20232-Article Text-64263-1-10-20180612

Pravaha Journal-2018
Microfinance Position and Indebtedness:

Empirical Evidence from Microfinance
Institutions in Nepal
Nischal Risal
Lecturer, Nepal Commerce Campus
Abstract
The paper has been built up with the aim of analyzing the microfinance institutions status and
indebtedness in Nepal. Initially, the paper starts with the thematic review based on etymological,
ontological, epistemological dimensions then the status of microfinance institutions and
indebtedness in Nepal have been presented in the second part. The descriptive analytical
research design has been adopted to analyze and interpret the population data. The fifty
three microfinance institutions' data have been reviewed, tabulated and analyzed using MS-
Excel. The microfinance institutions have been found efficient in saving and credit services. The
microfinance credit service has not been utilized as per the need of the people and capacity
of the institutions. The loan recovery, interest recovery, clients awareness/activeness have
been found effective. Overall, microfinance institutions status has been found sound. Only few
institutions are below the satisfaction level. The microfinance services in terms of micro loan are
not uniform among microfinance institutions. The indebtedness challenge have found at bottom
level in the microfinance industry. It is recommended to all the microfinance institutions to come
up with policies, strategies and regulatory framework to benchmark the level of tolerance to
indebtedness, so that the microfinance institutions may sustain by achieving the objectives of
poverty alleviation through microfinance services.
Keywords: Microfinance, Indebtedness, Micro Credit, Micro Saving, Clients
Prologue
All over the world, microfinance institutions are providing their services to low
income under-privilege people in the society to eliminate the poverty. The microfinance
services and product rendered to the society are differing from one society to another
society, one institution to another institution. The effectiveness becomes high success in
microfinance sectors, even though the problem of indebtedness arises simultaneously.
The consumer is over-indebted when he/she is unable to pay all his/her financial
obligations timely as agreed in a credit agreement. This could either be because his/
her financial commitments have changed or because the individual has borrowed and
spent more money than he/she earns. In such instances, the debt becomes a major
burden for the borrower, which contributes to the consumer's social and financial
exclusion, and poverty.
The poverty, adverse shocks, low returns and financial literacy may be the major
factors that are relate to indebtedness in microfinance. The factors were broken down
~ 120 ~ A Journal of Management

to the specific sacrifices that borrowers made, to how frequently they had repeated
them, and to how acceptable sacrifices were to borrowers. The poorer micro-borrowers
were more likely to be over-indebted, the risk of over-indebtedness further increased
with the occurrence of adverse economic shocks to a borrower’s income or expenses,
the likelihood of over-indebtedness was higher for borrowers with low returns on
their investment and if borrowers had used loans at least in part for non-productive
purposes, and it was higher for borrowers with low, debt-specific financial literacy.
General financial literacy had negative effects on over-indebtedness (Schicks, 2012).
The literature on consumer finance in developed countries had extensively
analyzed why borrowers had entered into burdensome levels of debt and what for what
borrowers the risk of personal over-indebtedness become particularly high (Bridges
& Disney, 2004; Lea, Webley, & Walker, 1995; Lusardi & Tufano, 2009; Webley &
Nyhus, 2001). There is a limited amount of research on delinquency and default in
microfinance (Godquin, 2004; Schreiner, 2004; Vogelgesang, 2003), but hardly any
research on over-indebtedness. With increasing concerns about negative effects of
microfinance on customers, at a time where trust in the positive impact of microfinance
is weakening (Duvendack, et. al., 2011; Karlan & Goldberg, 2011), overindebtedness is
one of the most pressing challenges facing the microfinance industry. It endangers at
the same time the sustainability of microfinance institutions (MFIs) and their social
impact (Schicks, 2012).
Viada and Gaul (2012) revealed that the microcredit markets become fragile. The
poor had limited absorptive capacity for debt and could easily over-extend themselves
by taking on debt obligations in excess of what they could reasonably hope to service.
While ambitious MFI outreach goals were to be applauded in principle, the reality
was that overly zealous loan origination activities could override governance and
control systems, leading to less rigorous credit standards and destructive, unintended
consequences.
People in precarious economic circumstances are under enormous pressure to
secure resources for their families, making them very susceptible to offers of easy
credit. When they are unable to keep the repayment schedule (again, often due to
family circumstances), they may weakly negotiate with their lender, but eventually
find a way to pay, even if it means going deeper into debt. Ultimately, the lender
regains its capital, usually with interest and penalties, but the borrower’s economic
prospects are worsened (Ericksen and Ericksen, 2014).
Though the risk of indebtedness is growing concern worldwide, it might be
arise due to unhealthy competition, triggering of the microfinance activities by banks,
unchecked growth of microfinance institutions, traditional microfinance system of
providing the services and risk of mission drift. On the prevailing ground of literature,
the study aims towards exploring the thematic remarks on the given issue and
triangulate empirically with an evidence of microfinance institutions in Nepal.
Etymological Dimension of Microfinance and Indebtedness

