtipur, Nepal.

ADB (2000). The Role of Central Banks in Microfinance in Asia and the Pacific,
     Volume 2, Country Studies (pp. iii, ix.). Kathmandu: ADB.

NRB (2006). Banking and Financial Statistics, Kathmandu: NRB.

UNDP/UNOPS/SAPAP (2000 November). Annual Progress Report. Pokhara:

MEDEP (2004). Officer Files, 2004.

ADBL. (Central Bureau of Statistics), 2006: Resilience Amidst Conflict,


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