--By Krishna Pradhan

 

Microfinance and poverty alleviation have been synonymous. Nepal has also done much to this end. Nepal has already formulated necessary policies and action plans to promote microfinance. It has taken an approach of giving priority to private sector in promoting microfinance. It is matter of pride that Nepal is ahead among the countries which have done well in developing microfinance. 

 

It is, however, ridiculous that the government is yet to realize achievement of this sector. A provision in this year’s budget, expresses government’s commitment to utilize microfinance as an effective means to provide finance in rural parts of the nation. The provision brings to light the government’s ignorance about the development of microfinance sector in Nepal over the last two decades.

 

The budgetary provision is very much ambiguous in itself. For instance, it has mentioned the provision of propelling expansion of microfinance sector but it has not included any concrete measures. The rhetorical budget does not make any sense. 

 

In my opinion, we need to expand microfinance in the urban areas now. Central Bank has been doing good to promote microfinance throughout the country. However, we cannot take microfinance sector to the next level unless the government extends support. It is time that the government takes some concrete measures to accelerate the expansion of microfinance across the country. 

 

There are some obvious reasons why the government should be involved in expansion of microfinance. Poverty eradication is, in principle, government’s obligation. Poverty reduction is not concerned only to data comparison. The overall poverty situation across the nation has not improved significantly. People below absolute poverty line still remain crushed despite pumping billions worth budget every year. Around 25 percent population is still living below the national poverty line. 

 

It is worthwhile to mention here that around 1.5 million people have been directly benefited from microfinance over the last two decades. Similarly, around 7 million people have indirectly benefited from the microfinance. 

 

Despite some wrong practices in the sector, microfinance has contributed much to bring the rural economy in formal channel and in developing banking habit in remote villages.  Poor people in the village have been involved in various income generation activities after establishment of microfinance institution in the villages. This has contributed in reducing poverty. Microfinance institutions are especially useful for those who cannot afford collateral while borrowing money from banks. 

 

 

Microfinance can substantially improve living standards of rural and urban poor if the government can propel its growth in a positive way through the introduction of appropriate policies. The government should take both direct and indirect measures to promote microfinance. Subsidy in corporate tax and certain percent tax exemption in the profit are some tangible measures that the government can adopt to promote microfinance sector. Similarly, the government should provide facilities to employees of microfinance institutions since they work in the rural areas. Tax exemption in the income of employees of microfinance institutions can stimulate them to work in the rural areas. The government can give tax exemption to microfinance employees whose yearly income is less than Rs 0.5 million. 

 

The government should also facilitate in the treasury management sector of microfinance. The government can deposit certain percent of collected revenue amount to the Grameen Swabalamban Kosh (GSK) and can convert it into the National Microfinance Fund. The money collected in the fund should be used in the welfare of microfinance institutions. Similarly, the government should also ensure health insurance of the employees working for microfinance institutions. 

 

The government should utilize microfinance institutions to generate employment opportunities in the country since microfinance has been very effective in launching income-generation activities at the grassroots level. The government should come up with a clear vision rather than rhetorical phrases in the development of microfinance. 

 

(Writer is former executive director at Nepal Rastra Bank )