The word micro is derived from a Greek word mikros which means small. The
word Finance has its origin from the word fin from old French, which was later used as
finer. Later, merger of words led to creation of word finance in late Middle English. The
word finance was given by the Aristotle near about two thousand years ago when there
A Journal of Management ~ 121 ~

was no concept of financing and related issues. In Aristotle’s politics book I, it is clearly
mentioned by the author that the finance is a related term that all the countries and
government face the situations in which sometimes they need money to buy households
and other things important for the life. The people who are not involved in trade and
business also need to learn about the finance. Aristotle’s explanation was restricted
to those involved with the economic and financial operations of the government and
countries but a type of finance concerning marketable nautical and other kinds of jobs
loaning thrived in the prehistoric world. The suggestion of the word started to modify
over the time as it traveled from different countries. The word finance first discovered
in Latin then into old French word the finaunce.
In 1700’s, the word started to have a unclearly pessimistic logic as it was used
to the behaviors of those involved working in Finance of Courts, the word rentiers
was used for those people. The sovereignty of that epoch would not doubt ask for
to vary as they would not have been able fight with their enemies without having
money that comes from the rentiers. In England, an opposed outline was seen with
the association of the finance as it rapidly came to be connected with an important
commotion. This occurred because the people who were affianced in the doings of Court
Finance prearranged themselves politically in order to defend their benefits, wellbeing
and comforts in opposition to random royal elimination. At that time, it was felt that
the reinters would occupy the royal monarchy to approve new loan schemes and trades.
The considerations became true when the royal monarchy approved the loaning trades
and business in the country to save the royal succession.
The sagacity of the connotation of the word finance long-drawn-out and became
even more optimistic as the previous groups of Court investors lengthened the rapidly
increasing region of business and other profitable financing projects. As early as 1800
in the countries where English was the first language the term finance become more
popular and similar to the word that is used now days. The beginning of different
terms related to finance such as debt, credit, equity, profits and losses has a great
history. Microcredit, or microfinance, means banking the unbankables, bringing
credit, savings and other essential financial services within the reach of millions of
people who are too poor to be served by regular banks, in most cases because they are
unable to offer sufficient collateral. The word debt is based on the Latin word debitum
(something owed/thing owed) whose past participle debere means owe/to owe. In Old
French this Latin word was changed to dete and in Middle English to dette with its
modern day French and English spelling being debt.
Roman Catholics and Anglicans, had used the phrase forgive us our trespasses.
Trespass is from the Old French trespass, meaning a passing across or transgression
of the law (The word transgression exhibits the same semantic development. The roots
literally mean a passing across, but it has come to mean a violation of law). In 1290 in
the South English Legendary, the sense of trespass meaning to enter private property
without permission appears somewhat later and was often fashioned trespass to land in
legal documents. The author of Matthew, writing in Greek, uses the word opheilemata,
which had a literal meaning of financial debt, but which also had a metaphorical sense
of spiritual obligation. This sense of debt meaning spiritual obligation was also present
in Aramaic writings of the period and Jesus, who spoke and taught in Aramaic, used
this metaphor in various parables.

Ontology Dimension of Microfinance and Indebtedness
Microfinance is the process of providing financial assistance as well as other
services such as insurance and savings to underprivileged people while microcredit
is one aspect of microfinance and is the process of extending credit to the poor.
Microfinance was developed for people who find it hard to get financial assistance from
mainstream institutions while microcredit was developed to provide credit and loans to
the same people. However, a number of crises in the industry have recently threatened
both financial sustainability and the industry’s social reputation. There are concern
about microfinance institutions drifting away their original social mission (Labie and
Mersland, 2010; Mersland and Storm, 2010; Armendariz and Szafarz, 2011). While
the social mission of microfinance industry gives specific importance to protecting
the interest of customer, the 2008/2009 global banking crises has pointed out that an
unsustainable financial services offer based on irresponsible lending implies risk for
the industry as a whole. In this context, over-indebtedness is currently one of the most
serious risks of microfinance, endangering both social impact and industry stability. It
has the potential to push customers further into poverty, accompanied by the material,
psychological and sociological consequences of debt. Increasingly rigorous impact
studies are questioning the original impact and poverty alleviation of microfinance
(Banerjee, et.al, 2014; Karlan and Zinman, 2010). Microfinance customers have good
reasons to take loans but little reason to borrow to the extent of over indebtedness.
Neither should lenders and even less so MFIs with a social mission have an interest
in over indebting their customers. Overindebtedness is thus an undesired consequence
for both parties and in perfect markets should not exist.
One set of factors that can push borrowers into over indebtedness is outside the
control of the lending parties. In spite of sound lending decisions, external shocks to the
income or expenses of a micro borrower can turn a debt load unsustainable. Bouquet,
et. al. (2007) confirmed that credit problems were most frequently due to drops in
expected income or rising expenses. Besides personal shocks such as illness or job loss,
macroeconomic developments such as the financial crisis could drive borrowers into
such difficulties.
Whatever the institutional environment, over-indebtedness is ultimately created
by the parties that make the credit decision makers; lenders and borrowers. The three
major levers of lending behavior that enhance over indebtedness risks are an excessive
marketing and growth focus, unsuitable product characteristics, and the favorable
lending procedures. Finally, micro lenders contribute to overindebtedness with their
lending procedures. The most important lender contribution probably stems from an
evaluation of repayment capacity and the automatic increases in loan sizes over time. A
customer protection perspective should therefore resist the temptation of seeking fault
only with lenders and with adverse circumstances. It should equally pay attention to
the role that borrowers themselves play in destructive credit. It should recognize that
to a certain extent, protecting borrowers from over-indebtedness may mean protecting
them from themselves.
Among external influences, adverse shocks to the income or expenses can turn
debt unmanageable. In microfinance markets in developing countries, institutional
protection from overindebtedness may be weak. MFIs can push borrowers beyond their
limits due to an exaggerated focus on portfolio growth and by means of aggressive

