The recently launched Making Financial Access Possible (MAP) is a nationally representative diagnostic study undertaken by the Nepal Rastra Bank with support from UNCDF and UNDP. The study provides an overall picture of the financial inclusion situation in Nepal. The related FinScope survey (2015) – a demand side study that feeds the MAP findings – provides an overview of how people source their income and how they manage their financial lives.
The findings of the study reveal that, compared to other MAP countries[i], the level of financial inclusion (in terms of access to formal and informal financial services) in Nepal is relatively high, with only 18 of the adult population being financially excluded. This percentage of people who are financially excluded is low compared to MAP countries globally and, in particular, to Asian MAP countries such as Pakistan (where 56% of adults are excluded), Myanmar (where 39% of adults are excluded) and Lao PDR (where 25% of adults are excluded). Thailand is an exception to this, with a mere 1% of the population are excluded from financial services.
Further analysing the FinScope findings, 40% of Nepali adults claim to be banked and 21% claim to have used financial services from a non-bank formally regulated financial institution. Totalling the usage of bank and non-bank formal institution, 61% of Nepali adults are being formally served. The informal channels serve 21% of the population, which means that 82% population are financially included. A total of 18% of Nepali adults are financially excluded and do not use services of any formal or informal financial service providers.
However, when studying the overlaps in the use of financial channels; as most of these channels are not used exclusively, informal channels emerge as the most predominant ones. According to the FinScope survey, 57% of the adult population report uptake of products through informal channels. Looking into the overlap between the uses of formal financial services (62% of the population) provided by banks and other formal institutions such as remittance providers, and cooperatives, the data reveals that 14% of Nepali use a combination of all financial service types. 22% of the population who are banked also overlap with the population using informal financial services. Similarly overlaps could be detected between banks and cooperatives, and cooperatives and other informal channels.
Generally, banks are expected to be the drivers playing a key role in driving the agenda of financial inclusion. However, before addressing such expectations, one needs to carefully look into the findings from the MAP diagnostic study.
It emerges from the study that only 9% of the population exclusively transact with formal banks (A, B, C and D class banks) licenced by the Nepal Rastra Bank. This small percentages include both corporate as well as the non-corporate clients. The research also indicates that the average income of clients having a bank account is 1.7 times higher than of those without a bank account, 38% of those with a bank account have a regular monthly income whilst only 20% of those without an account claim to have regular monthly income. Likewise, 63% of adults with a bank account are aged between 25 and 54 years and only 19% are under the age of 25 years.
Hence, one of the key barriers to the uptake of formal financial services from banks seems to be income level and affordability. It is also evident from the study that the financial transactions of banks are driven by payments and savings products (out of those who have borrowed money, only 10% of adults are borrowing from banks). This is especially true given that majority of Nepali adults have irregular and unpredictable income flows. The survey also reveals that 71% of adults have irregular income, while 27% claim to earn a regular monthly income. Only 24% claim to earn NPR 10,000 or more a month while 42% of adults reportedly earn less than USD 2 per day.[ii]
The above scenario and findings pose an important question on whether banks in Nepal are best placed to promote the agenda of financial inclusion, especially to those unserved and underserved population in rural and remote areas where majority have no regular income sources and earn less than USD 2 per day.
[i] These countries includes Mauritius 2014, South Africa 2014, Thailand 2013, Namibia 2011, Swaziland 2014, Botswana 2009, Lesotho 2009, Ghana 2010, Nigeria 2012, Zimbabwe 2014, Kenya 2013, Malawi 2014, Rwanda 2012, Uganda 2013, Myanmar 2013, Tanzania 2013, Zambia 2009, Democratic Republic of Congo 2014, Mozambique 2009, Pakistan 2008.
[ii] MAP, FinScope Survey Findings, 2015