Social Inclusion in Microfinance Cooperative Societies

Doctoral Thesis / Dissertation, 2010

280 Pages









Statement of Problem
Rationale of the Study
Limitations of the Study
Chapter Plan

2.1 Background
2.2 Microfinance under Cooperatives
2.2.1 Cooperatives
2.2.2 Microfinance
2.2.3 Small Farmers’ Cooperatives
2.3 Social Inclusion and Dalits
2.4 Conclusions

3.1 Background
3.2 Sample Design
3.3 Data Collection
3.4 Data Processing and Analysis

4.1 Cooperative
4.1.1 Microfinance Cooperative Development in Nepal
4.1.2 Demand and Supply of Microfinance
4.1.3 Progress update of Cooperatives
4.1.4 Structure of the Cooperative Movement
4.2 Microfinance.86 4.2.1 Key Principles of Microfinance
4.2.2 Patterns of Microfinance Institutions
4.2.3 Model Under Legal Framework
4.2.4 Dichotomy in Microfinance Institutions-Minimalist or Integrated
4.2.5 Historical Overview of Microfinance Programme
4.2.6 Scale of Microfinance Services
4.3 Concept and Historical Context of Social Inclusion
4.3.1 Concept of Social Inclusion
4.3.2 Three Models of Social Inclusion
4.3.3 Theories of Diversity
4.3.4 Exclusion and Dalits in the Context of Nepal
4.3.5 Inclusion of Dalits in Governance
4.3.6 Economic Marginalization of Dalits
4.3.7 Academic Status of Dalits
4.3.8 Policy Analysis
4.4 Building Inclusive Microfinance- A Global Campaign
4.5 Reaching Poorest of the Poor: Building Inclusive Microfinance in Nepal

5.1 Social Performance Measurement
5.1.1 The Important of SPM in Nepal
5.1.2 Social Performance Assessment Process
5.1.3 Social Performance Assessment Tools
5.1.4 Social Rating
5.2 Social Inclusion Factor as the Social Performance Measurement
5.2.1 Governance
5.2.2 Management
5.2.3 Outreach
5.3 Variables Influencing Social Inclusion Factor in MFC
5.3.1 Organizational Level
5.3.2 Individual Level
5.4 Economic Impact in Members/Clients
5.5 Diversity and Sustainability

6.1 Background
6.2 Barriers of Inclusiveness in MFCs
6.2.1 Physical Barriers
6.2.2 Economic Barriers
6.2.3 Socio-cultural Barriers

7.1 Major Finding
7.2 Conclusion
7.3 Recommendations
7.3.1 Institutional Policy Reform
7.3.2 Review/Reform of Public Policy and Plan
7.3.3 Stakeholders' Concern
7.3.4 Civil Society Perspectives
7.3.5 Further Study

Annex-1: List of Saving and Credit Cooperatives Affiliated with NEFSCUN
Annex-2: List of SFCLs Affiliated to SFDB as of 063/64 Aswin
Annex-3: Selected Sample MFCs
Annex-4: Selected Districts for Research in Map
Annex-5: Field Survey Format/ Questionnaires
Annex-6: Dalit Castes by Subgroups
Annex-7: Weighted Average SIF
Annex-8: SIF for SCCs and SFCLs
Annex-9: Profit/Loss Status of MFCs
Annex-10: Statistical Calculation
Annex-11: Microfinance Policy
Annex-12: Declaration of Microfinance Summit Nepal,



Table-3.1: Detail of clients interviewed

Table-3.2: Demographic Feature of Interviewed Clients

Table 3.3: Gender Status of the Respondents

Table-4.1: Supply of the institutional rural credit

Table-4.2: The Annual Rural Credit Growth

Table-4.3: Number of Cooperatives as of March-April

Table-4.4: Membership in Cooperatives as of March-April

Table-4.5: Scale of Microfinance programme

Table-4.6: Comparative Chart of Representation in Public service

Table-4.7: Employees by Caste and Ethnicity Accross Agencies

Table-4.8: Comparative Chart of Representation in Legislatives

Table-4.9: Poverty Disparity according to new living standard survey

Table-4.10: State of Microfinance outreach globally

Table-5.1: A Simple Poverty Scorecard for India

Table-5.2: Region-wise SIF

Table -5.3: Representation in Executive Committee

Table-5.4: Representation in Accounts Committee

Table-5.5: Representation in Loan Committee

Table-5.6: Social Inclusion Factor in Governance

Table-5.7: Perception of clients on their involvement in decision making

Table-5.8: Ethnic Diversity in various levels of Staffs

Table-5.9: SIF in Co-operative Management

Table-5.10: Region-wise Outreach Social Inclusion Factor

Table-5.11: Ethno-caste Diversity in General members

Table-5.12: Member / Borrower Ratio

Table-5.13: Number of Savers

Table-5.14: Member Training Details

Table-5.15: Provision of Capacity Enhancement to Dalits

Table-5.16: Initiation of Co-operatives with Social Inclusion Factor (SIF)