marketing techniques. They sometimes offer products that are inappropriate to the
borrower's situation, enforce unrealistic installment schedules, resist the need to
reschedule loan agreements, artificially limit maturities and so on. Micro lenders also
contribute to over-indebtedness due to their operating procedures, being lax about
evaluating repayment capacity, offering in transparent terms and conditions and using
coercive collection practices. Finally, micro borrowers play an important role in their
own over-indebtedness. Due to cognitive limitations, difficulties to resist temptation,
and sociological pressures, they sometimes make irresponsible borrowing decisions.
The tendency towards over borrowing also depends on borrowers' socio demographic
and economic characteristics, many of those that are related to over indebtedness being
particularly prominent among the microfinance target group.
If a credit relationship leads to over indebtedness that is usually the result
of interacting factors. If a borrower made perfectly informed, rational decisions, not
giving in to temptation or social pressures, an MFI would face little risk to over-indebt
this customer. At the same time, if an MFI put its social mission and customer interest
above all other goals, designed products that perfectly matched their customers’ needs,
carefully evaluated repayment capacity and took the psychological limitations and
biases of their customers into account in their communication and lending decisions,
even imprudent borrowers would hardly be at risk. In reality, both parties are bound to
make mistakes given the complexity of the situation and their information asymmetries.
It is therefore important to design measures to prevent over-indebtedness that tackle
as many of the over-indebtedness reasons as possible. For the remaining micro
borrowers that can still not be protected from over-indebtedness, additional curative
and rehabilitative customer protection measures are required.
Epistemology Dimension of Microfinance and Indebtedness

Savings and credit groups that have operated for centuries include the susus of
Ghana, chit funds in India, tandas in Mexico, arisan in Indonesia, cheetu in Sri Lanka,
tontines in West Africa, and pasanaku in Bolivia, as well as numerous savings clubs
and burial societies found all over the world were acting the functions of microfinance.
Formal credit and savings institutions for the poor have also been around for decades,
providing customers who were traditionally neglected by commercial banks a way to
obtain financial services through cooperatives and development finance institutions.
One of the earlier and longer-lived micro credit organizations providing small loans
to rural poor with no collateral was the Irish Loan Fund system, initiated in the early
1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by
the 1840s had become a widespread institution of about 300 funds all over Ireland.
Their principal purpose was making small loans with interest for short periods. At
their peak they were making loans to 20% of all Irish households annually. In 1800s,
various types of larger and more formal savings and credit institutions began to emerge
in Europe, organized primarily among the rural and urban poor. These institutions
were known as People's Banks, Credit Unions, and Savings and Credit Co-operatives.
In 1972 the Self Employed Women's Association (SEWA) was registered as a
trade union in Gujarat (India), with the main objective of strengthening its members
bargaining power to improve income, employment and access to social security. In
1973, to address their lack of access to financial services, the members of SEWA

