front part of thesis

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Micro-Finance Institutions in Nepal: A Comparative study

of Private Microfinance Development Banks Operating

under Grameen Bank Model

Bikash Neupane

Apex College

Exam Roll No.:11220436PU Registration No.: 2011-2-22-0279

A Graduate Research Project Submitted to

Apex College

Pokhara University

Submitted for the degree of

Master of Business Administration (MBA)

Kathmandu

March, 2014


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APPROVAL SHEET

Recommendation for Approval

This GRP report prepared and submitted by Bikash Neupane in partial fulfillment of

the requirement for the degree of Master of Business Administration has been

supervised by me and recommend it for acceptance.

Name and signature of the Advisor

Date:

Acceptance of the External Examiner

I approve the GRP submitted by Bikash Neupane. The grade sheet has been submitted

to the Dean, School of Business, Pokhara University through the college on a separate

evaluation sheet.

Name and signature of the External Examiner

Date:

Viva Examination

The candidate has successfully defended the GRP. We recommend it for acceptance.

The grade sheet has been submitted to the Dean, Pokhara University through the

college on a separate evaluation sheet.

External Examiner

GRP Advisor

Other members

Date:


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CERTIFICATE OF AUTHORSHIP

I hereby declare that this submission is my own work and that, to the best of my

knowledge and belief. It contains no materials previously published or written by

another person nor material which to substantial extent has been accepted for the

award of any other degree of a university or other institutions of other higher learning

expect were due acknowledgement is made in the acknowledgements.

____________________

Date: Bikash Neupane


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ACKNOWLEDGEMENTS

The completion of this work cannot go without acknowledging the contributions

made by some few special individuals who devoted their time, means and intellectual

abilities to make my research project at the Apex College (Pokhara University) a

success. So I would like to extend my special gratitude to all those who have

contributed directly and indirectly to complete this report.

First and foremost, I would like to thank Mr. Bharat Singh Thapa, my supervisor, who

worked tirelessly in assisting me to accomplish this work to this end. He was always

there to provide constructive comments and guidance throughout this research.

Second, I would also like to thank and acknowledge the contributions of Prof. Dr.Prem Raj Pant for his guidance during topic selection.

I am also grateful to Mr. Rajendra Dhital, Assistant Manager of Swablamban

Laghubitta Bikas Bank, Mr. Ishwar Atraya, Manager of Nirdhan Utthan Bank, Binod

Khatiwada, Field Officer of Deprosc Laghubitta Bikas Bank, Mr. Bishnu Prasad

Neupane, a freelancer and consultant of Micro-Finance, Mr. Hari Acharaya, Head of

Internal Audit Department and Mr. Krishna Poudel, Field Officer, of Deprosc

Laghubitta Bikas Bank for their cooperation during the interview and giving their

critical suggestions regarding the research.

I also recognize my indebtedness to Mr. Jagdish Basnet and Mr. Upendra Chaudhary,

Librarians at Apex College, for providing me useful resources regarding

microfinance.

Finally, I would also like to extend my thanks to all my colleagues at Apex College

who have been standing by my side in my difficulties.

Bikash Neupane

March, 2014


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LIST OF TABLES

Page No.

Table 2.1 Name of Micro-Finance Development Banks 38

Table 4.1 Services of the Banks 56

Table 4.2 Uses of Micro-Finance Models 56

Table 4.3 Practices in Lending 57

Table 4.4 Current number of Clients 58

Table 4.5 Number of Active Borrower 59

Table 4.6 Percent of Women Share 61

Table 4.7 Operating Expense Ratio 62

Table 4.8 Cost per Borrower 62

Table 4.9 Loan Repayment 63

Table 4.10 Return on Asset 64

Table 4.11 Profitability of banks 65

Table 4.12 Age and Number of Districts the program is running 66

Table 4.13 Respondent profile 66

Table 4.14 Grameen Model effectiveness in Nepal 67

Table 4.15 Standard of Nepalese Micro-Finance 68

Table 4.16 Increasing number of Micro-Finance and its effect on Competition 69

Table 4.17 Effect of duplication due to overlapping on performance of bank 70

Table 4.18 Perception of interest rate 72


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LIST OF FIGURES

Page No.

