A World Bank report has revealed that a very limited number of Nepali people have access to financial services by formal institutions.

The Access to Financial Services Survey report – which is going to be formally launched at a seminar in the capital on Tuesday – prepared by the WB and DfID reveals that about 38 percent of Nepali households have an outstanding loan exclusively from the informal sector, 16 percent from both formal and informal sector, and 15 percent from only the formal sector.

“Informal sector constitutes friends, families, money-lenders, landlords and so on,” said Aurora Ferrari, WB Private Sector Development Specialist and an author of the report, at a press meet in the capital on Monday. According to her, the time factor and easy process leads people to seek loans from informal sector.

“Despite efforts by the government to address the situation, formal financial institutions do not serve the needs of most people in Nepal, especially low-income households and small businesses,” said Ken Ohashi, WB Country Director.

Ohashi states that access to financial services plays a crucial role in poverty reduction. “For example access to savings helps poor people cope better with shocks such as health care emergencies. Through access to credit, they can invest in income-generating activities or in the future, by obtaining education or migrating. Financial services also play an important role in supporting the growth of small businesses – crucial for creating jobs for low skill workers,” he said.

The report says that only 26 percent of Nepali households have a bank account, and banks’ procedures are perceived as being the most cumbersome among financial institutions. Financial NGOs and cooperatives run a close second as largest provider of deposit accounts, serving 18 percent of households. Microfinance and regional rural development banks are a distant third provider of deposit accounts, serving only 4 percent of households – mainly the poor.

The report also provides policy recommendations to the government to increase the access of people to formal financial institutions. The report also urges banks to adopt ways to increase their reach to the poorer regions in a reasonably profitable manner. “To serve small businesses profitably, banks need to minimise transaction costs and generate large numbers of high-quality loans. The country needs to develop an environment where small business lending is safer, cheaper and faster,” said Aurora .