Manila, Oct 30, 2006 AEST (ABN Newswire) - An Asian Development Bank (ASX: ATB) loan and grant package totaling as much as $100 million will support a comprehensive reform program to improve the access of rural households in Nepal to financial services.
While rural poverty in Nepal has been declining, mainly due to large remittance inflows, still about 95% of the country's poor live in rural areas. Access to reliable and affordable financial services is crucial for them to capture the opportunities of the reviving economy.
Yet access to institutional financial services in Nepal is severely limited, reaching only 28% of the population. This can be solved by revitalizing the network of rural finance institutions. However, a high-risk profile, restrictive policies, and security concerns, along with difficult terrain, inhibit the growth of private institutional rural finance services.
"Wider sector reform is needed to address bottlenecks to the growth and development of efficient rural finance services for the poor," says Mayumi Ozaki, an ADB Finance Specialist.
The Rural Finance Sector Development Cluster Program comprises two subprograms, the first of which aims to consolidate the fragmented rural finance regulatory framework, begin to commercialize rural finance institutions, and strengthen the capabilities of rural finance service providers.
This subprogram, backed by a $56 million loan from ADB's concessional Asian Development Fund (ADF), should create an environment that stimulates the growth of rural finance through policy, legal, regulatory, and institutional reforms. The loan carries a 24-year term, including an 8-year grace period, and an annual interest charge of 1% during the grace period and 1.5% afterwards. A second loan, which could total as much as $35 million, will be prepared in 2009.
Funds from this first loan will be used to recapitalize the Agricultural Development Bank Limited (ADBL), the third largest bank in the country that, despite its institutional weaknesses, remains the single most important institution in the rural sector.
An $8.7 million grant, also from the ADF, complements the reform efforts by supporting the restructuring of ADBL and the Small Farmers Development Bank, an institution catering to cooperatives of small farmers. It will also establish a training institute in banking and finance, and support product and process innovations.
The second subprogram, after satisfactory completion of the first in 2008, will continue to promote reforms, expand the reach of commercial-based rural finance services, and support the privatization of important rural finance institutions, including ADBL.
In addition, a $500,000 technical assistance grant from the Japan Special Fund, from the Government of Japan, will ensure quality inputs from experts on ADBL restructuring in line with international best practices.
The Ministry of Finance is the executing agency for the entire program, which will be carried out until 2011.
Contact
Omana Nair
Email: onair@adb.org
Tel:+632 632 5178; Mobile: +63 918 914-7003
Graham Dwyer
Email: gdwyer@adb.org
Tel:+632 632 5253; Mobile: +63 920 938-6487
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