Figure 2.1: Grameen Loan System 9

Figure 2.2: Grameen Bank finance project 10

Figure 2.3: Theoretical Framework to assess the Competitive Scenario 45

Figure 4.1: Current Number of Clients 59

Figure 4.2: Number of Active Borrowers 60


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ABBREVIATIONS

ADB Agriculture Development Bank

CPB Cost per Borrower

ADB Asian Development Bank

CB Commercial Bank

CDF Cooperative Development Fund

CGAP Consultative Group to Assist the Poorest

CO Community Organizations

FINGOs Financial intermediaries NGOs

FSS Financial Self-Sufficiency

GBB Grameen Bikas Bank

GBRP Grameen Bank Replication Program

IBP Intensive Banking Program,

MCDB Micro Credit Development Bank

M-CRIL Micro Credit Rating International Ltd.

MFI Micro finance Institution

NABARD National Bank of Rural and Agriculture Development

NCCC National Cooperative Consultation Committee

NCDB Nepal cooperative Development Fund

NGO Non-government Organization

OSS Operational Self-Sufficiency

PAF Poverty Alleviation Fund


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PAR Portfolio at Risk

PCRW Production Credit for Rural Women

PSL Priority Sector Lending

RBB Rastriya Banijya Bank

RDB Regional Development Bank

RMDC Rural Microfinance Development Centre Limited

SFCL Small farmers cooperative limited

SFDP Small Farmer Development Program

SFDP Small Farmers Development Program

SHG Self-Help Groups

SKBBL Sana Kisan Bikas Bank Limited

WB World Bank

WDS Women development section

OER Operating Expense Ratio

ROA Return on Assets


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EXECUTIVE SUMMARY

Poverty has been one of the serious blockades in economic development in a

developing country like Nepal where it has been accepted as predominating in rural

areas. Rural sectors have been deprived of the essential financial accessibility that is

needed to help the marginalized community to start any business. The concept of

Micro-Finance emerged to provide the services to the communities who have no

collateral to offer against the loans they take but have indigenous skills and strong

desire to undertake economic activities for self-employment and income generation.

Women are the center of focus as they are regarded as the disadvantaged group.

Microfinance Institutions especially Micro-Finance Development Banks has been

playing a crucial role in reaching and providing services to those segment of people

who have no or less touch with the formal financing institutions. In this Grameen

Bank replication model has been used by the Micro-Finance Development Banks as

their primary instrument to reach the unreached community.

This study is carried out to know about the competitive scenario among the Micro-

Finance Development Banks under the Grameen Bank Model using the variables i.e.

Outreach, Efficiency, Loan Repayment and Profitability. The study was the

triangulation of the Quantitative and Qualitative approach under which the four

Private Micro-Finance Development Banks i.e. Nirdhan Utthan Bank, Deprosc

Laghubitta Bikas Bank, Swablamban Laghubitta Bikas Bank and Chhimek Bikas

Bank were taken and tested using the competitive indicators as mentioned above.

With the literatures reviewed about the Grameen Bank Model replication, the

Competition and how Grameen Model is being implemented in Banks, Questionnaire

was prepared and in-depth interviews were taken.

From the data collected, calculation done and the in-depth interview it was found that

all the banks were providing the multiple services like loan, remittance, saving and

also has multiple lending practices. Grameen model was used solely in Chhimek

Bikas Bank and Swablamban Bank whereas Nirdhan and Deprosc Bank used other

models also to provide the range of services. Nirdhan has the largest Customer Base

in terms of current number of clients (184177) whereas Chhimek Bank has the largest

number of active borrower i.e. 149109. Deprosc Bank has the lowest OER whichshows its efficiency in maintaining the loan portfolio. Also Among the four banks


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