Table-5.17: Motivating Factors

Table-5.18: Nature of Cooperative

Table-5.19: Policy Framework of MFCs

Table-5.20: Objective of Micro- Finance Cooperative

Table-5.21: Special Policy for Inclusion of Dalits in Decision Making

Table-5.22: Criteria for Credit

Table-5.23: Criteria for Cooperative Membership

Table-5.24: Special Provision for Service Delivery to Dalits

Table-5.25: Source of Funding

Table-5.26: Social Structure of the Locality

Table-5.27: Age of Cooperatives

Table-5.28: Population within the Cooperative Working Area

Table-5.29: Demographic Features of the Household Involved in Cooperatives

Table-5.30: Level of Discrimination between Dalits and non-Dalits

Table-5.31: Level of Discrimination within Dalits

Table-5.32: Occupation of the Cooperative Members

Table-5.33: Education Level of the Clients

Table-5.34: Educational Status of Other Family Members

Table-5.35: Responses of Clients on Cooperative Education

Table-5.36: Knowledge on Cooperatives

Table-5.37: Provision for Capacity Enhancement of Dalits

Table-5.38: Family Size of the Clients

Table-5.39: Length of Residency in the Program Area

Table-5.40: Dropout of Members

Table-5.41: Distance from Cooperative Service Centre, Main Road and Bazaar

Table-5.42: Head of the Family

Table-5.43: Whether State and Community Provided Equal Opportunity

Table-5.44: Land Ownership of the Clients/Members

Table-5.45: Food Sufficiency

Table-5.46: Food Sufficiency Status

Table-5.47: Measures to Meet the Food Deficiency

Table-5.48: Economic Condition of the Family

Table-5.49: Mean Social Inclusion Factor with Profit and Loss MFCs


Figure-3.1: Flow of Sample in Various Stages

Figure-4.1: Trend of Cooperative Movement

Figure-4.2: Structure of a Cooperative Movement

Figure-4.3: Organization Chart of a Cooperative Society

Figure-4.4: Concept of Microfinance

Figure-4.5: Microfinance Sectors in Nepal

Figure-4.6: SFCL’s Group Building Model

Figure-4.7 : Legal Operations for Developing MFI in Nepal

Figure-4.8 : Group Social Intermediation

Figure-4.9: Social Barriers to Inclusion

Figure-4.10: Position of major social actors and political parties

Figure-4.11: Nepali Caste and Ethnic Groups as per Legal Code

Figure-4.12: Regional Breakdown of Access to Microfinance

Figure-4.13: Dimensions of Poverty

Figure-4.14: Inequality in Asia

Figure-4.15: Households having access to financial services

Figure-5.1: Dimensions of Social Performance

Figure-5.2: Tools for Assessing Social Performance

Figure-5.3: Caste-wise representation in different category

Figure-5.4: Caste-wise Representation of Members in Executive Committee

Figure-5.5: Caste-wise Representation of Members in Accounts Committee

Figure-5.6: Caste-wise Representation of Members in Loan Committee

Figure-5.7: Social Problems due to Socio-economic Deprivation

Figure-5.8: Conceptual Framework for Poverty Reduction through Microfinance

Figure-6.1: Social Exclusion Triangle

Figure-7.1: Community based Microfinance Model

Bio-note of the Author

Dr. Man Bahadur Bishwakarma has completed his postdoc research on food security as a Fulbright Visiting Scholar (2016/17) at Brandeis University, USA. He obtained PhD on Social Inclusion in Microfinance in 2012 from Tribhuvan University, Nepal. He did postgraduate diploma in Social Studies from the ISS, Netherlands (2004), MA (Economics) in Rural and Cooperative Development (2000) and MBA (1991) in Financial management from Tribhuvan University, Diploma (1997) in Agro-Cooperative Management from Japan. He has long working experience with various international development agencies such as GTZ, Save the Children, UNICEF, CWS UK, UNDP etc. In 2010, he rejoined the government bureaucracy as a joint secretary and served as Director General for Labour Department, Chief District Officer in several districts, Secretary for provincial Government of Lumbeni and Karnali; and the Principal Secretary for Bagamati province. He took retirement on April 2021. He joined Akamai University/USA as associate professor. He has been serving as a visiting faculty for MPhil (Edu) in Kathmandu University and MBA-BF Program of Tribhuvan University in Nepal, and written a dozens of text books for college students and several books on development issues including Social Inclusion in Microfinance, Eradicating Hunger: Rebuilding Food Regime. Some of his papers and lecture series are available at

Dr. Bk introduced the community-owned microfinancing model through his PhD research for enhancing access to finance, known as the third generation of microfinancing which is being practiced by some of the Microfinance Institutions. He initiated National Microfinance Summit in Nepal in 2008. He has conceptualized the ideas of Protective Liberalism, Liberal Socialism, Transformative Democracy and Reviving Coronomics through various researches.

He is from Palpa. Lumbini, Nepal

Photo: Author with the pioneer of microfinance and Nobel Peace Prize-2006 winner Dr. Mohummad Yunus during the Global Microcredit Summit, 2006 in Helifax, Canada.


My large share of indebtedness in the preparation of this dissertation goes to my supervisors Prof. Dr. Keshab Raj Khadka, Patan Multiple Campus and Prof. Dr. Kanhaiya R. B. Mathema of Faculty of Humanities and Social Science, Tribhuvan University. It would have not been possible without their unflagging supervision, incessant inspiration, scholarly guidance and valuable counselling in each stage of this work in spite of their tight program. It was really a great pleasure for me to work under their supervision.

I am grateful to Prof. Dr. Nav Raj Kanel, Prof. Dr. Gajananda Agrawal and Dr. Bijaya Shrestha of the Central Department of Economics, Tribhuvan University for their generous support, valuable help and suggestions.