decided to found a bank of their own. Four thousand women contributed share capital
to establish the Mahila SEWA Co-operative Bank. Since then it has been providing
banking services to poor, illiterate, self-employed women and has become a viable
financial venture with today around 30,000 active clients. In Bangladesh, Professor
Muhammad Yunus addressed the banking problem faced by the poor through a
programme of action-research. With his graduate students in Chittagong University
in 1976, designed an experimental credit programme to serve them. It was spread
rapidly to hundreds of villages. Through a special relationship with rural banks, he
had disbursed and recovered thousands of loans, but the bankers refused to take over
the project at the end of the pilot phase. They feared it was too expensive and risky
in spite of his success. Eventually, through the support of donors, Grameen Bank was
founded in 1983 and now serves more than four million borrowers. The initial success
of Grameen Bank had stimulated the establishment of several other giant microfinance
institutions like BRAC, ASA, Proshika, etc.
Through the 1980s, the policy of targeted, subsidized rural credit came under
a slow but increasing attack as evidence mounted of the disappointing performance
of directed credit programs, especially poor loan recovery, high administrative costs,
agricultural development bank insolvency, and accrual of a disproportionate share of
the benefits of subsidized credit to larger farmers. The basic tenets underlying the
traditional directed credit approach were debunked and supplanted by a new school of
thought called the financial systems approach, which viewed credit not as a productive
input necessary for agricultural development but as just one type of financial service
that should be freely priced to guarantee its permanent supply and eliminate rationing.
The financial systems school held that the emphasis on interest rate ceilings and
credit subsidies retarded the development of financial intermediaries, discouraged
intermediation between savers and investors, and benefited larger scale producers
more than small scale, low-income producers.
Meanwhile, microcredit programs throughout the world improved upon the
original methodologies and defied conventional wisdom about financing the poor. First,
they showed that poor people, especially women, had excellent repayment rates among
the better programs, rates that were better than the formal financial sectors of most
developing countries. Second, the poor were willing and able to pay interest rates that
allowed microfinance institutions (MFIs) to cover their costs. 1990s These two features
- high repayment and cost-recovery interest rates permitted some MFIs to achieve
long-term sustainability and reach large numbers of clients.
Another flagship of the microfinance movement is the village banking unit
system of the Bank Rakyat Indonesia (BRI), the largest microfinance institution in
developing countries. This state-owned bank serves about 22 million micro savers with
autonomously managed micro banks. The micro banks of BRI are the product of a
successful transformation by the state of a state-owned agricultural bank during the
mid 1980s.
The 1990s saw growing enthusiasm for promoting microfinance as a strategy
for poverty alleviation. The microfinance sector blossomed in many countries, leading
to multiple financial services firms serving the needs of micro entrepreneurs and
poor households. These gains, however, tended to concentrate in urban and densely
populated rural areas. It was not until the mid-1990s that the term microcredit began

to be replaced by a new term that included not only credit, but also savings and other
financial services. "Microfinance" emerged as the term of choice to refer to a range of
financial services to the poor, that included not only credit, but also savings and other
services such as insurance and money transfers. ACCION helped found BancoSol in
1992, the first commercial bank in the world dedicated solely to microfinance. Today,
BancoSol offers its more than 70,000 clients an impressive range of financial services
including savings accounts, credit cards and housing loans.
Today, practitioners and donors are increasingly focusing on expanded financial
services to the poor in frontier markets and on the integration of microfinance in
financial systems development. The recent introduction by some donors of the financial
systems approach in microfinance - which emphasizes favorable policy environment
and institution-building - has improved the overall effectiveness of microfinance
interventions. But numerous challenges remain, especially in rural and agricultural
finance and other frontier markets. Today, the microfinance industry and the greater
development community share the view that permanent poverty reduction requires
addressing the multiple dimensions of poverty. For the international community, this
means reaching specific Millennium Development Goals (MDGs) in education, women's
empowerment, and health, among others. For microfinance, this means viewing
microfinance as an essential element in any country's financial system. The examples
of innovations in financial services for the poor were an International Remittance
Network (IRnet), Unibanka (Latvia), ICICI Bank (India), Microenterprise Access
to Banking Services (MABS), BASIX, The National Microfinance Bank in Tanzania
(NMB), Banco Postal in Brazil, and Equity Building Society (EBS) in Kenya etc.
While the concept had been used globally for centuries, it was Bangladesh's
Muhammad Yunus who was credited with being the pioneer of the modern version of
microfinance. The year 2005 was proclaimed as the International year of Microcredit
by The Economic and Social Council of the United Nations in a call for the financial
and building sector to fuel the strong entrepreneurial spirit of the poor people around
the world. The International year of Microcredit consisted of five goals. they were to
assess and promote the contribution of microfinance to the MFIs. To make microfinance
more visible for public awareness and understanding as a very important part of the
development situation. The promotion should be inclusive the financial sector. To make
a supporting system for sustainable access to financial services. To support strategic
partnerships by encouraging new partnerships and innovation to build and expand the
outreach and success of microfinance for all.
Professor Mohammad Yunus was awarded by the Nobel Prize 2006 for the efforts
to create economic and social development from baseline. The loans to poor people
without any financial security had appeared to be an impossible idea. From modest
beginnings three decades ago, Yunus had, first and foremost through Grameen Bank,
developed micro-credit into an ever more important instrument in the struggle against
poverty.
Microfinance Position and Indebtedness in Nepal

