Nepal’s government recently unveiled a new national microfinance policy that aims to expand the lending capacity of its microfinance sector by addressing problems that have arisen from the relatively unregulated industry.

Incorporated into this policy are various programs and policies related to poverty alleviation. Foremost, the policy contains a mandate to create a new government agency that would regulate and supervise microfinance operations in the country. Second, the policy calls for establishing a “National Microfinance Development Fund”, an institution that would serve to channel financial resources from local and international investors toward microfinance institutions. As of yet, it remains unclear as to whether such an entity would be administered directly by the Nepalese government or function as a privately-administered, government-sponsored enterprise. It is also unclear if such a development fund would seek funds from nonprofit donors or from for-profit investors, and uncertain if the Nepalese government itself would contribute capital to fund assets.

The new policy will also allow for more flexibility in the corporate tax code pertaining to deposit-taking microfinance institutions (MFIs) in an effort to attract more commercial MFIs into the space.

The Nepalese government did not disclose an overall budget for the new policy, and further details on each initiative is not yet available.

Nepal’s new policy aims to mitigate problems that currently beset the country’s microfinance sector. These are concisely described in the World Bank’s 2006 Access to Financial Services Survey on Nepal. According to the report, the sector suffers from two key problems. First, Nepalese microfinance is plagued with weak technical capacity (p.2), including accounting and auditing, strategic planning, and human resource management. Second, the industry lacks a sense of professionalism, primarily because microfinance is often associated with charitable activities, rather than with financially sustainable enterprises that generally demand higher levels of professionalism.

According to microfinance information provider MIX Market, Nepal’s microfinance sector consists of 21 microfinance institutions. The sector’s aggregate loan portfolio amounts to USD 56.1 million, representing loans to 424,322 borrowers.

By Ryan Benson, Research Assistant

Additional Resources:

Kantipur: National Microfinance Policy unveiled, July 4, 2008

World Bank: Home

World Bank: “Access to Financial Services in Nepal.”

MIX Market: Nepal