Have you ever wondered what it would be like if you didn’t have a bank account? How would you transfer money? What about loans and credit? Would you carry Lakhs and Crores of Rupees with you in case you had to buy a car or a house? Doesn’t feel correct, right?

For most of us, in today’s date, having a bank account is just like breathing- something that comes naturally and is fundamental. But this isn’t the case for more than half of the population worldwide. According to the Global Findex database 2017 prepared by World Bank, around 1.7 billion adults around the globe remain unbanked, i.e., they either don’t have easy access to banks or have a profound distrust towards the financial system. And such an exclusion from financial activity has deprived a lot of countries of attaining inclusive economic growth. This brings us to the concept of financial inclusion and where Nepal stands.

What exactly is financial inclusion?

As a result of financial exclusion and its direct relation to poverty, financial inclusion has been gathering momentum since the 2000s. In the simplest terms, financial inclusion refers to the process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy, be it individuals or businesses. Financial inclusion is basically an effort to address and offer solutions to the obstacles that refrain people from participating in the financial sector.

Why know about financial inclusion?

Today, financial inclusion is seen as a critical priority for governments, international development agencies, academics, and private sectors. In the chorus, the World Bank has made its initiative, Universal Financial Access (UFA) by 2020 as one of its major strategies to understand and overcome poverty through financial inclusion among its partnering economies.

The increasing emphasis and promotion of financial inclusion only mean that it actually has a transformative potential to accelerate developmental achievements. How it works is that by bringing the excluded population from an informal, undocumented, and unregulated system of financing into the formal, transparent, and protected financial mechanism, a proper and well-designed financial inclusion program benefits the previously unbanked population with the fundamental tools of economic self-determination which include savings, credit, insurance, payments, money transfer and financial education. And in doing this, the less privileged and rural poor population are actually drawn out of poverty with the opportunity of starting their own business through micro-financing.

So, it comes to our understanding that in the policy framework for the development of the financial system, the role of financial inclusion must be recognized for achieving inclusive economic growth.

How is the current scenario of financial inclusion in Nepal?

As of mid-January 2017, the number of commercial banks, development banks, finance companies, Micro-Finance Institutions (MFIs), and savings and credit cooperatives in Nepal aggregated to 28, 57, 36, 48, and 15 respectively. Although the number of development banks and finance companies decreased from 67 to 57 and 41 to 36 respectively as of mid-July 2016 to mid-January 2017 due to mergers, financial access nonetheless has been rising with the increase in branches of the financial institution.

Likewise, in the context of Nepal, the importance of financial inclusion policy has been well realized as observed from the Strategic Plan of Nepal Rastra Bank under which enhancing financial inclusion has been given strategic priority, The Monetary Policy of 2017/2018 has also focused on improving financial literacy along with access to finance and the Banks and Financial Institutions Act (BAFIA) has made it compulsory for class A, B, and C financial institutions i.e., commercial banks, development banks and finance companies respectively to make available low-cost funds to MFIs for the ease of accessibility of financial mechanism to the rural and underserved areas.

Similarly, NRB in coordination with the Government of Nepal also has a number of policy models for developing financial inclusion within the country. These policy models include The Grameen Bank Model, The Wholesale Micro-Finance Model, The Directed Lending Model, The Project-Based Micro Credit Model, The Financial NGOs (FINGOs) Model, and the Cooperative Model.

Strategies adopted by NRB

For achieving greater financial inclusion, NRB has adopted certain policy provisions such as:

1. Incentivizing to open branches in remote areas

As per the provision, BFIs especially class A and class B opening a branch among the specified 14 remote district headquarters get Rs. 5 million interest-free loan and Rs. 10 million, if established outside the district headquarters. And MFIs receive Rs. 3 million interest-free loans upon opening a branch in the specified 22 remote districts with low banking access.

2. Provision of Special Refinance Facility

The NRB has made a provision of a special refinance facility at 1 percent interest with the aim of encouraging BFIs (A, B, and C class) to extend loans to agriculture and small business-based income-generating activities in poverty-stricken areas of the country.

3. Separate Client Protection Fund

In consideration of consumer protection, MFIs are required to develop a separate Client Protection Fund for the institutional development and welfare of the borrowers. They are also required to allocate 1 percent of their net profits to the fund and another 25 percent of the dividends if the dividend distribution exceeds 20 percent of their profit.

4. Financial Literacy Programs

The financial literacy campaign focuses on spreading awareness about banking and nonbanking institutions and also educating communities about the informal financial sector including dhukuti and hundi. The policy aims to enhance the inflow of remittances through the banking sector and utilize them productively.

5. The Financial Sector Development Strategy (FSDS)

The financial sector development strategy (FSDS) which covers the period from 2016/17 to 2020/21 lays emphasis on certain techniques for increasing financial outreach.

Apart from the provisions formulated by the NRB, one of the financial services that have not yet been taken advantage of to the extent as desired is that of mobile banking and digital financial services. Concerning the penetration of mobile technology within the country, mobile banking has great potential of increasing accessibility of financial services to the poor and remote areas where bank branches cannot be opened because of infrastructural setbacks. It cannot be denied that there are certain challenges with implementing nationwide digitization of financial services in an economy like ours but considering the importance of technology in the process of inclusion, mobile banking and digital financial services is a sector that should be tapped upon.