I am very much indebted to Prof. Dr. Sarad Sharma of the Central Department of Economics, Dr. Puspa Raj Sharma of Prithvinarayan Campus-Pokhara, Mr. Bishwamohan Acharya, the Director of National Cooperative Development Bank, Dr Purusottam Shrestha, the General Manager of Small Farmers’ Development Bank, and Mr. Kailash Bhakta Pradhananga-then chairperson of NEFSCUN, Mr. Narahari Dhakal of UNDP, Mr. Tulsi Upreti of Centre for Microfinance (CMF).

I would like to extend my heartfelt gratitude to Dr Keshab Shakya of Social Inclusion Research Fund(SIRF), Dr Rajendra Pradhan and Hari Sharma of Social Science Baha, Mr Ramesh Gangol, Save the Children and JUP-Nepal for contributing in the conceptual aspect of the social inclusion and Dalits’ perspective.

Thanks also go to my research team Basanti Sunar, Bharatbabu Tekhatri, Babu Nepal and Anjani Khadka for their association and tireless effort. I also thank to all those employees and clients of Saving and Credit Cooperatives and Small Farmers’ Cooperatives who have provided me the valuable data and information through questionnaire and personal contact which helped me to enrich this piece of work.

During this research period, I attended the Global Microcredit Summit held in Helifax, Canada in November 12-15, 2006 which was on “Building Inclusive Financial System”. In the Summit, I got opportunity to meet Prof. Yunus which is the most memorable moment for me. In the Summit, I submitted the action plan to organize similar summit in national level. I discussed with the team of Save the Children where I had been working at that time and brought into wider discussion. The microfinance pioneers accepted the proposal and we organized first Microfinance Summit Nepal in 14-16 February, 2008. The banner theme of the summit was “Reaching poorest of the poor for sustainable income”. I presented the paper on this banner theme which was based on the findings of this research. The summit recognized the findings and declaration has focused on building inclusive microfinance. This is the historical event in Microfinance in Nepal. In fact, this event is one of the outcomes of this research. On this regards, I would like to thank all the delegates of Global Microcredit Summit and Microfinance Summit Nepal which provided platform for wider sharing. My special thanks goes to SIRF and Save the Children for supporting me financially for both carrying this research and organizing the summit along with all the agencies associated with.

I am greatly obliged to the University Grant Commission, Nepal for granting me a scholarship for the successful completion of this work. Similarly, I am obliged to SV Academy where I had been teaching while admitted for the research. I also like to thank my son Ashish for his support in making power points and figures while preparing dissertation and presentations.

Needless to say, I alone am responsible to any deficiencies that may have remained in the work.

Man Bahadur Bishwakarma

Abbildung in dieser Leseprobe nicht enthalten


Microfinance, in these days, has become a global concern. Generally, microfinance means the financial services to the poor. Most of the micro-finance initiatives have economic goals of reducing poverty and tackling the marginalization of the poor particularly the deprived section of the society. Microfinance is a mix of financial and social intermediation. It was commenced through cooperative from the mid-19th century with initiating the saving of 28 pounds from a group of factory workers of ‘Rochdale society of equitable pioneers’ in the United Kingdom. In Germany, Freidrich Raiffeisen introduced the community based credit cooperative society in 1864. It was the first Credit Organization in the world. In Asia, the concept of cooperative introduced officially in 1904 from India and further extended to other countries. Similarly, the popular model of microfinance developed in latter century is Grameen Bank model pronounced by Muhammad Yunus in 1976. Now a day Microfinance has been growing into various models in different countries. In Nepal, the first credit cooperative society was formed in Chitwan district of central Nepal, in the year 1956. The objective of this society established by the government was to provide agricultural credit to the flood-stricken people resettled in the Rapti Valley of Chitwan district. However, the formal microfinance programme has begun in Nepal since 1970. The initiation of microfinance started with the ‘Small sector lending programme’ in 1975 by the banking sector. Cooperation is an integral part of rural life in Nepal. In 1992 a new Cooperative Act was promulgated by incorporating democratic character of the Cooperative movement. Out of 9,000 cooperatives, more than 3,000 are purely microfinance cooperatives. However, other cooperatives also practice microfinance (saving and credit). Thus, Cooperative being mostly used rural model of microfinance, this study focuses on the inclusiveness in Microfinance Cooperatives.

Social exclusion discourses developed in response to criticisms of the term poverty and describe the process that leads to individuals or groups being wholly or partly excluded from full participation in society. Nepal remained as Hindu kingdom for a long time; most social and cultural value has been dominated by the caste hierarchical system. Age long caste-based practices made “Dalits” most deprived in the society. Thus, the social inclusion-exclusion dynamism in Nepal is highly based on the ethno-caste relationship. The representation of Dalits in all socio-economic sectors is negligible. Social exclusion has been the strong issue since last few years and taken as the root-cause of the internal conflict that prevailed more than one decade in the country. Most professionals presume that microfinance has been reached up to the poorest of the poor including most deprived groups like Dalits because it is meant for. However, no research has been carried on it. Building inclusive financial system has been the global agenda since the start of twenty first century. Likewise, social inclusion has been the top political agenda in the country since the people’s movement-ii. For the inclusive development, building inclusive microfinance is the must for economic empowerment of most deprived section of the society. However, there is always debate on social inclusion versus sustainability. People even the development professionals argue that social inclusion spoils the sustainability. Thus, the research has been inspired to search the answer for this debate.

