Micro-Finance
A Powerful Tool To Combat Poverty

By Laxmi Bahadur Vaidya

AMONG the six billion people 95 per cent are the poor with no access to the engine of growth, assets and credit. Around the globe it is estimated that 1.3 billion poorest of the poor people are living on less than one dollar a day. Among them over 900 million are women and girls who work hard for survival.

Urgent

For poor people access to financial markets is the urgent need. They need loans in small amounts for a variety of purposes such as to purchase livestock, ingredients of manufacture of food stuffs or agricultural inputs such as seeds and fertilizers. Low-income groups and micro-enterprises can benefit from credit, savings and insurance services that are very helpful and effective in managing risk and smooth consumption at the time of sharp fluctuations in agricultural yields and prices, economic stocks as well as in natural disasters. To make available more funds for larger investments, savings and credit facilities can help poor people to take advantage of profitable business opportunities and increase their earning capacity.

Lenders demand physical assets as collateral to provide loan in the traditional financial markets. In such a condition poor people are not able to receive loan due to lack of collateral as security. Apart from that transaction costs also are high in relation to small loans demanded by the poor people. At the same time, it is unprofitable to provide services to the poor using traditional lending practices.
The traditional banking system is not conducive to have in easy access to loan for the poor and disadvantaged groups particularly women. Opportunity must be provided to women by supporting them financially. It helps them generate income which in turn builds up their confidence and enhances their social status. Poor women need to be able to build assets, because they invest in the welfare of their families. Moreover, they are better managers than men. They can manage the income in a most equitable and profitable manner so that optimum benefit can be acquired. Women are empowered only when they become financially self-reliant.

Over the past two decades new approaches collectively known as micro-finance has been initiated for the alleviation of poverty in the world. Micro-credit is a way of making small loans to the very poor for self-employment and other financial and business services such as Grameen Bank in Bangladesh, Self-Employed Women's Association (SEWA) in India and Bank Pakyat in Indonesia. It is a powerful development tool in the struggle against poverty. Many of the loans are as small as US $ 50 and savings deposits as small as US $5. The concept of micro-credit is gaining global momentum as an important mechanism by providing financial products matching the needs of low-income groups. It uses innovative collective monitoring system through group lending to strengthen repayment performance. It charges interest rates that fully cover operational costs.

If the poor are to share in economic growth, measures must be taken to improve their access to markets, finance, new skills, technology and information. It is essential to plan beyond credit and build poor people's capacity through their own economic organisations. Besides, economic growth, improved access to education, healthcare and social services are equally needed which can reduce poverty. At the same time, sound macro-economic management, investment in people supporting agriculture, creating targeted nutrition and health programmes, focusing on environmental sustainability and expanding participation are the wide range of actions to combat poverty and hunger. Access to financial services is fundamental to helping the poor. Fact finding research has shown that the very poor, especially women repay their micro-credit loans at rates more than 98 per cent. Micro-credit has improved the lives of poor women by strengthening their bargaining power, enhancing self-confidence and increasing participation in public life.

A risk management tool, loans will be available in time of need, making it possible for households to manage less effective and less desirable strategies. The key to the success of micro-programmes is the confidence in future availability of loan as a risk management tool.

Micro-finance programmes have to face enormous challenges in expansion with a large coverage of the poor as a result of the subsidised interest rates. Subsidised interest rates distorted the financial markets. By this subsidized method micro-finance could not reach targeted groups as well as not able a attain self-sufficiency. The best practice to effectiveness is to operate in a sustainable manner without continuous subsidy. The efficient performance of micro-finance institutions are associated with interest rates that fully cover costs, availability of well-rewarded voluntary savings, performance based compensation for staff, intensive training innovative low cost distribution networks, frequent loan collection and products matching the demand of low-income groups including good management information systems. Stronger capacity building and better dissemination of these practices can help micro-finance institutions to be effective, efficient and self-reliant.

As Nepal is one of the least developed countries in the world the micro-finance has gained wider recognition and popularity. Micro-credit is the only means by which finance can reach the rural poor. It is manageable by local poor and can be used to initiate the savings and credit as well as micro-enterprises.

Since last 30 years programmes of targeted credit have started and in 1998, Rural Micro-Finance Development Centre was established by the help of the Nepal Rastra Bank and other commercial banks with an objective of providing micro-finance credit. In recent years more financial sector too has reformed, yet access to credit for the targeted low-income groups remains low.

Only 20 per cent of the women in Nepal have access to micro-credit scheme. Micro-finance should be targeted to all poor by making it broad-based. Therefore, coverage should be made wider to integrate all these poorest of the poor within the preview of the micro-finance system.

In this respect the Centre for Micro-Finance Nepal (CMF) and Swiss Agency for Development and Cooperation (SDC) come up with three models appropriate for micro-finance services in the hilly regions. They are namely federated. Saving and Credit Organisation (SCO) model, Modified Grameen Model and Micro-enterprises finance. All these three types of micro finance models are recognized by CMF and SDC jointly to reduce poverty in the mountain areas of Nepal.

The three types of institutions have separate function. Federated Saving and Credit Organisation (SCO) model strengthen the capacity of Micro-Finance Institutions (MFI) to utilize wholesale lending and offer more qualitative services to their clients. Modified Grameen model strengthen the existing federated saving and credit organizations by providing suggestions and can serve the federated client mitigating the cost of Grameen significantly making it replicable in the hills. Micro-enterprise finance promotes activities in selected areas for coordinated activities.

