Only 26 percent have bank account in Nepal: survey

from India E News

Though money sent home by relatives working abroad has kept Nepal's economy alive for nearly a decade, only 26 percent Nepalis have bank accounts due to lack of access to financial services, say a survey.

Though money sent home by relatives working abroad has kept Nepal's economy alive for nearly a decade, only 26 percent Nepalis have bank accounts due to lack of access to financial services, say a survey.

Family and friends are by far the largest loan providers since formal financial institutions do not serve the needs of people, especially low-income households and small businesses, World Bank's country director for Nepal Ken Ohashi said while launching the 'Access to Financial Services Survey: 2006' report in Kathmandu.

The report, co-authored by the World Bank and Department for International Development, the British government's international aid wing, says access to financial services has declined in Nepal in recent years.

According to the survey, only 26 percent Nepali households have a bank account since bank procedures are seen as being the most cumbersome.

However, families and friends do not give loans altruistically. They charge interest on loans.

Private money-lending organisations and cooperatives are the second choice for Nepalis, serving 18 percent households that include both low-income and wealthier groups.

Microfinance and regional rural development banks come a distant third, serving only four percent, mainly the rural poor.

Most households do not bother trying to borrow from financial institutions because the latter can't meet needs in time. Also, informal lenders ask for less or no immovable collateral.

'Even among the wealthiest households, half of those with a bank account prefer informal lenders because of their rapid delivery,' said Aurora Ferrari, World Bank Private Sector development specialist and author of the report.

Government efforts to increase access to formal financial services have not been successful since lending profitably to small businesses requires a high level of efficiency, minimised transaction costs and large numbers of high-quality loans.

'The country needs to develop an environment where small business lending is safer, cheaper, and faster,' Ferrari said.

'Access to financial services plays a crucial role in poverty reduction,' Ohashi said. 'For example, access to savings helps poor people cope better with shocks such as health care emergencies. Through access to credit, they can invest in income-generating activities or in the future, by obtaining education or migrating. Financial services also play an important role in supporting the growth of small businesses -- crucial for creating jobs for low-skill workers.'

The World Bank is asking Nepal government to urgently help banks and microfinance institutions develop appropriate products and procedures for profitable lending to small businesses and low-income households

The report suggests secured transactions laws, promoting the industry by upgrading technical skills and reforming state-owned providers. It also urges the government to create a legal and regulatory environment that protects microfinance consumers and promotes stability.

By Sudeshna Sarkar