Nepalnews.com Mercantile Connumications Pvt. Ltd.

In true sense of the meaning the latest people’s movement II has brought total democracy in Nepal and Nepalese have become sovereign citizens. The Nepalese living inside and outside are equally concerned for the ever lasting peace and prosperity of the country. The Parliament is very active in shaping Nepal as a true democratic country as per the spirit of the latest people’s movement 2. The parliamentarians also should be equally sincere and honest to convert people’s wishes into reality in the form of Acts. Since there is interim government at present, parliamentarians are having the best chance to test themselves and their integrity by sticking to their individual morals for the good of the country rather than using party whip and pressure.

As they say blood is thicker than water, Nepalese are also emotionally more attached to Nepal than the country where they are living. They are eager to do any thing, if their effort makes Nepal a prosperous nation. Their emotions get hurt when adversity falls to Nepal . Therefore, in the last two years – when Nepal had turbulent days due to shelving of the democracy and the undeclared civil war, foreign donor states stopped their financial aid.

During that time Nepalese economy was in lowest level. Had it not been for the Nepalese support from abroad by sending money in, the Nepalese economy would have collapsed.

The Nepalese constitution clearly define that any Nepali citizen, who remain away from the country continuously for more than six months, will be known as non-residential-nepali. Therefore, legally Nepalese living abroad come under this category. They will be barred from their voting rights and using other legal rights that a Nepali citizen is entitled to. Two years ago, Nepalese (NRN) living abroad successfully formed their organization in Nepal with Head Office at Kathmandu . The country expects NRN to be potential investors in Nepalese economics. The government has amended few Acts also to attract NRN investment. But the amendments are only scratching the surface compared to their policy offered to foreign and local investors. The government and the parliament need to be very sincere and honest in dealing with NRN. They should open their arms and welcome NRN as local investors.

Recently, Nepal amended one of the land Act to accommodate NRN. With this amendment, the NRN is capable to buy land in Nepal for their personal use.

But, if any NRN purchase land for their business like farming, hotel & resort business, tea plantation, mining etc. the amended Act would not be favorable to NRN. The government and parliament should avoid this sort of double standards.

India used to be one of the most orthodox country. They used to be indifferent to their citizens (NRI) living abroad but recently, India agreed to recognize those NRI living other than Gulf Countries as Indians. This change attracted trillions of dollars of investment in India . Now they do not need foreign investment in their economy but have become sel-fsufficient.

Even in the other SAARC countries most of the member nations have already eliminated multi citizenship issues because most of their citizens are working abroad.

The prosperity of country and her citizen are entirely inter-related, a two way street. The prosperity on NRN and Nepal also could sail well in this principle. The time has come for Nepal to change their vision in dealing with NRN specially the dual citizenship issue. This might not be a big issue for NRN as a whole. But with this bond of dual citizenship facility, Nepalese will infiltrated every where around the world and make NEPAL a proud country. Dual citizenship could convert the NEVER RETURNING NEPALESE to true dedicated NEPALI ever.

The following article was published in The Sagarmatha Times, UK - July2006 issue and the author has forwarded it to us for republishing so that many more readers could read-ed

For overall sustainable development of Nepal, tourism comprises as one of the key development components, and will remain as a significant sector forever. Furthermore, the natural and cultural blessings have prescribed numerous attractions (resources) and adventure to offer the tourists of all kinds and at all seasons.

In contrary to other developed and developing nations, Nepal where the possibilities of exporting manufactured goods are limited, cannot ignore tourism’s role because of its multifaceted effects such as the balance of payments situation, diversification of the economy, augmentation of revenues, and generation of employment opportunities directly and indirectly. The attention given for rural tourism development within current tourism policy and 10th Five-year plan validates it as a means of income and employment generation, diversification and direct effect on local economies without having environmental and ecological adverse impacts.

Due to the nature of regional as well as global competitiveness, it is high time Nepal projected its image as a unique tourist destination, in terms of quality for tourism products and services as well as a peaceful destination.

