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Economic Development and Opportunity

Sustainable Access to Finance and Livelihoods (SAFAL)

August 2013 to July 2015
Department for International Development (DFID)
East (Panchthar, Taplejung, Tehrathum, Sankhuwasabha and Bhojupur) Mid
West (Rukum, Jumla, Kalikot and Banke)
Far-West (Doti, Bajhang, Baitadi and Kanchanpur)
£1.2 Million
Economic Development and Opportunity
Nirdhan Utthan Bank Limited (NUBL), Laxmi Laghubitta Bittiya Sanstha (LLBS), Laxmi Bank Limited (LBL)
35,500 Households

The Challenge
Despite the successes in Nepal of the microfinance sector and Government of Nepal's strategic support to the national cooperative movement, millions of rural Nepalese still lack basic access to finance. Nationally,access to formal financial institutions for loans has risen from 16.1% in 1995 to 20% in 2011, however in the rural hills of Mid and Far-Western Nepal, it is as low as 6% (NLSS Ill, 2011). The same research also suggests that over 74% of the population of the rural hills of the Far and Mid-Western regions access informal sources for financial services (particularly loans). Informal savings schemes often entail high risk and discourage medium and long term accumulation. In a country where nearly 80% of the labour force is engaged in agriculture, these numbers indicate the magnitude of challeni:Jes and the concerted efforts needed for transformi ng exclusion into inclusion.

According to the United Nations Development Programme (UNDP), microfinance services have penetrated only 37% of the market overall, with the highest penetration in the southern Terai region (66%), followed by the accessible areas in the middle hills (33%), the inaccessible hills (9%) and followed by the high Himalayan region (6%). This follows an opposite pattern to poverty incidence, as the highest incidence of poverty is found in the high mountains, while the lowest incidence of poverty is found in the Terai (plains) areas. Reasons for exclusions are numerous, such as geographic difficulties, dispersed population, lack of appropriate financial products and services, low awareness (hence, low demand) of financial services and widespread market distortions due to high subsidies and financial indiscipline. These have made rural and remote mountains and hills of Nepal a virtual "no go zone" for financial institutions.

Target beneficiary of rural finance.

Overview and Outcome
Mercy Corps, with the support of DFID in Nepal, is working to reduce poverty in remote and rural areas, particularly hill and mountain communities in Nepal through expanding sustainable access to finance by strengtheni ng and enhancing money management skills with financial literacy of community based cooperatives that create better Iive Iihood opportunities for the beneficiaries. SAFAL project is designed to provide sustainable increases in income and access to finance opportunities for people in 13districts in the Eastern, Mid-Western and Far-Western regions of Nepal. The project aims to bring about a systemic transformation in the delivery of and access to financial services. It is expected that around 35,500 households will benefit through this project (more than 60% of which are expected to be women) who will have access to a wide range of financial services, such as appropriate savings, affordable credit, remittances and micro insurance to strengthen or initiate new enterprises.The project will also assist 11,000 financially excluded people in getting responsible loans.

Microfinance client receiving loan.

The project has been designed based on providing a range of innovative yet tested approaches to facilitate access to finance and livelihoods opportunities focused on stimulatin1;1 the demand of financial services at the community level along with strengthening the supply of financial services by supporting financial institutions to design and deliver commercially viable products and services. The three major objectives that the project aims to achieve are:

Output 1:The project is building the capacity of local follTlal and informal community institutions (SACCOs and micro finance groups) and improving their access to financial seivices from private sector financial institutions. The project is also working closely with their clients and providing financial literacy training to improve their money management skills, assist in market linkages to better livelihoods and increase incomes.

Output 2: The project is working with Nirdhan Utthan Bank Limited and L.axmi Laghub1tta Bittiya Sanstha and providing deficit subsidy support to these MFls to open 8 new branches in Banke, Rukum, Kalikot, Jumla, Kanchanpur, Baitadi and Bajhang. The project is also providing technical support to these MFls and assisting in providing financial literacy to their clients.

