National 2 (Spotlight Weekly)

Financing The Poor

ADB approves an assistance to help rural finance institutions

By A CORRESPONDENT

The Asian Development Bank (ADB) has approved a technical assistance (TA) grant of US$515,000 to help strengthen key rural finance institutions in Nepal. “The TA, co-financed by the Government of Germany, will help the government-owned Agricultural Development Bank of Nepal (ADBN) implement a three-year restructuring plan by boosting the capacity of the Central Training Institute (CTI) and the Regional Training Center (RTC) to offer better training services to ADBN,” states a press release issued by ADB headquarters in Manila on March 30.

A remote village : Will it benefit?

”The Restructuring Plan for the Commercialization of ADBN, developed through an ADB TA grant in 2000, aims to transform ADBN into a sustainable bank after reviewing its ownership and governance, financial status, organizational set-up, and operations. ADBN is the largest rural finance institution in the country.”

The ADB believes that the TA will help CTI and RTC better train ADBN's senior management and staff in corporate planning, credit appraisal, loan portfolio management, risk management, and internal audit and accounting procedures – priority areas for skills development identified by the restructuring plan.

It will also review the financial status and operations of the Small Farmers Development Bank, a fully owned ADBN subsidiary, including restructuring options and the quality of ADBN loans and investment in the bank.

In addition, the TA will facilitate the design of the Rural Finance Sector Development loan, which is in the assistance pipeline for 2005. "Given its nationwide network, often in unserved remote rural areas, a reformed ADBN could significantly enhance outreach and strengthen the rural finance sector," says Ashok Sharma, an ADB Senior Financial Economist.

Providing access to rural finance is critical to improving the agriculture sector and reducing poverty in Nepal, where 80% of the labor force is engaged in agriculture.

The rural finance sector is characterized by weak governance, poor repayment rates, high transaction costs, recurring losses, and high non-performing loans. Rural finance institutions have limited outreach and are concentrated in the plains. They collectively disburse about NRs7 billion a year to only 23% of the rural population, with majority of rural households relying on informal credit.

Because of the high-risk perception of rural finance, commercial banks are discouraged from expanding their RF portfolio.

"The sustainability of ADBN is important to encourage commercial banks to pursue rural finance operations," says Sharma. ADBN will execute the TA and contribute US$95,000 toward the TA's total cost of US$610,000. The TA is due for completion in October 2004.

Red Cross Response

In the aftermath of deadly Beni attack on March 21, the red cross organizations initiated rapid response to help the victims and injured ones.

“In cooperation with the Nepal Red Cross Society (NRCS), the ICRC quickly sent a team to assess the situation and respond to the most urgent needs. The NRCS immediately set up three first-aid posts to treat the War Wounded. Furthermore, it distributed a one-month supply of basic food rations and other essential items to 14 persons (2 families and 3 individuals) who had lost all their property, including their own homes, in the fighting,” states the press released issued by the International Committee of Red Cross.

“In addition, with advice and support from the ICRC, the local Red Cross chapter marked sites where unexploded devices had been discovered, and a radio broadcast alerted the local population to the danger,” it further states.

According to the ICRC, it is seeking access to members of the security forces and other officials in the hands of the Maoist opposition since the recent fighting. As soon as the security situation allows, it will also assess the need for humanitarian aid in areas near Beni affected by the ongoing military operations.