Microfinance cooperatives for this research study refer to the Saving and Credit Cooperatives and Small Farmers Cooperatives registered under the Department of Cooperative. The general objective of the research is to undertake a survey amongst Microfinance Cooperatives to assess and evaluate the inclusiveness in term of access of Dalits, identify the factors influencing inclusiveness, analysis of its barriers with a view to suggest appropriate future actions for the social inclusion in the micro-finance cooperatives.

Exploratory and descriptive research design is employed in this research study. The data and information analyzed in this report were collected aiming at clearly understanding, reviewing, documenting the status of microfinance cooperatives and social inclusion in Nepal. The field work was done in 2006/07. The required data and information were gathered using a number of different methods. Structured and semi-structured interviews, survey and focus group discussions with the members of microfinance cooperatives were the principle data and information gathering tools and techniques used during the field work.

This research has considered sample sphere of microfinance cooperative institutions and taken 420 Saving and Credit Cooperatives(SCC) associated with NEFSCON and 169 Small Farmer’s Cooperatives (SFCL) associated with Small Farmer’s Development Bank making sample study members (population) to 569 in total. Out of these, 58 (10%) cooperatives are taken based upon stratified sampling methods; ensuring for regional representations. Altogether 314 clients (198 Dalits and 116 Non-Dalits) and 97 Non-clients have been interviewed with structured questionnaires.

The research report is divided into five chapters. The first chapter highlights a general background introduction, research design and methodology. Definition, concept and evolution of the microfinance and cooperatives are presented in chapter two while chapter three reviews and presents social inclusion. The chapter four deals with analysis and findings and the last chapter include conclusions and recommendation drawn from the entire research.

The research has established a tool to measure the magnitude of social inclusion. The traditional way of measuring inclusiveness is the headcount of the excluded groups into the concerned outreach/workforce. It does not give the magnitude of inclusion since the level of involvement influences the level of decision making. Social Inclusion Factor established in this research is a noble tool to measure the magnitude of inclusiveness. Likewise, the research has explored major factors both organizational level and individual level that hinder the inclusiveness; and found significantly low inclusion of Dalits in the microfinance cooperatives. The third major finding is that inclusiveness promotes sustainability. The study found out that the MFCs having higher inclusiveness are in profit and with lower inclusiveness are in losses. So, it proves that the inclusiveness hinders financial sustainability is a myth. Rather the inclusiveness increases the potentiality for financial sustainability. Likewise, small income changes for the very poor have proportionately much greater impacts on livelihood, than those for the better off.

Based on the findings of the research, it has recommended some new approaches in microfinance to make it more inclusive. Credit-first approach to the most deprived groups based on analyzing poverty status of the clients is one. Likewise, providing credit plus intermediation on the basis of individual capacity deprivation is other recommendation which emphasizes on individual intervention to the most deprived clients/members. Moreover, considering the complexities of MFC it suggests to promote a “community owned microfinance institution” which would be an improvement on Grameen Bank of Bangladesh and Solidarity group model practiced in Nepal especially focusing to deprived groups of the country.


ADB: Asian Development Bank

ADB/N: Agriculture Development Bank/ Nepal

APP: Agriculture Prospective Plan

CECI: Canadian Center for International Studies and Cooperation

CERISE: Comité d’Echange, de Réflexion et d’Information sur les Systèmes d’Epargne-Crédit

CGAP: Consultative Group to Assist the Poorest

CMF: Centre for Microfinance

CSR: Corporate social responsibility

FAO: Food and Agriculture Organization

FDI: Foreign Direct Investment

FGD: Focus group discussion

FI: Financial Intermediary

FNCCI: Federation of Nepalese Chamber of Commerce and Industries

GBB: Grameen Bikash Bank

GDI: Gender Development Index

GDP: Gross Domestic Product

GSEA: Gender and Social Exclusion Assessment

HDI: Human Development Index

HEI: Human Empowerment Index

HHs: Households

HRW: Human Rights Watch

IBP: Intensive Banking Programme

ICA: International Cooperative Alliance

IILS: International Institute for Labour Studies

ILO: International Labour Organization

INSEC: Informal Sector Service Centre

I/NGOs: International Non-Government Organization

LDC: Least Developed countries

MCSC: Micro Credit Summit Campaign

MDBs: Microfinance Development Banks

MDGs: Millennium Development Goals

MEDEP: Microenterprise Development Project

MFC: Microfinance Cooperatives

MFIs: Microfinance Institutions

MFS: Microfinance Summit

NBL: Nepal Bank Limited

NCDB: National Cooperative Development Board

NEFSCUN: Nepal Federation of Saving and Credit Union, Nepal

NGOs: Non-government Organizations

NRB: Nepal Rastra Bank

NLSS: Nepal Living Standard Survey

NUBL: Nirdhan Utthan Bank Ltd.