It is an opportunity that changes in the global tourism patterns and has prompted eco-tourists and adventure tourists to visit new rural areas and spend liberally in new destinations. Their change in expenditure patterns within outbound tourists globally is a positive sign for Nepalese tourism, especially to the rural community. The efforts taken to integrate national and local level development through public private partnership to open up new areas is quite commendable.

Despite the high potential of tourism to make a valuable contribution at the local level, the current mechanisms, with a preponderance of business and commercial interest centered in Kathmandu and other urban areas has limited the overall activity to deliver benefits at the rural-level. Similarly, with the exception of very few local service providers, there have been poor tourism linkages with the rural communities. Moreover, there still lacks programs and activities to counter this predicament and development policy guidelines to support environmentally sound rural-based tourism initiatives.

To address these problems, Tourism for Rural Poverty Alleviation Programme (TRPAP)- a pilot program of the UNDP has been in operation since September 2001 to support Government of Nepal. TRPAP supports to formulate policies for sustainable tourism development and to create an enabling environment for poverty reduction in rural areas through pro-poor tourism. The program is implemented by the Ministry of Culture, Tourism and Civil Aviation, working in close partnership with the Nepal Tourism Board (NTB) and Department of National Parks and Wildlife Conservation. The program is in the means to serve as an appropriate vehicle to provide improved living standards and to achieve sustainable tourism development. This pilot program has focused primarily on the disadvantaged group of Nepal’s rural population like women, dalits and ethnic minorities living below the poverty line from six districts in 48 Village Development Committees (VDCs). It is providing assistance for the development of institutional mechanisms to ensure sustainability of tourism development through local ownership in terms of decision-making, implementation and operation of tourism ventures/activities.

Likewise, in order to disseminate tourism benefits to the local people, efforts have been initiated to work closely with the community by various government institutions, private sectors, NGOs and INGOs. These organizations with emphasis on various tourism activities have established new frontier by empowering local people in community-based tourism and thus helping to reduce poverty in the rural areas.

TRPAP’s initiatives have shown positive impact towards poverty reduction. 51.5% of the Community Organization (COs) members are women. Their participation in the skills development trainings is 44% against the target of 40%. TRPAP has developed 611 tourism entrepreneurs so far. More than 12,000 people have come up as professionals through trainings like tourism entrepreneurship, trekking guide, cooking, waste management, health, hygiene and sanitation, HIV/ AIDS and gender awareness, energy related schemes etc.

For sustainability of this development, tourism institutions at different levels have been set up viz. Sustainable Tourism Development Committee (STDC) at Village Development Committee level. Sustainable Tourism Development Section (STDS) at the District level and Sustainable Tourism Development Unit (STDU) within Nepal Tourism Board (NTB) at central level. These institutions facilitate backward and forward linkages. The local authorities are capacitated in tourism development and management.

At policy level, TRPAP has prepared Pro-poor tourism policy, Nepal’s Tourism Industry Strategic Plan, Management and Tourism Plan for Sagarmatha National Park, District Tourism Plans, Tourism Marketing Strategy, Tourism Institutional Guidelines for the Government of Nepal and Training Manuals for tourism institutions.

TRPAF is the first tourism development program that used Appreciative Participatory Planning and Action (APPA) in tourism development of Nepal. APPA is used to develop settlement-level five-year tourism plans by appreciating people’s strengths and using positive thinking power. The plans are prepared in active participation of communities, using ‘SD’ cycle. The 5D stands for Discovery, Dream, Design, Direction and Delivery. This method of planning by using APPA methodology not only involves local people in the decision-making process, but also empowers them in socio-economic development. Using this method, TRPAP has thus developed and promoted new tourism products and models.

TRPAP is based in seven locations with widely differing ecologies, population types and levels of tourism development. Dolpa, for example, is a largely undiscovered part of the High Himalayas, and its needs included the provision of all basic facilities as well as initial destination marketing. Rasuwa, on the other hand, is part of the well-known Langtang Trek, a Himalayan experience with quite extensive visitation, but still it has considerable needs in terms of ensuring that tourism income actually reaches and benefits poor people. In all its planning, TRPAP put much stronger emphasis on ‘soft’ development, such as training and awareness building, rather than ‘hard’ development such as major infrastructure projects. TRPAP’s physical development projects tend to be small-scale actions which actually help and involve everyday life in local areas, such as the reconstruction of foot trails, the repair of bridge or the introduction of environmentally friendly cooking stoves. Local materials and labor are used in the possible areas.