The history of microfinance in Nepal is relatively new. The Nepali government's
attempt to promote microfinance services dates back to 1975. It was recognized as an
official poverty alleviation tool only in the country’s Sixth Plan (1980/81-1984/85). The

sector had, however, gained momentum after the restoration of democracy in 1991.
Despite its tremendous potential to alleviate human poverty, only 33 percentages
of households below the poverty line have access to microfinance services. The
microfinance sector was served by cooperatives (1950-1960s) and normal banks (1970-
1980s) until 1980, when a number of pilot projects and initiatives were implemented
to introduce the financial and banking services to help poor and women. However,
few groups of poor people were benefited, but at the end these service were found
ineffective. There is an even greater need to expand microfinance services in the high
hills and mountainous regions of the country.
During the 1990s and early 2000s, the government moved further to strengthen
the microfinance institutions to provide financial service to poor and women, with the
formation of five Regional Development Banks (RDBs) in each Development region
based of Grameen model with the sole objective to provide micro-credit services to
the poor and women. Eventually these Regional Development Banks transformed to
Microfinance Development Banks (MFDBs) after privatization and licensed as class 'D'
financial Institutions. Nepal Rastra Bank, the central bank of the country regulates
the Microfinance Development Banks (MFDBs) and Financial Intermediary NGOs
(FINGOs) while the Small Farmer Cooperatives Ltd. (SFCL) and Savings and Credit
Cooperatives (SACCOs) are governed by Cooperative Laws. All types of Microfinance
services in the country are provided by Microfinance Institutions (MFIs) working as
regulated MFDBs, FINGOs, SFCL, and SACCOs.
Nepal has an experience of about four decades in microfinance. Although many
programmes have been implemented for poverty lessening initiatives Nepal, only
microfinance programmes are seen as pro-poor and rural based. A variety of micro-
finance development programmes including deprived sector credit programme as well
as other donor supported micro credit programs were launched during the period.
Microfinance has been particularly recognized as an effective development intervention
for basic three reasons; the services provided through microfinance can be targeted
specifically to the poor and poorest of the poor, these services can make a significant
contribution to the socio-economic status of targeted community and the institutions
that deliver these services can develop within few years, into sustainable organizations
with steady growing outreach. Difficult topography, remoteness, heterogeneous groups
and culture, etc. have hindered for the successful delivery of micro-finance in Nepal.
Some microfinance outreach studies have revealed that microfinance activities are
still untouched to the poor and rural households in remote Terai, Hill and Mountain
Regions (NRB, 2013).
Nepal is highly heterogeneous in terms of population density, per capita income,
poverty incidence, economic structure and social development. Great variations
exist across development region and ecological belt in term of physical and financial
infrastructure facilities; macroeconomic stability and policy environment for growth in
general and microfinance in particular. These factors together with legal framework
have a significant bearing on existing state of outreach and operational and financial
self-sufficiency of actors in Nepalese microfinance industry (Dhakal, 2007).
The level of competition in Nepalese microfinance industry is gradually increasing
leading to penetration to a significant proportion of potential market. In some villages,
clients are able to choose between as many as seven microfinance service providers to

access microfinance services which have driven many clients into over-indebtedness
due to absence of institutional mechanisms for sharing credit information among MFIs
and issue of encroachment or unfair competition is gradually emerging as an issue.
Owing to limited number of suppliers, similar problems are yet to emerge in hills and
mountains and there are areas where poor are desperately looking for microfinance
services.
Methods and Analysis of Data

The information on the microfinance has shown the microfinance institutions
micro credit services in Nepal. The data have been extracted from reports published
by Nepal Rastra Bank. The study has covered all fifty three microfinance institutions
operating in Nepal. The study is based on the data collected through published report
of microfinance institutions up to 2017 AD. The descriptive statistical measures have
been used to analyze and interpret the data. The triangulation between primary
survey and secondary data has not been done in the study. As stated in literature,
the current data has identified the microfinance indebtedness problem in Nepal. The
study revealed that twenty one microfinance institutions have access to all 75 districts,
whereas remaining microfinance institutions service ranges from nil to 32 districts.
Nirdhan Utthan, Deprosc, Chimek, Swablamban, Nerude, and Forward microfinance
institutions have more than one hundred thousand members. NRB has not published
the data of Sparsh microfinance which become inherent limitation of population data.
The microfinance institutions are providing services to approximately twenty
three and half peoples all over the Nepal. The negligible 1.55 percentage become
passive members. Nepal Grameen Bikas Bank has 19801 passive members, which
is the highest among all. Approximately 62.22 percentage of total microfinance do
not have any passive members. The total number of debt holders receiving services
from the microfinance institutions is approximately sixteen hundred thousand for the
fiscal year 2073/74 B.S. The highest micro credit service providers in numbers are
Nepal Grameen Bikas Bank, Forward, Nerude, Nirdhan Utthan Bank, Chimmek,
Deprosc and Swablamban microfinance institutions. The total loan distribution by
the microfinance institutions figure to around 5.14 billion in rupees. Out of which, 79
percentage in approx is recovered whereas remaining approximately 21 percentage
is due loan. Out of total debt holders around 43 thousands are maturity crossed debt
holders carrying 0.15 percentage as maturity crossed due loan. On an average, total
deposit to total loan ratio indicated the lower level utilization of the loan facilities to
the client. The microenterprises loan consisted around 25 percentage of total loan.