PCRW: Production Credit for Rural Women

PPP: Purchasing Power Parity

PRSP: Poverty Reduction Strategy Paper

RBB: Rastriya Banijya Bank

RMDC: Rural Microfinance Development Center

RRDBs: Regional Rural Development Banks

RSRF: Rural Self-reliance Fund

RUFIN/GTZ: Rural Finance/German Technical Cooperation

SACCOS: Saving and Credit Cooperative Society

SCC: Saving and Credit Cooperative

SCF: Saving and Credit Federation

SFDP: Small Farmers Development Programme

SFCL: Small Farmer Cooperative Ltd

SFI: Social Inclusion Factor

SHGs: Self-help Groups

SPA: Social Performance Assessment

SPM: Social Performance Measurement

PPI: Progress out of Poverty Index

UN: United Nation

UNCDF: United Nation Capital Development Fund

UNDP: United Nation Development Programme

VDC: Village Development Committee

VISACA: Village Saving and Credit Association




Agriculture is the mainstay of the Nepalese economy where nearly 76 percent of country's population is engaged in this sector. It contributes nearly 35 percent (NPC, 2007) to national GDP with an average per capita operational land holding of about 0.14 hectares for people in Terai and 0.5 hectares for the rural poor in the hills, agriculture reflects low level of productivity and absence of viable employment opportunities for the rural people. Consequently, people have low saving. This has contributed greatly to perpetuation of poverty in rural Nepal (APP, 1995, 2000).

Impact of the rapidly growing population of the country at the rate of 2.1 percent per annum (Census, 2001) has adversely affected especially the well being of the deprived groups of the rural poor. Since the country is multiethnic, multi-cultural and multi-linguistic, there has not been balanced inclusion of the communities in the development process and governance as well. Moreover, Dalits are most excluded section of our society even in the agriculture sector. It is because the landlessness in acute among Dalit groups and this is more so among Madeshi Dalits (Bk, 2005). Their source of food largely relied on non-Dalit households. Non-Dalit households pay Dalits in kind (grain) for their bounded (occupational) services that annual household payment is known as “Balighare” system (Bishwakarma D, 2002).

Success of any social development program highly depends on the type and capacity of the organization functioning in that sector providing services to members. As Dalits are mainly facing social exclusion in the field of development, the government policy in this sector should be to include Dalits through effective organizational set-up so that the integrated approach of the development can be achieved and eradicate rural poverty. One of such institutional arrangements in Nepal is village level Microfinance Cooperatives, which have been serving as the last delivery point of development support being provided to the rural people by agency delivery mechanism. After the restoration of democracy in the country in 1990 and thereafter promulgation of a new Cooperative Act, 1992, Microfinance cooperatives grew significantly in number. Various development agencies also supported to promote such cooperatives in the villages. Despite some backdrops, these cooperatives have been the best alternative strategy to involve people in the development process. However, these cooperatives need further strengthening in an integrated approach so as to make them competitive, sustainable and viable institutions for improvement in the socio-economic conditions of the rural communities in general and their members in particular.

Cooperative organizations are democratic organizations, which are owned managed and controlled by the members. A cooperative enterprise gets its distinct identity through its governing principle known as cooperative principles which have been evolved out of practical experiences of the founders of the modern concept of cooperation. Applicable universally and irrespective of socio-political dissimilarities among the countries these principles are both means and end in themselves. They are the means of establishing an ideal cooperative working system and an end in the sense that each cooperative should aspire to these principles of voluntary and open membership, democratic control, limited interest on share capital, equitable distribution of surplus, cooperative education, cooperation among cooperatives and concern for community.

In an economic environment where domestic reforms are supportive to achieve open market system, the relevance of rural cooperatives is likely to be called into question by some rural development planners because the development of these cooperatives has been nurtured more as a welfare measure than as a competitive business pursuit. However, their relevance as flexible and potentially vibrant institutional mechanism has been well recognized and widely supported in many of the countries irrespective of their state of development.

Cooperative represents the interest of grass root level farming community significantly largest in the country. They constitute the most significant component of receiving development support. In fact, Microfinance cooperatives are essentially local level popular financial institutions whereby rural communities can help themselves through group actions based on the ideals of democratic participation in the process of decision-making and self-help through mutual help. Thus any strategy of rural development without acknowledging the vital role of cooperative institution and designing local level plan without cooperative approach would not be very effective (Basnyat, 1984). Cooperation is the order of the day and is closely associated with all the spheres of economic activity. It is fully realized that it is only through developing cooperative movement and envisaging the planned economic activities in cooperative lines that the nation can achieve the desired goals. It has become and essential media for achieving people's aspirations in order to accomplish socio-economic equality. Therefore, the government has paid considerable attention towards cooperative movement soon after the advent of democracy in 1990.

Obviously, the reason for failure of the cooperatives previously was the nature of organization itself. In Panchayat era, Government had taken initiatives to organize, manage and control, organization of cooperatives by people was denied. Cooperatives were used similarly as tools for the extension of the government services designed to implement the policies and activities of the government rather than to serve the members' aspirations and need. After the restoration of democracy in 1990 it paved the way for new changes in the cooperative movement. Consequently, new Cooperative Act was promulgated in 1992 recognizing cooperatives as people's organization with an autonomous body. On the basis of this Act National Cooperative Federation along with many subject-wise cooperative unions came into existence. With the promulgation of new Act, the number of cooperatives has been booming as high as 9,362 by 2007 starting (Department of Cooperative, 2007) from 830 in 1992 (Bk, 1993). Among that number, the Saving and Credit Cooperatives constitutes 3241, the largest. Likewise, the number of Small Farmers’ Cooperatives constitutes 213 which were formally promoted by ADB/N and transferred now as Cooperative Societies.

