1. UNDERSTANDING FINANCIAL ECOSYSTEM AND MICROFINANCE
MODULE 1: LESSON ONE
UNDERSTANDING FINANCIAL ECOSYSTEM AND MICROFINANCE

2. NEPALESE FINANCIAL SYSTEM
Structure of Nepalese Financial System
Banks and Financial Institutions
Commercial Banks
Development Banks
Finance Companies
Microfinance Development Banks
Insurance Sector
Life insurance
Non-life Insurance
Capital Market
Nepal Stock Exchange Company
Listed Companies
Brokers
Non-bank Financial Institutions
Employment Provident Fund
Citizen Investment Trust
Cooperatives Sector
Cooperatives with Limited License
Savings and Credit Cooperatives
Multipurpose Cooperatives
Agricultural Cooperatives
Dairy Cooperatives
Non Government Sector
Financial Intermediary NGOs
NGOs engaged in savings and credit scheme

3. NEPALESE BANKING AND FINANCIAL INSTITUTIONS: OVERVIEW

4. PRINCIPLES OF MICROFINANCE
Details 1
The poor need a variety of financial services, not just loans 2
Microfinance is a powerful instrument against poverty 3
Microfinance means building financial systems that serve the poor 4
Financial sustainability is necessary to reach significant numbers of poor people 5
Microfinance is about building permanent local financial institutions 6
Microcredit is not always the answer 7
Interest rate ceilings can damage poor people’s access to financial services 8
The government’s role is as an enabler, not as a direct provider of financial services 9
Donor subsidies should complement, not compete with private sector capital 10
The lack of institutional and human capacity is the key constraint 11
The importance of financial and outreach transparency

5. CHALLENGES TO COMMERCIALIZATION OF MICROFINANCE
Inappropriate donor subsidies
Poor regulation and supervision of deposit-taking MFIs
Few MFIs that mobilize savings
Limited management capacity in MFIs
Institutional inefficiencies
Need for more dissemination and adoption of rural, agricultural microfinance methodologies

6. TARGET MARKET ANALYSIS
Direct Targeting
Indirect Targeting

7. IDENTIFYING TARGET MARKET
Characteristics of population group
Type of microenterprise being financed

8. CHARACTERISTICS OF THE POPULATION GROUP
Focusing on female clients
The level of poverty
Geographic focus
Ethnicity, caste, and religion

9. TYPE OF MICROENTERPRISE BEING FINANCED
Existing or start-up microenterprises
Level of business development
Type of business activity (Agriculture, production, services)
Criteria (use of loan proceeds, loan term, amount of collateral available)

10. Transport & Processing
REALITIES OF THE AGRICULTURE FINANCING
Input Supplies
Crop Farming
Post-Harvest
Transport & Processing
Distribution & Export
Retail & Marketing
Pre-Harvest Finance
Warehouse receipt collateral management
Post - Harvest
Working capital
Trade finance

11. Commercial smallholders
REALITIES OF THE AGRICULTURE FINANCING
Corporate
farms
Commercial
farmers
Emerging farmers
Commercial smallholders
(cash crops)
Subsistence farmers
Traditionally
bankable
Relationship approach, lending and capex needs, cross sell trade, forex
Retail/SME approach with "agriculture twist" lack of financials, need for benchmarking, technical assistance on agro & financial skills
Traditionally
Un-bankable
Scheme based approach (eg out grower schemes), use coops for coordination and aggregation
Via SACCOs, coops, saving based loan schemes, etc

12. USERS AND NON-USERS OF FINANCIAL SERVICES
Individual / Household / Firm
User of Financial Services
Non-Users of Financial Services
Voluntary Self-Exclusion
No Need
Cultural / Religious reasons not to use
Involuntary Exclusion
Insufficient income / high risk
Discrimination
Contractual / Informational Framework
Price / Product Features

13. REASONS FOR FINANCIAL EXCLUSION
Demand Side
Low awareness: information issue, e.g. clients do not know what the financial market offers,
Low understanding: financial literacy issue, e.g. clients do not know how to use a savings account, and
Low utilization: attitude issue, e.g. consumers are afraid of debt
Supply Side
Environment and infrastructure: low market, weak economic environment, poor physical access
Failure to meet clients needs: core product parameters issue, e.g. credit package does not meet the needs for advisory services,
Failure to provide affordable access: price-cost issues, e.g. the current delivery model is too costly,
Failure to give attractive access: actual/augmented product issues