Figure 1
Overall Status of Microfinance in Nepal
In overall, maturity crossed due loan is below one percentage level indicating low
level of indebtedness risk to microfinance institutions in Nepal. Even though, Nepal
Grameen Bikas Bank, Nadep, Nepal Sewa, Swedeshi, Mahuli, Mero, NMB, Nerude,
Nirdhan Utthan Bank, Deprosc and Swabalamban have high amount of maturity
crossed loan in comparison to other microfinance institutions. This implied that these
institutions are facing indebtedness challenges in Nepal. The radar diagram in the
figure has clearly shown the status of microfinance total loan distribution, recovery of
loan, due loan and maturity crossed loan. It has been noticed from the figure that the
maturity crossed due loan is in six digit figure, though it becomes negligible in total
micro loan figure. The figure has indicated that the movement of recovery of loan is in
positive direction.
Conclusions and Implications

The analytical research on microfinance status, indebtedness and micro credit
services of Nepali microfinance institutions have been presented sequentially in the
paper. Initially, the concept of finance, microfinance and indebtedness are explained.
Later, thematic reviews on the related topic have been done in etymological, ontological,
epistemological perspectives followed by microfinance status and indebtedness in
Nepal. The series of related literature review have been done to come to the conclusion.
All together fifty three microfinance institutions are operating in Nepal. For the study
purpose, population has been taken to explore the knowledge on microfinance status
in Nepal. The study concluded that microfinance is an emerging institutions operating
all over the world basically with the objectives of eliminating the poverty from base
line. Nevertheless, the various challenges and problems have been realized while
providing microfinance services such as micro credit, micro insurance, training and so
on. Indebtedness is one, appearing as a great challenge to microfinance institutions.
The sustainability of microfinance institutions becomes questionable because
of this problem. On the other hand, microfinance institutions recovered the loan
according to policy, which ultimately affects the living standards of the people. Thus,
inverse impact of microfinance institutions may be realized in the mean time. Over-
indebtedness is one of the major risks for the microfinance industry. First, it contradicts
the sectors social mission. It can enhance the poverty of microfinance customers,
threaten their social position and lead to psychological disorders and health problems.
Secondly, at latest when over indebtedness causes default it represents a threat to
sustainability of MFIs.
Among all fifty three institutions, negligible organizations have indebtedness
problems. Overall indebtedness challenges have been found in boarder level. The
variability in micro credit services rendered by the institutions has shown inconsistency
of their focus area, micro product and micro services. The total saving is found attractive
however flow of micro credit service is still infant stage. The majority of the clients of
microfinance institutions have been found active. It has indicated positive satisfaction
of the people. In relation to fiscal year 2072/73 B.S., the members of microfinance
institutions are increasing day by day. In general, the microfinance industry should
measure customer satisfaction and impact as a standard management tool and place
the same importance on these factors as it places on economic indicators. Similarly,
regulators and investors should understand the need for customer protection that goes
beyond ensuring stable financial institutions.
A mix of regulation and self-regulatory codes of conduct is likely to be most
effective. Donors should put as much focus on promoting the measurement of impact,
of the client welfare perspective, as they have put on economic self-sustainability and
reliable economic performance measurements. Government and regulators could also
play an important role in developing systems of debt relief and personal insolvency. In
Nepal, government have brought a provision of maintaining seven percentage spread
rate for the microfinance customer which may help them to recover their sacrifices but
on the other hand, it is the challenge for the MFIs to survive in the market.
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Annex
Table 1. Microfinance Microcredit Services and Indebtedness in Nepal
Nirdhan
Particulars (A) RMDC Deprosc Chhimek Swabalamban Sana Kisan
Utthan Bank
Working Districts 75 75 75 75 75 75
Total Members 296388 0 136049 313557 218253 655
Passive Members 0 0 1337 3806 0 0
Total Debt Holders 206224 199 91541 233657 149028 550
Total Loan
70066643.17 21407264.2 26974498.0 67797963.2 61441709.30 48058442.00
Distribution
Recovery of Loan 57738214.65 15649866.4 21443239.0 55283761.2 53252023.35 34063505.51
Due Loan 12328428.50 5757397.76 5531259.00 12514202.0 8189685.95 13994934.73
Maturity Crossed
31912.36 0.00 39753.00 6325.95 54856.55 12294.62
Due Loan
Maturity Crossed
1704 0 1289 242 2883 7
Due Loan Holder
Interest Received 3657911.04 472824.85 0.00 7328644.69 5567936.68 4357281.12
Interest Due 0.00 2632.87 69299.00 1420.05 0.00 190.59
Loan Loss Provision 161173.28 57573.98 83413.00 145984.25 136066.98 219108.90
Total Deposit/Total
50.54% 0.00% 30.26% 72.46% 51.67% 0.00%
Loan
Micro enterprises
10.95% 0.00% 18.81% 18.50% 16.31% 0.00%
loan/Total Loan
Mithila First Microf.
Particulars (B) Nerude Naya Nepal Summit Swarojgar
Laghubitta Dev. Bank
Total Members 109813 6021 14215 33528 43335 0
Total Loan
20022459.58 1142568.00 2035934.50 5324981.32 5057825.57 7503000.00
Distribution
Recovery of Loan 16927219.47 954289.00 1599288.73 4237070.51 3772672.21 4063679.30
Due Loan 3095240.12 188279.00 443800.72 1087910.80 1285153.36 3439320.70
Maturity Crossed
31447.01 6827.00 14192.42 3653.07 2892.97 0.00
Due Loan
Maturity Crossed
2460 0.00 499 125 138 0
Due Loan Holder
Interest Due 25101.32 0.00 6073.08 0.00 1226.05 0.00
Total Deposit/Total
36.77% 27.78% 24.31% 41.78% 36.93% 0.00%
Loan
Micro enterprises
19.05% 9.63% 19.88% 12.85% 18.19% 0.00%
loan/Total Loan
Nagbeli
Particulars (C) Kalika Mirmire Jana Utthan Womi Laxmi
Laghubitta

