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Abstract: Savings and credit cooperatives (SCCs) provide a variety of microfinance services to households in three of Nepal's distinct regions-the Hills, Terai, and Kathmandu Valley. Nearly all Nepali SCCs are self-funded using member savings and equity. Most Nepali SCCs are also profitable, including those located in poor, remote areas of the Hills region. Key reasons for the SCCs' strong financial performance include reliance on member savings and control of administration costs. High-profit SCCs also show superior interest earnings on loans compared to low-profit SCCs. Nepali SCCs do not need concessionary funds, because they are already profitable and able to mobilize member savings. While savings-led microfinance in Nepali SCCs is a slow process, there is significant long-term outreach potential in local communities. The government and donors should pursue institution-building strategies to strengthen Nepali SCCs and should not provide concessionary funding.
By most indicators, the outlook for economic development and poverty alleviation in Nepal is bleak. Living standards in the country are among the lowest in the world and are declining in many categories. The country's difficult topography poses challenges for market development and limits agricultural investment options. The country is currently plagued by political instability, including a Maoist insurgency. In addition, formal financial markets fail to reach most poor households. According to one recent estimate (CECI, 2001), only 10% of rural households can access formal financial markets. Many government and nongovernment agencies implement a variety of microfinance programs to increase poor households' access to financial services (Bhatta, 2001).
Nepal's geography influences the nature of microfinance programs. The Himalayan mountains cover the northern third of Nepal. Sparse population and few business activities are found in this region. The middle third of Nepal-known as the Hills-contains roughly 40% of the country's population. In Hills communities subsistence agriculture is the primary way of life. Hills topography consists of steep peaks and valleys between 500 and 3,000 meters above sea level. Many Hills communities are far removed from modern amenities and infrastructure. The Terai comprises the southern third of Nepal and features flat, fertile, and densely populated landscapes. In the geographical center of Nepal lies the Kathmandu Valley, the heart of government and business activities. Existing microfinance programs are mostly concentrated in the Terai and the Kathmandu Valley...