Paper

Role of State for the Development of Microfinance Sector

Paper presented at "Microfinance for Inclusive Economic Growth," Feb. 14-16, 2010, Kathmandu, Nepal
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This paper discusses the role of the state in developing the microfinance sector to enhance access to financial services to poor and low-income households in Nepal.

The state’s involvement in developing the microfinance sector in Nepal dates back to the mid-fifties when government supported the cooperative movement. The outcome of state involvement has been mixed, suggesting that the state’s role should be one that enables rather than provides financial services in order to foster permanent financial access to the poor.

The study identifies three broad roles for the state in developing the microfinance sector, and synthesizes a menu of policy interventions under each role. These roles are that of protector, provider and promoter. Finally, the paper suggests that the state should:

  • Establish a supportive policy environment that stimulates expansion of financial services in remote areas while protecting poor people’s savings;
  • Maintain macroeconomic stability, avoid interest-rate caps and refrain from distorting market with subsidized loan programs;
  • Improve business environment for entrepreneurs, clamp down on corruption and improve access to markets and infrastructure.

About this Publication

By Dhakal, N.
Published