Total Members 17027 20825 25846 16569 18541 55958
Total Loan
2904983.84 3428970.99 2534976.87 2000601.13 2317559.70 7185163.73
Distribution
Recovery of Loan 2280957.09 2659934.39 1709288.98 1418861.72 1658884.85 4969035.80
Due Loan 624026.75 769036.60 825687.89 581739.41 658675.05 2216127.92
Maturity Crossed
12371.40 11687.38 8243.06 5966.77 7444.79 11015.76
Due Loan
Maturity Crossed
766 313 304 133 182 381
Due Loan Holder
Interest Due 7811.86 8088.57 9907.02 985.06 5737.42 21673.07
Total Deposit/Total
27.38% 41.82% 24.62% 24.05% 39.10% 29.84%
Loan
Micro enterprises
17.07% 6.90% 11.37% 20.22% 29.61% 8.93%
loan/Total Loan
Mahila
Particulars (D) ILFCOM Kishan Vijaya NMB MF Forward
Sahayatra
Total Members 11136 18314 33812 21318 58081 212260
Total Loan
1236075.43 1584197.38 1645574.16 2629397.86 4996780.94 31893867.7
Distribution
Recovery of Loan 836019.54 1112260.76 1027782.93 1735176.59 3170015.74 25663868.8
Due Loan 335564.02 471936.62 617791.23 894221.27 1826765.24 6229998.89
Maturity Crossed
1967.46 13246.85 5875.83 9880.26 32735.80 18257.75
Due Loan
Maturity Crossed
102 573 86 484 793 955
Due Loan Holder
Interest Due 5325.14 8654.68 0.00 9251.28 17873.05 0.00
Total Deposit/Total
30.61% 15.69% 24.43% 16.99% 22.13% 38.29%
Loan
Micro enterprises
1.17% 0.20% 4.08% 19.47% 14.48% 5.95%
loan/Total Loan
Mahuli
Particulars (E) Reliable MF Suryodaya Mero Samata RSDC
Community
Total Members 20858 59074 22682 63229 12989 0

Total Loan
1976868.63 6909591.09 2304696.40 8279024.59 1170535.62 3435139.00
Distribution
Recovery of Loan 1453106.62 5666702.07 1663645.17 5253817.10 791251.99 1801683.66
Due Loan 457045.30 1242889.02 641051.22 2403296.53 379283.64 899156.00
Maturity Crossed
14440.91 22194.39 4408.64 23588.45 2841.55 0.00
Due Loan
Maturity Crossed
378 1550 147 1926 217 0
Due Loan Holder
Interest Due 4949.25 18332.57 6791.63 0.00 3615.13 8147.00
Total Deposit/Total
35.75% 47.87% 39.19% 20.79% 35.78% 0.00%
Loan
Micro enterprises
12.92% 2.38% 2.09% 11.18% 23.02% 0.00%
loan/Total Loan
Nepal
Nepal Sewa
Particulars (F) Samudayik National Grameen Unnati MF Swedeshi MF
MF
Bikas Bank
Total Members 33502 44650 210250 4601 16702 44738
Total Loan
3113023.28 4973586.35 66357353.51 376991.50 1224449 3900234.25
Distribution
Recovery of Loan 2569654.13 3327188.76 58635566.13 196590.50 640727 2506864.46
Due Loan 543370.54 1646397.59 7721787.38 180401.00 583696 1393369.79
Maturity Crossed
6369.57 7798.96 290278.00 28378.69 0 37028.87
Due Loan
Maturity Crossed
230 225 19801 467 0 1250
Due Loan Holder
Interest Received 0.00 322626.97 2557073.00 25274.20 0 267912.70
Interest Due 0.00 14821.26 479988.00 422.71 4891 14445.02
Loan Loss Provision 15822.07 21746.42 327413.00 2509.88 5837 23519.63
Total Deposit/Total
37.04% 19.80% 29.23% 13.71% 26.28% 24.48%
Loan
Micro enterprises
0.23% 0.00% 10.36% 15.73% 12.12% 12.07%
loan/Total Loan
Aarambha
Particulars (G) Nadep Support MF Janasewi Choutari Ghodi Ghoda
MF
Total Members 48985 5399 9165 6736 14171 801
Total Loan
5661340.58 514898.00 566509.50 412820.50 735598.99 42822.00
Distribution