Improvement

Government should create conducive environment to flourish the micro-finance institutions to be sustainable formal financial intermediaries all over the country. In this context government can improve financial intermediation for the poor by providing complementary public goods and improved regulation that recognition the special needs of micro-finance schemes such as better investment in rural infrastructure, literacy promotion programme will-functioning markets, improvement in poor people's access to markets and information including modern technologies as well as sources of credit.

Problems And Prospects Of Land Issues

By Krishna Prasad Subedi

NEPAL has been facing numerous steps on land tenure system. Principally, it is considered that the ownership of all lands within the territory of the country shall be vested in the state. In legal sense it is called the concept of eminent domain. Individuals and institutions may own land if state permits them to do so. Thus the importance of land and access to its production remains very important. The social, economic, political and cultural issues are largely related to land since it remains the most important productive resource of the country.

Historic

Historically, the major financial source of state was land revenue, which emerged from the Kirat Dynasty. From that Dynasty to the reign of late King Prithvi Narayan Shah the Great Nepal consisted of numerous principalities and states whose viability depended upon the renenue generated from the land. Since the era of Prithvi Narayan Shah many forms of land emerged in Nepal such tenure system existed until 1951. The most prominent forms of tenure were Raiker (state land awarded to individuals upon, payment of annual rent), Birta (land conferred by state to individuals), Jagir (land provided to government service holder in lieu of salaries), Guthi (land allocated for religious institutions for its maintenance and upkeep) and Kipat (land allocated under the community ownership of special group). After the revolution of 1950, began the major achievements towards and reforms.

In 1964, the most progressive land reform scheme was introduced through a series of Land Acts. In 1959, Birta Abolition Act was enacted all over the country and all Birta lands were converted into Raiker. The Land Act enacted in 1964 fixed the ceiling of land holdings and protected tenancy right. The primary objectives of the Act were to redistribute land to those who hold little or no land. Likewise, other existing laws in on land distribution and land use are Land Rules 1964, Act and Rules relating to Ukhada, 1960 (2017 B.S.) and Trust Corporation Act 1976 (2033 B.S.).

The existing laws on land administration are Land Measurement Act, 2019 B.S. and by laws 2032 B.S., Revenue Act, 2034 B.S., and Land Administration Act, 2024 B.S. The fourth amendment to the Land Act 1964 in 1998 abolished the concept of dual ownership between landlord and the tenant.
Recently, in 2002 there has been another amendment to the Land Act revising the maximum ceiling on land holding the objective of redistributing land to those who hold no land.

The government carried different activities in order to address the issues related with land reform through many agencies i.e. Ministry of Land Reform and Management, Survey Department, Department of Land Reform and Management, Department of Land Information and Archive, Land Management Training Center in central level and Revenue Offices, Land Reform Offices and Survey Section in district level.

In spite of many Acts and programmes launched for the reform of land issues, the problems and challenges still exist. Due to the poor execution of such Acts and programmes, the land reform programmes have been effective. The big landholders had got adequate time to transfer holdings to their nearest relatives. Data show that the government could acquire only 31,848 hectares out of the total 1.66 million hectares of cultivable land which is less than two per cent. From the perspective of land redistribution programme, such reform cannot work effectively. During the last five decades the implementation of such land reform programmes faced several challenges. Some of them are lack of skilled human resources, lack of clearcut land policies and lows, fragmentation of agriculture land, shortage of adequate resources and infrastructure, lack of coordination between the related organisation, difficulties in access of land by economically poor groups of people, hesitation of application of modern techniques, existence of dual ownership in practice, lack of effective implementation of land use planning.

We can identify some major issues relating to the agriculture land and tenure by analysing these problems. They may be categorized as disparity in land holding, land fragmentation, dual ownership, squatters issue and bonded labour issue.

The disparity in land holding has a direct negative effect in the production of the small landholders. In relation to land fragmentation, it poses a difficult problem for the modernisation of agriculture. The current legal provisions regarding the succession to the parental property would worsen the problem in the future. So, such provisions should be amended. Likewise, another issue relating to land is dual ownership between landlord and tenant. It has negatively affected land productivity and often discouraged the landlord and tenant to invest for land improvement. But this problem has settled since the fourth amendment to the Land Act in 1998, which removed dual ownership.

Another challenge relating to it is the issue of land possession. During the Panchayat period and even after the restoration of multi-party democracy, the government formed about a dozen of high level commissions to settle the problem of squatters. But the problem has remained as it was. Other issue relating to land is bonded labour (KAMAIYA) problem. The government freed the Kamaiya from the grip of landlord two years ago. All these Kamaiya were passing their miserable days having no bread and butter, shelter and clothes.

The land Issue clearly indicates that there is need for reform in number of sectors. Land fragmentation should be controlled and motivation to land consolidation should be enhanced. Adequate human resources should be developed, the land acquired from the land holding ceiling should be distributed fairly to the poor people, productivity of land should be enhanced, absentee landlords should be discouraged, landowners should be encouraged for invest in land improvement and to adopt improved technology and the problem of bonded labour should be managed. Similarly, land records in scientific way should be kept all the data, information related with surveying and mapping should be updated and the property of Guthi (Trust) should be secured and managed effectively.

Success

All these functions shall fall under the jurisdiction of executive, legislative as well as judiciary. So the success of land reform programme will certainly uplift the miserable condition of the Nepalese people if these organs work effectively, honestly with full coordination and cooperation.