INNOVATIVE FINANCIAL SERVICES MODEL TO PROTECT NEPALS WORKERS

One quarter of Nepal’s population lives on less than £0.16 per day, and a further 55% lives on less than £0.80. 96.2% of Nepal’s workforce is employed in the ‘informal sector’ – primarily smallholder farmers and landless wage labourers - which means that around 11.3 million workers are deprived of access to formal social protection measures, directly impacting on working conditions, wages, and safety nets such as insurance and access to legal, technical and financial services that guard against times of low economic demand and offset hard times. The proposed project fully contributes towards MDG 1b, ‘Achieve full and productive employment and decent work for all, including women and young people’ by increasing the capacity of workers in the informal economy to escape from poverty and better manage risks and shocks. In many of the poorest, most geographically isolated hill and mountain regions of Nepal, residents rely on “self-help groups” known as Village Savings and Loans Associations (VSLAs) for support. VSLAs help marginalised households to access information, peer support and services, as well as creating group-based savings and loan funds, which can then be used as insurance, working capital for self-employment activities, emergency funds, and savings. An estimated 300,000 of these informal VSLAs exist in Nepal, but they often suffer from poor governance and embezzlement and end up failing to carry out the role for which they were created. As a result, many Nepali people often depend heavily on high-risk informal loans to cover consumption and emergency needs, with many families taking annual loans averaging £350 at interest rates exceeding 60% per annum. Many are unable to repay these loans in cash, and therefore often make repayments with crops or take out a second or third loan to repay the first loan, resulting in a cycle of debt from which it is almost impossible to emerge. Facilitating access to formal Savings and Credit Cooperatives (SACCOs) for informal VSLAs therefore serves as in important intermediary step that allows vulnerable groups to benefit from formal financial services, technical services, and social protection mechanisms. However, to expand access to such formal SACCOs effectively, qualified intermediary organisations like NEFSCUN must be capable of forming and expanding their networks while at the same time enforcing minimum standards of governance and extending legal protection. Whilst NEFSCUN’s activities have proven effective the organisation has yet to reach some of Nepal’s poorest and most underserved districts due to remoteness and the costliness of operating in these areas. Furthermore, given that their Cooperative Development Process remains costly to implement and is not outreach-based, the reach of their network remains constrained. As such, Mercy Corps and NEFSCUN will partner to develop a cost-effective, outreach-based model to reach the vast array of informal, community-based VSLAs already in existence.