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 has, however, gained momentum after the restoration of democracy in 1991.
Microfinance is often seen as an effective strategy for extending financial services to the poor and disadvantaged groups not reached by the formal financial sector. Despite its tremendous potential to alleviate human poverty, only 33% of households below the poverty line have access to microfinance services. There is an even greater need to expand microfinance services in the high hills and mountainous regions of the country.
Nepal has a wide variety of active microfinance institutions that provide financial services to the poor. These institutions are regulated by government acts such as:
- The Bank and Financial Institution Ordinance (2004),
- The Cooperative Act (1991),
- The Financial Intermediary Act (1998).
Microfinance institutions working in the present legal and regulatory framework include:
Twenty One Microfinance Development Banks classified under category ‘D’ by the NRB
Five Regional Development Banks
Over 20,000 Savings and Credit Cooperatives
Forty-five Financial Intermediary NGOs licensed by the NRB
Source: Nepal Rastra Bank, January 2011. Banking and Financial Statistics. Bank and Financial Institution Regulation Department, Statistics Division
The following three categories of second tier refinance institutions have been established to provide wholesale loans to different MFIs in Nepal:
- Rural Self-Reliance Fund
- Rural Microfinance Development Center
- Sana Kisan Bikas Bank (Small Farmers Development Bank).