TRPAP is working to create linkages between the new products being developed primarily with the Kathmadu based tourist handling agents and ultimately with the overseas tour operators. Special attention has been given to the emerging ‘responsible tourism’ sector. Initiatives, which TRPAP is closely involved is Nepal’s Sustainable Tourism Network. This program pays a special attention to familiarization visits to new tourism product for ground handlers, tour operators and journalists. In addition, new product workshops and other promotional initiatives such as production and distribution of promotional documentaries, posters, and brochures are planned as TRPAP begins to bear fruit in terms of actual new product on the ground.

National and international tour operators through their marketing channels have started promoting new products. NTB has taken full responsibility to give continuity to the program, and has also started promoting these products in Asian, European and American markets. In addition, TRPAP itself has participated in international- level tourism fairs and marts. Furthermore, the process to document its best practices is going on, which will be distributed nationally and internationally.

This pilot project has been successful to set a model of community based tourism offering various experiences to the tourists by contributing to the poverty alleviation objectives of the government and the millennium development goal of the United Nations Villages that never witnessed a trace of tourism activities have now been transformed into model tourism villages. Active participation of local communities, including women, disadvantaged groups and poor in tourism development and benefit sharing has become exemplary. The level of awareness and understanding has raised, skills are developed and institutional linkage have been established with local and national tourism institutions for forward and backward linkages, and mainstreaming tourism in the local self-governance system enacted.

Efforts are needed to initiate for better Policy, Programs and Strategies for further diversification of tourism to new areas, addressing dynamic promotional activities, rural community participation, private sector’s involvement in tourism development, exploitation of the linkages between tourism and other sectors of the economy and backward and forward linkages for sustainable development.

By development we mean a stage of growth or advancement. Development can be viewed as a progression from the preliminary towards something that is more advanced and better structured; it can be social, economic, political or environmental. If seen closely, all these aspects are interrelated and linked to one another. Each type of development has some effect on the other. Economic development is a sustainable increase in living standards that implies increased per capita income, better education and health as well as environmental protection. Social development is a type of social process which constantly changes some parameters of the society. When beneficial for a society, it is called social progress or development. Environmental development primarily looks into the optimum use of natural resources, while also looking at safeguarding the environment and not exploiting it to exhaustion. Political development is concerned with bringing about progress in the country by the amalgamation of all the above.

Thus, the government looks into bringing about an improvement in various aspects while making an optimum use of all the resources available. These could be in the form of manual labor, natural resources, etc. The advancement or progress of the country is only possible through good governance. By governance we mean the policy of decision-making and the process by which these are implemented. The actors of governance include the government, the military and the civil society. As India is a democratic country, civil society has a great role in the process of governance. There are eight major characteristics of good governance: participatory, consensus-oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and following the rule of law. It assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision- making. It is also responsive to the present and future needs of society. The youth play a very important role in development. The progress and advancements taking place in the country coincide with the youth of today. As for the policy- makers of o country, most of them are in the age bracket of 55 and above. These policy-makers have out-dated and inflexible ideas. They have a different perspective on the word ‘development’ which does not coincide with the skills as also the mindset of the youth. This results in a communication gap between the policy-makers and the people who have to follow these policies to bring about development. The present generation is ripe with ideas and innovations. They have the energy and vigor to do something for the betterment and advancement of the country. It is not enough to lecture the youth about their responsibilities and duties towards the country. The flip side of how the youth has to make adjustments to the present developments and mould their skills accordingly has always been an issue of discussion. Due to this the more important side of the debate is often ignored. It is imperative to keep in mind the skills and aptitudes of the job- seekers and the people who play an important role in the development process, that is, the youth. It is often seen that the jobs available do not fit the abilities of the job seekers. As a result, well-educated people are often unemployed. There is a mismatch between jobs available and those being sought after. Consequently, the resources available in the form of the human mind and intelligence are going waste. Job profiles like those provided by BPOs, KPOs, GPOs, etc., provide less competition and challenge to the mental capacity and intelligence of humans, thus leading to aver age or mediocre development. The easy availability of such jobs lies behind the decision of making such a choice. The employees get an average pay package, satisfying their minimum and a few luxurious needs. This contributes as much as a dime to the development process of the country. People graduating from specialized institutions of the IT sector and management sector struggle for jobs. They end up with low profile jobs in companies that give them little scope to exploit their imagination and innovation, thus curbing their enthusiasm for a better India. The lack of job availability in India is the prime cause for the ‘brain drain’ effect, leading to the hampering of the development process. The youth that could have made India the hub of the IT sector or the most green and clean country, or bring about inflation in stock markets have all migrated to greener pastures such as the US where they are given opportunities yet are treated as cheap labour. This is what is lacking in our system, and is thus hampering good governance.