Output 3: The project is piloting and scaling up innovative practices that use mobile technology in delivering financial services through Laxmi Bank to clients m Banke and Kanchanpur districts.

The Approach

Access to micro-enterprise financing through local communityInstitutions

The project will continue working with the Savings and Credit Cooperatives and District Credit Unions to develop their capacity in expanding their outreach, creating capital, mobilising savings and establishing linkages with higher level financial intermediaries for wholesale lending and technical support. The project seeks to facilitate loans to at least 5,673 loan clients (2,270 men and 3,403 women) through this approach, amounting to at least £397,000.

Deficit financing approach

The project will follow a deficit financing model of partnership with MFls, which has proven to be a successful partnership model to date in Nepal,sharing the risks of expanding financial services in the remote areas and leveraging loan investment as well as ensuring ownership of MFls. This model provides catalytic support to a wide number of MFls by offsetting some of the initial operational losses for opening new branches in rural and remote locations and taking their services to previously excluded clients. The partners will adopt a Self Reliant Group Modality (SRG) for reaching scattered populations in the hills and mountains where the Grameen model is more costly and less effective.The project is working with Nirdhan Utthan Bank Limited and Laxmi Laghubitta who both have proven experience of implementing financial services in hills and mountains. This approach is expected to provide access to financial services to 7,500 new clients (750 men and B,750 women) in these areas. It is expected that a total of £646,000 will be disbursed as loans.

Piloting and targeted &eale up of innovative approaches and technologies for financial inclusion

Mobile Technology
The project will work in alliance with Laxmi Bank to scale up the Mobile Khata platform that has been tried in various urban settings of Nepal. The approach will identify, train and appoint rural agents to expand the use of mobile khata with at least 5,500 clients. The mobile khata will be introduced to clients and MFls so that it facilitates easier access to information on loans/accounts, payment disbursement of loans and to facilitate deposits and withdrawals through local rural agents. The approach will not only bank on the single platform of 'Mobile Khata'that Laxmi Bank has been using, but also look into global practices, wherein Mercy Corps has introduced mobile technology for expanding inclusive financial services in similar contexts in Kenya, Uganda, Haiti and Indonesia.

Financial Literacy
Mercy Corps' Financial Literacy training model has been developed specifically for the context of rural Nepal, building on Mercy Corps' financial literacy training experience globally and including a comprehensive package comprised of financial goal setting; savings; credit management; risk management; safe migration and remittances; wants, needs and asset creation; financial services and providers; and, financial management. These modules are delivered to a group over the course of a month (at two hour sessions per day at the time and place of the clients' choice). The course content is based on the Microfinance Opportunities curriculum, as deployed by Mercy Corps globally. It is expected that this training will enhance the money management ability of clients, facilitate informed decisions and best use the available financial services. The approach will ensure greater involvement of disadvantaged and excluded groups in the mainstream development process.25,000 clients (8,000 men and 17,000 women) will be trained using this methodology.

Gender Focus
This project has the double benefit of explicitly targeting women, marginafised groups and underserved populations, while having a pro-poor focus through the selection of rural and remote geographic areas as project sites. This, however, does not dilute the focus of the project on the underlying issues of inequality of power and social exclusion.The project is developing a strong monitoring and evaluation system to ensure that interventions focused on the targeting beneficiaries (such as training, awareness campaigns, skills building) are designed in partnership with the target group,prioritising their needs. The Logical Framework of the project, which consists of key gender targets and milestones, and is further complimented by strict M&E tools, also has social performance indicators to monitor the qualitative and quantitative changes in attitudes and practices that have a direct relationship with increasing access to financial services for women.

Key Result Area  
Income Increment : £30 per loan client
Outreach : 35,500 Households
Loan Clients : 11,000 (3,02.0 men and 7,980 women)
Loan Disbursement : £1,043,000
Institutional Capacity Building : 12.0 DCUs/AACOs

Microfinance group meeting.