Citation:

Kishor Hakuduwal, PhD, Prakash Nayabhari, M.Phil. "Microfinance in Nepal: Historical Evolution, Institutional Growth, and Sustainable Consolidation" International Research Journal of Economics and Management Studies, Vol. 4, No. 8, pp. 228-234, 2025. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V4I8P124

Abstract:

Microfinance involves providing small loans to the underprivileged to support cottage and small-scale businesses that can generate income to meet borrowers' obligations. The objective of the study is to analyze the historical development, modalities, regulations, and institutional growth of microfinance in Nepal. In Nepal, the microfinance sector has steadily expanded over the past five decades through initiatives such as cooperative credit schemes, the Small Farmers Development Project, targeted lending to deprived sectors, and the establishment of Grameen Bikas Banks, thereby enabling broader access to credit and income-generating opportunities. This study analyzed the growth of Microfinance Financial Institutions (MFIs) from fiscal year 2016/17 to 2023/24 using secondary data from Nepal Rastra Bank, focusing on the number of institutions, assets, branches, staff, borrowers, and loan portfolios. The findings showed rapid growth in the early years, with MFIs increasing from 53 to 90 between 2016/17 and 2018/19, assets nearly doubling, and borrowers reaching 2.68 million. Borrower outreach peaked at 3.3 million in 2021/22, indicating intense penetration. However, consolidation followed, with the number of MFIs declining to 52 and borrowers decreasing to 2.66 million in 2023/24. Despite this, assets increased to Rs. 554 billion, and loans rose to Rs. 456 billion, indicating stronger financial capacity and larger loan sizes. Nepal’s microfinance sector is shifting from rapid growth to sustainable consolidation. Microfinance in Nepal remains a key driver of rural development, balancing financial sustainability with social goals.

References:

[1] Adhikari, D. B. (2019). Role of micro-finance in socio-economic development of Kathmandu, Nepal. Patan Pragya, 5(1), 1-10. https://doi.org/10.3126/pragya.v5i1.30431
[2] Bakhtiari, S. (2011). Microfinance and Poverty Reduction: Some International Evidence. International Business & amp; Economics Research Journal (IBER), 5(12). https://doi.org/10.19030/iber.v5i12.3550
[3] Chaulagain, K. P., & Lamichhane, B. D. (2022). Determinant factors of microfinance performance in Nepal. Journal of Nepalese Business Studies, 15(1), 46–59. https://doi.org/10.3126/jnbs.v15i1.50380
[4] Dhungana, B. R. (2018). Impact of micro-finance on business creation: A case of Nepal. Journal of Nepalese Business Studies, 11(1), 23-34. https://doi.org/0.3126/jnbs.v11i1.24197
[5] Hakuduwal, K., & Nayabhari, P. (2025). Investigating productivity of microfinance institutions in Nepal: Evidence from panel data approach. The Batuk, 11(1), 16–25. https://doi.org/10.3126/batuk.v11i1.74440
[6] Karn, S. K. (2018). Challenges and opportunities of microfinance in Nepal. International Journal of Social Science and Management. 5(3), 72–75. https://doi.org/10.3126/ijssm.v5i3.20612
[7] Kasali, T. A., Ahmad, S. A. & Lim, H. E. (2015). The role of microfinance in poverty alleviation: Empirical evidence from South-West Nigeria. Asian Social Science, 11(21), 183–192. https://doi.org/10.5539/ass.v11n21p183
[8] Khanam, D., Weber, O., Hoque, A., & Mohiuddin, M. (2018). Financing micro-entrepreneurs for poverty alleviation: a performance analysis of microfinance services offered by BRAC, ASA, and Proshika from Bangladesh. Journal of Global Entrepreneurship Research, 8(1). https://doi.org/10.1186/s40497-018-0114-6
[9] Lamichhane, B. D. (2022). Loan delinquency in microfinance institutions (MFIs): Ways to overcome the problem. Nepalese Journal of Management Research, 2(1), 37–43. https://doi.org/10.3126/njmgtres.v2i1.48264
[10] Nepal Rastra Bank (2013). Some glimpses of micro-finance activities in Nepal. Kathmandu: Micro-Finance Promotion and Supervision Department, Nepal Rastra Bank.
[11] Nepal Rastra Bank. (2024). Bank supervision report 2024. Kathmandu: Nepal Rastra Bank.
[12] Newman, A., Schwarz, S., & Ahlstrom, D. (2017). Microfinance and entrepreneurship: An introduction. International Small Business Journal: Researching Entrepreneurship, 35(7), 787–792. https://doi.org/10.1177/0266242617719314
[13] Regmi, B. N. (2013). Role of microfinance in poverty reduction (a case study of microfinance program of Manushi in Goldhunga VDC of Kathmandu district). Unpublished master's thesis, Central Department of Rural Development, Tribhuvan University.
[14] Sharma, S. R. (2003). Microfinance against poverty: The Nepalese scenario. Economic review (occasional paper), 15(2), 166–190.
[15] Shrestha, S.M. (2009). State of Microfinance in Nepal. Institute of Microfinance, State of Microfinance in SAARC Countries.
[16] Subedi, S. & Karki, D. (2022). Outreach, sustainability, and efficiency of microfinance institutions in Nepal. Bhutan Journal of Business and Management, 5(1), 42-63.
[17] Thapa, B. S. (2021). Socio-economic impact of microfinance in Nepal. An unpublished PhD thesis, Faculty of Management, Tribhuvan University, Nepal.
[18] Thapa, B. S., & Yadav, A. (2024). Does microfinance affect women's empowerment? Evidence from the Rautahat district of Nepal. The Batuk, 10(1), 1-15. https://doi.org.10.3126/batuk.v10i1.62294
[19] Yadav, M. (2024). Microfinance in Nepal: An overview. Journey for Sustainable Development and Peace, 2(2), 114–131. https://doi.org/10.3126/jsdpj.v2i2.69573
[20] Yunus, M. (2003). Banker to the poor: The story of the Grameen bank. New York: Perseus Books Group.

Keywords:

Institutional Growth, Microfinance, Nepalese Microfinance Institutions.