Nepal is one of the poorest countries in the world. Many policies and programs were implemented by the government under different development plans to curb the poverty situation of the country. Even though the poverty reduces to 31 percent, the disparity of poverty has been even raised (NPC, 2007). The main cause of such unbalanced development is due the prevailing exclusion of the larger portion of the population. Not only that, such disparity has been the root cause of the decade long conflict of the country. It has been agreed that until and unless, these excluded groups are addressed the balanced development in the country is impossible. The tenth plan specified social inclusion as one of the pillars for inclusive development. Microfinance being the main economic program and Microfinance Cooperatives being only financial institutions in the rural areas, the inclusiveness needs to start from this sector. This research has been undertaken considering this fact and hoping the result contributes for the inclusive development of the country.


Cooperative movement in Nepal began with the holistic objectives to augment socio-economic status of the underprivileged rural people. This is the perfect system, which provides the members the strength to compete against the exploitative forces of capitalist economic and to function in a democratic manner.

Despite various supports by the state to the cooperatives since its inception, it is still lacking entrepreneurship capacity to diversify its socio-economic activities. Basically, the rural based cooperative societies had much more acute financial and business development problems as they were supported, controlled and directed by the state until 1990. But whatever the case was before, they are still lacking the activities to harness opportunities provided by the new Cooperative Act 1992. The Act has recognized the cooperative as an autonomous, self-controlled, member-based strong business enterprise. Successful cooperatives clearly demonstrate economic benefits. What are less obvious are the social ramifications of their activities. When members gather for their annual general assembly to access the performance of accountable office bearers and choose them through democratic elections, they strengthen civil society by exemplifying democratic governance. (ICA 5th Asia-Pacific Cooperative Ministers' Conference, China-1999).

There are many reasons for the disappointing performance of cooperatives such as lack of capital, credit and inputs; lack of interest on the part of member and staffs, insufficient coordination of relevant departments and agencies, poor management standards due to lack of education and training, insufficient or non-participation of members in the decision making process (UNDP, 1986). Even though the cooperative is meant for marginalized groups, there is very poor access of deprived groups such as Dalits in microfinance cooperatives as in every sector of development initiatives.

Nepal despite many efforts we are heading towards the black hole of poverty. Half of the population in Nepal is living below poverty line and majority of it is in rural area. Out of that majority of Dalits are living below poverty line. Due to the poverty the saving rate of the people is very low; it is even lower in Dalit groups. Even if they have a little, they are far from the access of formal banking. Consequently, the needy people do not get the loan to run the business of their size. It has been found that only 20 percent of the total credit demanded has been supplied by the formal finance system and rest from the unorganized sector. Most Dalits have no access to formal finance system and poor access even to cooperatives due to socio-cultural discrimination. Rural Credit Review Study estimated that the volume of annual credit demand was Rs 8.4 billion for the year 2001/02.

It is true that the policy on financial sector liberalization has led to the establishment of 15 commercial banks, 52 finance companies and 15 development banks including 5 rural banks. However, there are not many rural financial institutions to help provide credit to the poorest people especially Dalits and thus mobilize saving as well. Most of these financial institutions are located either in the district headquarters or in the urban areas. The two largest public sector commercial banks namely Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB) and Agricultural Development Bank (ADB) and the microfinance development banks are the institutional vehicles for rural finance. But, due to the recently developed political scenarios particularly the deteriorating security aspects, the rural branches of these banks are heading towards closing their businesses. This has become another threat to deliver rural credit. On the other hand, the private sector micro-financing institutions (MFIs), which institutional base as well as outreach is small also takes time to substitute this newly developed phenomenon. In the same way, a number of Saving and Credit Cooperatives are also concentrating their activities in commercially viable areas constituting better-off clients only. The area of operation of such cooperatives is also limited to major cities and most of them are located in the capital city Kathmandu. Thus, getting banking services from the organized sectors' financial institution for Dalits has become like a drop of water in the desert. Looking at the increasing annual credit demand of the rural sector and the cumbersome lending practices of the formal financial institution, the need to formalize all informal microfinance units and making them more inclusive especially to Dalits is greatly felt.

Dalits have been economically marginalized since immemorial. Their economic condition is still significantly low in comparison to national average. According to TEAM Consult (1998), food deficiency is reported highest to Dalits (49.6 percent). Food deficiency by geographical region shows that that Madhesi Dalits have highest proportion of food deficiency (46.4 percent) followed by Hill (43.3 percent), whereas the least proportion of Dalits living in mountain has less food deficiency (10.3 percent). The source of food largely relied on non-Dalits households. Non-Dalits pay grain for their bounded service which could hardly compensate their labour. Thus, many Dalits have debts with non-Dalits for buying additional grains. ILO study (2005) reveals that a sizeable proportion (44.8%) of all Dalit households surveyed had credits to be repaid in cash or kind. Among them, 40 percent had taken loans from local moneylenders, 19.3 percent from banks such as the Agricultural Development Bank and the Grameen Bank, and 15.1 percent from relatives. Landlessness is acute among Dalit groups and this is more so among Terai Dalits (44 percent of Terai Dalits and 15 percent Hill Dalits) (NPC, 2007). The mean annual income of Dalits is lowest compared to Matwali and so-called high caste groups. Many Dalits have no choice other than following their traditional occupation. NESAC (1998) noted that the HDI of Dalits is lowest (0.239) compared to the national average (0.325). In brief, landlessness, marginal and small landholding, and food deficiency are the typical feature of economy of Dalits. Therefore, Dalits have been caught up in vicious economic cycle. Even though the Microfinance Cooperatives are meant to uplift deprived groups of the society, the access of Dalits is still very poor.