The lack of foresightedness of the old school policy-makers, the biased opinion of how the older generation are always more enlightened than the next, etc. have slowed down the boost and building-up of a better India. Due to unavailability of jobs, there is poverty, frustration, increase in crime to gain money and power. The majority of the masses therefore are an unhappy lot; there is a decrease in the per capita income leading to low standards of living. All this curbs the social, economic, political as well as environmental development.

A glaring example of policy development based on old ideas without consideration of abilities is that of the quota preferences put forth by the current HRD minister Arjun Singh. As a result of this, many individuals who are brighter and better equipped for the specialized courses will be not be given the opportunity while people belonging to a certain caste will be given preference. This indicates the backward thinking of some in India who are hindering forward development. It also shows the rigid mindset of people who are still stuck in the mould of the old traditional caste system. This indicates that the developmental policies have not changed or advanced with the changing times and are still based on ancestral ideals.

Policy-makers should realize that it has been 58 years since India got its independence. Other developing countries have reached great heights because they have kept into consideration the skills of their youth and made optimum use of it. The developmental policies have been chalked out as per the requirements of the youth. It is high time that one starts concentrating on what we have in our hands rather than what we dream of being. It is time to face reality and recognize the immense potential that the youth of our country possess. There is a need for the policy-makers to take fill advantage of the abundant resources in the form of the human mind and intelligence and labour that is accessible to them. If this is done then India will indeed shine.

Nowadays, poverty is considered as the main imbalancing element of the human being and nature. It is therefore truly said, ‘Poverty anywhere is threat to everywhere.” Its effect is becoming alarming day by day. Not only the developing countries but also the developed ones can not protect themselves from the negative effect of neighboring countries facing the problem of poverty. All the evils i.e. dissatisfaction, desperation, anger, anxiety, diseases and hunger are the consequences of poverty.

Considering its gravity, World communities have agreed the Millennium Development Goals 2015 targeting to halve the proportion of the world’s people living on daily income of less than US$1. To expedite the poverty alleviation program, member countries have formulated Poverty Reduction Strategy Paper and reflected it into their development plan.

The poor are with 4Ls (last, least, lowest and lost). The voice of poor always becomes low and weak. Nobody does hear his or her weak voice. To make louder the voice, they should be in-groups or make organization.

Skill development (whatever the skill - traditional or improved) must be based on choice, labor market and local potentiality.

Although they are able to make their voice louder and are equipped with skill, still they need capital to start some sort of enterprise. The poor don’t need large amount of capital; they need only micro-finance. If they possess three basic elements (i.e. organization, skill and micro-finance=OSM), they would be able to make productions. Fourth S may come after it like sambaddhata (rural – urban linkage of the market for the rural product).

Micro-finance: As a panacea, micro-finance has been proved to be one of the most powerful instruments for poverty alleviation. As we know that it is not an easy task to transform the poor community from the state of “every-day survival” to “planning for the future.” But 3Ss enables them to create assets, increase income and reduce their vulnerability to economic stress.

