Microfinance: Landscape
Poverty in Nepal
∙ 20% of the population lived below the poverty line in 2023
∙ 15% of Nepalese live on less than US$1.90 per day
∙ Multidimensional Poverty Index (MPI) at 0.068
Current Situation
Microfinance is a tool for poverty alleviation and increases financial access, especially in rural communities. It also reduces the barriers to entry compared to traditional collateralized loans.
Microloans are used to support microenterprise and agricultural activities.
Potential Issues and Gaps
∙ Indebtedness: Borrowers taking out several microfinance loans in order to repay existing debt
∙ Threat of default: Lack of financial literacy may contribute to loan default
Source: National Statistics Office (2023); World Bank, Poverty & Equity Brief (2023); UNDP–OPHI, Global MPI Country Profile: Nepal (2024).
Microfinance: Landscape
Decreasing Microfinance Institutions
∙ The number of Microfinance Institutions (MFIs) have been decreasing since 2020, with 84 MFIs in 2020 to 57 in 2023
◦ Despite this, the total number of branches has increased within the same time period, from 3946 to 5128 branches
Non-Performing Loans (NPL)
∙ Share of NPLs has been increasing since 2020, from 2.34% of microfinance loans in 2020 to 5.52% in 2023
◦ This poses a significant challenge in the microfinance sector as it affects sustainability, profitability and effectiveness in promoting financial inclusion
◦ Should the issue persist, it makes it more difficult for MFIs to provide loans for those who need them
Level of Financial Literacy
∙ Financial literacy is still very low in Nepal, potentially affecting both borrowers and lenders
◦ Supply side: Lack of financial literacy amongst MFI staff limits the outreach to lenders
◦ Demand side: Lack of financial literacy impacts borrower’s knowledge about microloans, hindering adoption. It also affects the appropriate use of funds and repayment practices