Therefore, the question comes what is the situation of social inclusion especially Dalits access in microfinance? Likewise, what are the constraints and prospects of microfinance with respect to social inclusion? How does the microfinance bring change in the social inclusion pattern? Whether it can change the livelihood of Dalits? Does inclusiveness hamper the financial sustainability of Microfinance Cooperatives? How can Microfinance Cooperative include more Dalits as their members/clients? Moreover, assessment of access of deprived groups like Dalits and its effect in performance is needed. It has been widely agreed that until and unless the most deprived groups like Dalits, participate in the development initiatives and governance, the country takes its pace of socio-economic development. Being microfinance one of the effective tool for poverty alleviation, it is essential to explore the viability of microfinance as an effective tool for Dalits’ economic transformation.

Hence, the problem under this study would mainly concentrate on the social inclusion in micro-financing cooperatives with special reference to Dalits access to Microfinance Cooperatives which consists of Saving and Credit Cooperatives and Small Farmers’ Cooperatives.


The general objective of the research is to undertake a survey amongst primary Microfinance Cooperatives especially known as Saving and Credit Cooperatives and Small Farmers’ Cooperatives to assess, identify and evaluate the inclusiveness especially the inclusion of Dalits its impact in the performance with a view to suggest appropriate future actions.

The specific objectives of the study are as follows;
a. To find out the situation of inclusion especially Dalits' involvement in the Microfinance cooperatives,
b. To identify the constraints and prospects of the microfinance cooperative societies with regard to social inclusion,
c. To assess the access of Dalits and their effect on the performance of Microfinance Cooperative Societies, and
d. To explore the way to increase access of Dalits in Microfinance.


There is no denying that competition is the dominant type of human motivation in every sphere of life. But a device, which can motivate people to join with others in mutual efforts and to live in peace rather than to compete with each other, is certainly preferable. The motivating device is "cooperation" and the goal is peaceful coexistence, mutual growth and prosperity (Patnaik & Roy, 1988 in Bk, 1993). Cooperation is considered as an important medium for regeneration and enforcement of the country's socio-economic well-being. Margaret Digby (Bk, 1993) aptly describes that only through cooperative institution can the common man influence the direction of social and economic change in a decisive manner.

Cooperation thus has a very significant role to play in any program of social and economic development of an underdeveloped country like Nepal. Cooperation has enormous scope in a country like Nepal where weak economic units predominate. Small units in agricultural business, vast numbers of small industrial enterprises, artisans, laborers and consumer units can not derive many of the economies of large scale operations. But this shortcoming could be overcome if these small units join together to work in the form of cooperation.

Social inclusion in development is a serious problem. As social inclusion being a pillar for tenth plan, is the cardinal objective of economic planning in Nepal and cooperative organization is an effective tool for achieving this goal. Social inclusion in its varying forms appears to be the most suitable strategy for economic development. Certain fields of activities, such as agricultural credit, marketing, cooperatives of artisans and labor and construction cooperatives make themselves especially appropriate for cooperatives endeavor. These are the areas neither the system of private enterprise nor state ownership can match the advantages of cooperative organization. The cooperative form of organization thus is an effective medium for bringing about the socio-economic transformation of the hitherto neglected sectors where the masses live. Cooperatives facilitate material advancement through united action, which in turn fosters self-reliance in an inclusive way. In this context, the cooperatives must be competitive, genuine viable and inclusive based so as to achieve the remarkable progress and help poverty alleviation through mutual self-help.

Unfortunately, the areas described above are not properly and systematically tapped by the cooperatives. Even though, due to various constraints like organizational, structural, managerial problems etc. faced by cooperatives, their prospects are multifarious and bright. Taking these points into considerations such local popular institution has to be developed so that the basic requirement of rural development can be met. Such development aspects consist of location specific development programs, endurance of consultative process between change agents and local people, generating participatory mechanism in decision making, implementation and benefit sharing process and integrating and delivering all these at grass root level.

It is real fact that the inclusive development has been the main agenda of the nation especially after the people's movement II. Even though some effort of the state is seen to be tending towards it though its policy neither it is sufficient nor in full implementation. State restructure is the highly accepted political agenda which is again for the inclusive and equitable development of the country. However, there is also the resistance with the great voice that the social inclusion hinders performance/productivity. There is no any study on it for the evidence. Thus, the cooperatives being the grassroots institutions, a study on this issue has been felt necessary which is included in this research.

In a recent period, some organizations are practicing measuring the social inclusion in a simple percentage basis which does not reflect the real magnitude of social inclusion. The magnitude of social inclusion depends on the level of engagement of the target group; i.e. Dalits. Therefore, a scientific way of calculating the Social Inclusion Factor (SIF) is also required to assess the magnitude of social inclusion.

As the study aims to assess the inclusiveness in the microfinance cooperatives through Social Inclusion Factor especially the access of Dalits, the study has focused on the Saving and Credit cooperatives and Small Farmers’ Cooperatives which are affiliated with NEFSCUN and SFDB. The study has conducted on the basis of designed parameters to evaluate and find out the situation of social inclusion especially Dalits, its constraints and prospects in microfinance cooperatives in Nepal.

