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.:11220436
PU 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

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:
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













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

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

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

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
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


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 which
shows its efficiency in maintaining the loan portfolio. Also Among the four banks
Nirdhan has the lowest cost per borrower making it the bank that incurs the least
expense to maintain the active client. Similarly, Chhimek Bikas Bank has the lowest
PAR (3-6 Month) and PAR (>12 Month) i.e. 0.006% and 0.037% respectively,
Nirdhan has the lowest PAR(6-12 Months) i.e. 0.007% which shows the percent of
loan that is to be recovered in the year. And Nirdhan & Chhimek has no write offs this
year. Lastly, Return on Assets of Deprosc is the best i.e. 3.03 which shows it
efficiency in earning out of the Assets invested and the profitability of the Deprosc
Bank is the best for the period 2069/70 which is 19.51%.
From the interview it was found out that Grameen Model is dominant model being
used, access of microfinance is increasing along with the increase in the level of
competition and confusion in the interest rate and overlapping of the customer is seen
as the major challenge.
Finally, this study shows the implication to the banks stating that they need to be
aware of the competitive situation and excel in the indicators in which they are best
like Nirdhan Utthan Bank has the largest base of customers which it should continue
to expand through different services and at the same time Deprosc has the lowest
number of customer and it should find out the reasons on why its customer base is
such low. This and such information would be helpful to the banks to create a new
service and serve the competitive market and be competitive to cater the competition.