Micro-finance is a service to low-income people by organizing them in groups, providing skills and literacy, exercising saving and insurance practices and lending small loans in need generally for short duration. Microcredit is such a service with sustainable interest rate, a minimum operating cost, economy scale and greater mobilization of local resources for self-financing and high percentage of repayment for effective recycling of financial resources. The NGOs as social mobilizing agents can provide initial supports for basic tasks like group formation, savings practices and community awareness activities.

The words micro-credit and micro-finance resemble the same. But micro-credit means to provide small loan as credit whereas the micro-finance means to provide services of savings and credit both. No loan can be defined on the bases of loan amount of small size. However, micro-credit refers to small-scale credit up to NRs. 30,000 targeted toward rural poor. Micro-finance is a service, which has to be groups, saving system, skill development and credit facility without collateral or in joint responsibility. This credit should be of short term not exceeding a year.

Repayment can be done in periodic, weekly or monthly as applicable to the local community based on market opportunity. Without taking into account such fundamental elements, if any financial institution or the NGO starts lending the small loans considering as micro-credit then, there will be certainly occurred the problem of loan repayment. There will be no group pressure from the local community or neighbors for overdue loan even if they are stringed in every community activity. The loan collection of such scattered small loans always become problem to the lender because it is naturally scattered, expensive to monitor and time consuming.

Micro-finance institution provides financial services to the poor under the given legal structure, mission, methodology and sustainability as well. Traditionally, microcredit and savings activities are predominated by the informal sector, village moneylenders and pawnbrokers, friends and neighbors in Nepal .
Currently operating - Savings and Credit Organizations (SCOs) [>12,000], Shelf-Help Groups [Several], Landlords, merchants, traders, goldsmiths, friends and relatives [Several].

Commercial Banks
Development Banks including ADBN and NIDC
Rural Micro-finance Development Banks
Finance Companies (FCs)
Savings and Credit Cooperatives (SCCs)
Financial Intermediary Non-Governmental Organizations (FI-NGOs)

The formal MFIs are supposed to abide by the prudential regulations of the central bank for the capital adequacy to get registered and run the operation. Considering the concentration of the financial institutions in the urban areas, the central bank has differentiated the minimum absolute capital and issued directives for the licensing of MFIs based on the priority policy to make outreach to rural people.

Type of MFIs	Minimum Absolute Capital
National level - MFI	US$ 1.38 million (Rs. 100 m)
Regional level - MFI	US$ 0.82 million ( Rs. 60 m)
District level - MFI (covering 4-10 Districts)	US$ 0.28 million ( Rs. 20 m)
District level - MFI (covering 1-3 Districts)	US$ 0.14 million ( Rs. 10 m)

The directives of the central bank have defined the capital structures of the MFIs in the following way:

(a) Core capital (paid up capital, share premium, general reserve and retained earnings/losses),

(b) Supplementary capital (loan loss provision, asset revaluation reserve, other reserves).

Time Frame	Risk Based Minimum Capital Fund
Time Frame	Core capital	Capital Fund
By 2004/05(mid July)	3%	6%
By 2005/06 (mid July)	4%	8%

MFI should allocate at least 20% of the profit for general reserve until it becomes double of the paid-up capital.

Nepal Rastra Bank Act 2001
Banks and Financial Institutions Ordinance (BAFIO) 2006
Company Ordinance 2005
Cooperatives Act 1991
Enactment of Financial Intermediary Societies Act 1998
Banks and Financial Institutions Loan Recovery Act 2001

It is necessary to explain about the main features of recently enforced BAFIO. Due to the absence of Parliament, the government makes enforcement of law through ordinance subject to be endorsed by the parliament within six months. In case of absence of Parliament more than six months, the ordinance is promulgated in every six months. However, BAFIO has repealed the related Acts working for more than three decades. Those Acts are Agricultural Development Bank Act 1967, Commercial Bank Act 1974, Financial Company Act 1985 and Development Bank Act 1995. All the banks operating under different Acts are supposed to be registered within two years with central bank.

