Micro Finance

Micro Finance Management

Assignment 2.3

Submitted by:

Raj Maharjan

17317

Submitted to:

Dr. Nar Hari Dhakal

Kathmandu University

School of management (KUSOM)

April 2, 2018

A group of investors from eastern Nepal approached you to seek advice for setting-up a Microfinance Institution based in Dhankuta Bazar, district headquarter of the Dhankuta district of eastern Nepal with ten districts namely Taplejung, Panchthar, Ilam, Dhankuta, Terhathum, Sankhusabha, Khotang, Solukhumbu, Okhaldhunga and Bhojpur as the working areas.

a) Do you advise those investors to set-up the microfinance institution in the area? What will be the rationale and basis of your advice?

Micro finance institution are those financial institution that focuses on deprived sector to provide financial services towards the poor so that they can earn to have two meal per day initially, then be able to earn money and save, and finally graduate from the poor. Looking at the evidence of micro finance institution in south Asian countries like India, Bangladesh it had been an important tool to alleviate the poverty. In case of Nepal as well many MFI are providing services to poor who are do not have any collateral to present towards the banking institution.

If you consider eastern region of Nepal, although being developed than other development region beside central region have many rural areas containing many poor societies. They district having border with India are developed but other landlocked district are far behind.

Opening micro finance institution is a good thing but one should not open it based on his desire, detail analysis and study should be conducted. Before giving advice to them I would first look at the Background and the common goal of the investor.

The main reason to look at the background is,

• If the investor are from the banking and financial institution and has past experience then they will know about the financial condition and the system.
• If they have past experience in MFI than it will be best, as they will have knowledge about the policies and directives (directive of D class is different than other)
• If they do not have any financial experienced personal than I would advise them to at least attract one investor who have experience working in MFI.

Common goal of the investors also plays a vital role in deciding whether they are suitable to establish the MFI or not.

• If the main goal/objective of the investor is to earn profit than MFI is not for them.
• If they want to serve, provide financial service in urban areas than it would be better for them to establish other financial institution like bank.
• If the investor goal is to minimize risk than MFI would not work, there is present of high default risk.

If the investors have experienced financial personal or wants to hire the expert as promoter and do not care about profit but rather their motive is to serve the deprived sector than investing in MFI would be best option for them.

Having ideas or working on paper will not work unless you have capital to turn your plans into action. So it is necessary to know whether the investor have enough capital or not. To establish a MFI for serving 4-10 district they must have paid up capital of Rs. 20 million.