Recovery of Loan 3589364.58 249199.05 275893.88 195942.14 350216.91 16333.00
Due Loan 2071976.00 265698.95 290615.62 216878.36 385382.08 26489.00
Maturity Crossed
31247.07 2174.14 300.85 321.68 1867.73 0.00
Due Loan
Maturity Crossed
2375 227 19 14 38 0
Due Loan Holder
Interest Due 0.00 2567.77 2503.70 207.57 53.28 0.00
Total Deposit/Total
30.52% 11.19% 13.70% 18.88% 23.06% 7.78%
Loan
Micro enterprises
1.20% 0.00% 7.37% 1.42% 2.72% 11.65%
loan/Total Loan
Rama
Particulars (H) Asha Nepal Agro Creative Gurash Ganapati MF
Roshan
Total Members 11314 8645 1597 1839 3034 3946
Total Loan
475546.00 291028.00 62096.55 55567.00 204254.00 190087.50
Distribution
Recovery of Loan 84171.33 84460.52 21772.96 13371.45 57501.02 33543.44
Due Loan 391374.67 206567.48 40323.60 42195.55 146752.98 156544.06
Maturity Crossed
0.00 0.00 0.00 0.00 216.70 0.00
Due Loan
Maturity Crossed
0 0 0 0 21 0
Due Loan Holder
Interest Due 3143.06 86.16 0.00 0.00 32.99 1364.74
Total Deposit/Total
9.44% 18.17% 14.22% 13.07% 5.12% 11.00%
Loan
Micro enterprises
11.60% 0.00% 11.37% 1.20% 0.00% 0.62%
loan/Total Loan
Adhikhola Swabhiman
Particulars (I) Infinity MF Sparsh Sabaiko Total
Laghubitta MF
Working Districts 75 10 10 - 75 -
Total Members 3494 3119 1592 - 5 2,338,618
Passive Members 5 0 0 - 0 36,268
Total Debt Holders 2439 1364 630 - 1 1,573,739
Total Loan
184435.00 80156.00 53917.00 - 20.00 514,744,028..0
Distribution
Recovery of Loan 32119.49 9183.10 1765.70 - 0.00 406,748,552.7
Due Loan 152315.51 70972.90 52151.30 - 20.00

106,515,185.4

Maturity Crossed
5.00 0.00 0.00 - 0.00 816,309.26
Due Loan
Maturity Crossed
1 0 0 - 0 43,305.00
Due Loan Holder
Interest Received 5141.01 1240.30 145.27 - 0.00 31,180,615.35
Interest Due 11731.19 0.00 382.07 - 0.00 779,725.99
Loan Loss Provision 1523.16 709.73 521.51 - 0.00 1,710,945.82
Total Deposit/Total
18.04% 18.39% 9.01% - 98.90% 1357.86%
Loan
Micro enterprises
0.00% 4.41% 0% - 0.00% 4.39
loan/Total Loan
Source: Nepal Rastra Bank

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Pravaha Journal-2018

Microfinance Position and Indebtedness:

~ 120 ~ A Journal of Management

Etymological Dimension of Microfinance and Indebtedness

A Journal of Management ~ 121 ~

~ 122 ~ A Journal of Management

A Journal of Management ~ 123 ~

Epistemology Dimension of Microfinance and Indebtedness

~ 124 ~ A Journal of Management

A Journal of Management ~ 125 ~

Microfinance Position and Indebtedness in Nepal

~ 126 ~ A Journal of Management

A Journal of Management ~ 127 ~

Methods and Analysis of Data

~ 128 ~ A Journal of Management

Conclusions and Implications

~ 130 ~ A Journal of Management

A Journal of Management ~ 131 ~

~ 132 ~ A Journal of Management

A Journal of Management ~ 133 ~

~ 134 ~ A Journal of Management

Due Loan 152315.51 70972.90 52151.30 - 20.00

A Journal of Management ~ 135 ~

~ 136 ~ A Journal of Management

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