Nepal Rastra Bank Act 2001 has empowered the central bank (NRB) to maintain the Nepalese financial market matching with the international banking standard as set by the Bank for International Settlements prevailing accord. The new umbrella act for the universal banking – Banks and Financial Institutions Ordinance (BAFIO) 2004 has been emerged for the regulations of the banks. But while stepping toward this direction, special care should have been taken into account for the welfare of the rural poor who are most affected by the socio-economic environment of the country. Some shortcomings of the BAFIO:

As per the concept, the Act should not penalize anyone for the misdeeds made which fall under other separate Act. For example, Clause 74 of BAFIO states that any misdeed done against Nepal Rastra Bank Act shall be punished as per the BAFIO.
No one shall be given opportunity for submission of explanation while NRB directs the concerned bank to dismiss the board of Director or any staff from the post.
Categorization, Degradation and upgradation of the Bank and Financial Institutions. BAFIO has categorized all the banks and financial institutions into following four groups:

Cooperatives Act and Financial Intermediaries Act are also in existence, which have independent status.
There is no separate legal arrangement for the MFIs operation. The Directives for Micro-finance Development Banks 2003 issued by NRB has provided a set of discipline (directives No. 4) for maintaining standards in the micro-finance sector.

Nepal Rastra Bank Act 2001 has given liberty to the central bank to empower the authorized banks and MFIs to fix their own interest rate. MFIs can mobilize deposit within their own members.

No interest control - deregulation of interest
No limits of spread
High interest rate: It was reported that one of the allegations of the concerned people for the arson on the MFI unit in the course of internal conflict was for high interest rate.
Usually moneylenders do not prefer to lend money in these affected areas. If they do so they have to keep low interest rate due to fear of attack.
No uniformity on interest rate.

Source	Client	Interest rate % p.a.
ADB/N	Individual	12% -16%
ADB/N	SFD Bank	10%
SFD Bank	SFCL	12%
SFCL	Client	12%-16%

RMDC	NGOs/Development banks	6.50%+ S.C
SRF	NGOs/Development banks	8% (if timely repaid, 6% will be back)

Grameen Banks	Client	20%
Cooperatives	Client	18%-24%
CSD	Client	25%
NIRDHAN	Client	20%
DEPROSC	Client	18%

In modern banking, the most essential point is to safeguard the depositors as stakeholder. In this context, NRB has given limitation for collecting deposits. MFIs could collect such deposits only with the members which must not exceed more than 20 times of core capital.

Basically, people prefer banks to Finance Companies or MFIs despite low interest rate. In Nepal , two major state owned commercial banks have around 50% NPA, but their deposits are moving up at nominal interest rate. If the economic theory applies here, that situation should not be happened. Likewise, ADBL is not providing universal-banking services, it is doing limited banking, but the deposit is alarmingly going up at negligible interest rate. Contrary to this, MFIs, Cooperatives and Finance Companies are exercising aggressive advertisement in the media for deposit collection. Finding no opportunity of investment, rural people are making deposits in the bank branches concentrated in urban areas due to deteriorating law and order situation.

Nepal has an old practice of placing collateral against the loan disbursed. Usually the banks do not consider feasibility and viability or cash flow of the project. Likewise, the borrowers also claim that they are not getting sufficient amount of loan even if they place sufficient collateral. This headache is present in the MFIs too.
In principle, MFIs do not take physical collateral and regard the group guarantee as intangible collateral. NRB guidelines No.7 states that the loan up to Rs. 30, 000 is considered as micro-finance. If it is the case of micro-enterprises, the ceiling would be up to Rs. 100, 000 but it should be against acceptable collateral.

The Directive No. 2 categorically states that MFIs could mobilize financial resources (deposits, advancement and debenture) as per internal rules of the MFIs. The main sources are ADBN, RSRF, RMDC and commercial banks (for deprived sector lending only).
Such type of resources should not exceed more than 20 times of the core capital.
MFIs could entertain financial instruments like foreign borrowings and debenture. But in such case, the MFIs need to take the approval of the central bank.

