Strategies for micro credit financing in Nepal

1. Micro credit - financing to the poor and under privileged people<br />Micro finance has emerged as one of the most effective methods of financial development and poverty alleviation, especially in developing countries including Nepal. Micro – finance provides financial services such as credit loans and savings to poor disadvantaged and under privileged members of the society, particularly women who do not have access to financial institutions.<br />Some of the strategies for micro credit financing are as follows:<br />1. Provide credit loans to individual only if she is a member of a micro credit group. <br />An individual will be eligible to get the credit loan only if she is a member of micro credit groups. She must be recommended by the group to be eligible for receiving it. The group will be responsible if the borrower stops repaying the interest rate.<br />2. Provide loan without collateral.<br />Collateral is not required, as the community liability among members of the same group or village is enough to enforce repayment. The group members will compel a loan defaulter to pay on time.<br />3. Stop providing credit loan to the micro credit group if one member is found to be a <br /> defaulter.<br />This will bring discipline among the group members, thereby, increasing repayments rates.<br />4. Keep the interest payment period short (weekly installment)<br />Short interest payment period will most likely encourage borrowers to pay on time, as the money to be paid will be small in comparison with interest amount of longer periods. Also, the short interest payment period will bring the borrower in regular contacts with staff.<br />5. Provide one-year loan with repayment period of one week.<br />6. Sanction second credit loan only after the completion of first one<br />The second loan should be sanctioned only after the payment of the first one – both interest and capital. Otherwise, the borrower may delay to pay the interest due to high amount.<br />7. Encourage self- employment<br />Self –employment is ready made for anyone who has inherited traditional skills, rather than books and technical schools knowledge. If loan is provided to the poor people, they can exploit their strength by turning their hobbies and interest into gainful employment.<br />8. Provide skill based trainings.<br />Provide skill based training like handicrafts, sewing, tailoring, paper designing, animal husbandry, farming, bee rearing, and horticulture to the members of micro credit groups<br />for income generation.<br />9. Conduct fortnightly or monthly meeting of micro credit groups<br />Monthly or fortnightly meetings are very important, as they help lender to know the status of the borrowers' investment. Discussion among the members of the micro credit groups will help to analyze the investment situation and suggest corrective measures to the defaulters.<br />AC<br /> Encourage group members to keep records and minutes of the meetings<br />The minutes will help micro credit groups to become aware of groups and their individual savings. Besides, the meetings and discussions will help them to link with other service providers (e.g. agriculture /livestock/women development offices) of the districts.<br /> Provide orientation to the members about the groups' objective and its long – <br /> term vision.<br />Provide training and orientation programs to the members of the groups to clear role and responsibility of the committees such as group norms, group savings system, groups' objective, vision, and record keeping. This will enhance coordination, discipline, and promote harmony among the groups. <br />Form youth group ( 13 – 24 years age) and engage them in various activities of <br />the project<br />The 13-24 years age is such a tender age that youth can easily be deviated towards socially unwanted and bad habits; on the contrary, this is the age that youth can learn and pave their pathway for the future. Therefore, engage youth in various activities of the project.<br />Shorten the date of processing micro credit loans form the date of application<br />Processing micro credit loans of a member or groups should not take more than a week. The members ought to be informed about the interest rate, and installment period at the time of application, so that they are better prepared to pay the interest on time and avoid being defaulters.<br />Appoint micro credit facilitator for each MPRC office.<br />The staffs do not have experience to run and maintain the micro credit programs. Besides, they have other portfolios to handle. Therefore, it is recommendable to hire micro credit facilitator to look after micro credit programs.<br />Envision project’s goals on micro credit program, to develop groups as cooperatives, and self-managed institutions.<br />The micro credit groups can be up graded in advance stage and eventually developed as an institution e.g. co-operatives or other organizations where beneficiary/groups may form to advance their overall position – where they can market their products, to organize their own credit/insurance or to obtain inputs. <br />Partnership with local MFI/NGO, Cooperatives and MFI/Development Banks <br />for long term sustainability<br />Prepared by: Uttam Raj Regmi<br />MA Sociology, Tribhuvan University Nepal<br />MBA Pokhara University Nepal<br />BSCE (Civil Engineering) University of Baguio, Philippines<br />Address: Dhapasi 6, Kathmandu, Nepal<br />Email: uttamregmi@yahoo.com<br />