Networking is the crucial element for the micro-finance services. In principle, clients come for services at bank-doorstep for banking transactions. But for micro-finance services, MFI has to go to clients’ doorsteps for both savings collection, withdrawal and credit supply. Without branching or network, such services do not become fruitful.
Directive No. 5 of central bank states that MFIs are free to open and close their branches wherever applicable within their territory. The Board of Directors is empowered to provide this facility as per the Business Plan of the MFIs.

After the adoption of liberal economic policy in the country, there is no restriction of foreign investment in the financial institutions. Such foreign investment could be made either in the form of equity or investments. The limit is up to 67 percent of the paid up capital. Joint venture banks are operating their business with foreign investment.
In the MFIs sector, there is no foreign equity. It shows that the micro-finance business is not attractive in terms of financial return for the investor.

NRB regulates and makes supervision as prescribed in its Directives for Micro-finance Development Banks 2003. It is performed in two ways: (1) desk (off-site) supervision and (2) On the Spot (on-site) supervision. For desk supervision, Financial Statements are submitted by the concerned MFIs on quarterly basis.
For the spot supervision, it is very difficult to supervise these MFIs as they are scattered. So, it is common observation that the number of such supervision is inadequate.

Considering the prevailing coverage, Tenth Plan (2002-2007) planned that ADBL will meet 52.8% of the total agricultural and rural credit requirement of the country. It is estimated that 30% of the total agricultural credit service availed in the country was through the formal sector of which more than half is made available by ADBN alone. In Nepal , no other public organization exists having such wide network covering the remote areas. The new saving product is of client security fund especially designed for rural farmers with the principle “No saving, no credit.”

(1) Through branches directly (credit services for the clients up to Rs. 30,000.),

(a) Small Farmers Development Program (SFDP) and Small Farmers Cooperative Limited (SFCL)

(d) Micro-finance for Projects under UN system (such as MEDEP and DLGSP project of UNDP), REAP (Neitherlands)

The commercial banks make business in urban areas and usually prefer the same clients if loan is repaid. If the lending is repeated to the better-off families, the bank might not be interested for the new clients and leave the poor without credit service.

(1) Need of separate National Micro-finance Policy; Natioanl Rural development Policy. In most of the developing countries, the main problem is the political instability. Without having policies with legal status, even the excellent program is changed resulting into discontinuation.

(2) Formation of Ministry for Rural Development or Poverty Alleviation - In many countries, they have Ministry for Rural Development or Poverty Alleviation and such facilitating policies are formulated on behalf of the government and the resources are injected and relevant manpower is recruited and the ministry takes care of micro-finance automatically.

(3) Modality for effective and efficient service delivery for Micro-finance - It is general complain about the rural financial market that rural credit should be cheap, simple and easily accessible fast service-delivery. Large network is not only the solution for the easy access to micro-finance but also that should provide services.

(4) Quality loan with less provisioning - One of the parameters to improve the quality of loan transactions of the bank is loan collection rate. But in Nepal , the rate is not enthusiastic and the calculation method also varies from one bank to another. MFI staff accelerate visits only after the loan arrears. Most of the clients repay loan after it becomes overdue.

(5) Adaptation of less mechanized, people friendly and practical legal frameworks appropriate for developing countries –

The BAFIO is designed the requirements of large-scale institutions to meet and could affect adversely to MFIs. The attempt to put all financial institutions under a single depository Act might be difficult for the rural based MFIs which may not be self-sustained and need guidance rather than strict rule obligations.
Outreach through modifying traditional practices - The traditional rural money lending system is also seen useful for the remote villages. The bank can use this practice by granting license of dealership to the persons (mothers’ clubs, ethnic farmers’ clubs etc.) involved in this business particularly in rural areas.

(6) Cost minimization - It is almost agreed that formal credit mechanism suffers from high transaction costs. Similarly, higher borrowing cost is bound due to poor infrastructure and procedural complexities of MFIs.

Micro-finance for the hill and mountain areas is a Herculean task. Most of the banks, financial institutions and MFIs are located in Terai means they are based comparatively in accessible areas. A major proportion of poor people living in the hills and mountains need suitable micro-finance products with large numbers of providers and additional resources. However, it is a big challenge to increase outreach of micro-finance by doubling the present, coverage and volume of micro-finance services.