As the whole world has affected with the global crisis Nepal is also affected. Globalization has accelerated growth in South Asia and contributed to poverty reduction over the last three years (Ghani, 2009). However, the current global crisis may potentially change globalization itself as developed countries adjust global imbalance that contributes to the crisis. However, South Asia's investments are largely driven by domestic savings (Ibid). A high level of domestic saving enables a country to cope better with reduced capital inflows. Most South Asian countries have a large and significant positive savings rate compared to other developing countries. However, due to the geographical set of the country, the rural saving has not been mobilized well in a productive way. The decade long armed conflict again added because the rural branch of bank closed down and saving and credit operations in group level also hampered. Now it is the time to put much effort to mobilize the domestic savings in an effective way. Microfinance cooperatives are the efficient tool to mobilize the domestic savings which would be a tool to cope with the affect of global financial crisis. However, for its effectiveness inclusive microfinance is the important aspect that has to be considered for inclusive socio-economic development.

Keeping in mind the performance of the microfinance cooperatives and their impact upon the socio-economic status of their members and rural economy, the research aims to identify the prospects of microfinance cooperatives in the open market economy and pluralistic composition. Understanding their performance, constraints and prospects on various activities should help to draw out a broader plan of action for the policy makers, cooperators, government agencies, researchers and cooperative promotional organizations in future. Some of the issues related to social inclusion, its constraints and prospects in the cooperatives have been studied thoroughly. Such research had not been taken place before and this is one which specifically addresses to the most deprived groups Dalits in Microfinance.

Hence, to find out the situation of social inclusion, its constraints and prospects of Microfinance Cooperatives in Nepal, an in-depth study has been felt highly needed in the academic as well as development field. Such a study supposed to help various types of cooperatives, government, policy makers and the concerned development agencies as well. This research has fulfilled this need.


There are some limitations to be encountered while undergoing this research. They are as follows:

- The study has focused basically on the access of Dalits in the Microfinance Cooperatives, which are affiliated either with NEFSCUN or SFDB. Whatever other aspects like economic and social benefits for members, knowledge of managers, capabilities of cooperative members, program, policies etc. are also considered.
- The reliability of the study depends on the reliability of the datum, financial statements and information provided by the Cooperative Societies and the informants.
- The questionnaire used in this study are designed and developed specifically for the survey. No psychometric analysis is done on the questionnaire to establish validity or reliability.


This study is divided into seven chapters. The first chapter introduces the subject of the study. It defines the goal and objectives of the study. It includes the general introduction including statement of problem, rationale of the study and its limitations.

Review of literature constitutes the second chapter. Review of various literatures has been done in order to find out scope, methodology, theoretical development and findings of the previous studies and research work in this area. It includes related to microfinance in Nepal, Bangladesh and other countries.

The third chapter constitutes the research methodology. It incorporates framework and design of the study, population and sampling framework, questionnaires, focus group discussion and techniques used in data analysis. It also includes the independent variables and dependent variables.

The Chapter four presents the concept, definition and evolution of microfinance, cooperative and social inclusion. It includes evolution of microfinance cooperatives in Nepal and its contribution to rural credit demand. It includes analysis of exclusion and historical context of Dalits in Nepalese society. It specifies the importance of building inclusive microfinance globally and nationally with respect to poverty alleviation.

The chapter five constitutes the situation of inclusion in microfinance cooperatives which includes describing the social performance measurement and its measuring tools used globally. This chapter includes the analysis and interpretation of the empirical study. It contains the calculation of social inclusion factor as the social performance measurement. This chapter includes the detail analysis of variables influencing magnitude of social inclusion including diversity verses sustainability.

Chapter six contains problems and prospectus for inclusiveness in micro-financing. It shows the major finding of the empirical analysis of the study. Basically, it includes the barriers of social inclusion in Microfinance Cooperatives. This chapter analyses the physical, economic and socio-cultural barriers of inclusiveness in Microfinance Cooperatives.

Finally, Chapter seven is the last chapter of this study which contains major findings, conclusions and recommendations extracted from the study which is expected to be useful to policymakers, microfinance professionals and practitioners.




The literature review includes reviews of the research/studies done on microfinance, saving and credit cooperatives, small farmer cooperatives, access of Dalits in microfinance and social inclusion/exclusion. It verifies whether similar kinds of research have been conducted and articles have been written by the institutions and scholars in the related areas of Microfinance and social inclusion and get the research gap. Finally, conclusions are drawn from the entire discussion on review of literature.

There are very few literatures on microfinance cooperatives and little reports on social inclusion. Even though the cooperatives in its traditional form were existed in the society from the time immemorial, it has been flourished since the restoration of democracy in 1990 in Nepal. Therefore, the adequate study has not been made in this field except the bulletin and booklets published by the concerned organizations. Here available literatures are reviewed in following sub-headings.


There are comparatively more studies on Microfinance and Cooperative. As the study focuses on Microfinance especially, Saving and Credit Cooperatives and Small Farmers’ Cooperatives. However, the study on microfinance in general is also reviewed. So, the reviewed has been undertaken in the following sub-topics.


Pokharel (1985) had carried a study on cooperative movement in Nepal. He did the research nationwide through questionnaires to the sample cooperative societies. He used simple statistic tools to process and analyze the data. He concluded some important points of problems faced by the cooperatives i.e. lack of cooperative education and training, lack of fund, lack of loyalty, absence of honorary services, lack of good management, political interference, public apathy, lack of specific and stable policy, absence of good process of loan disbursement and repayment. In his study the inclusiveness has not been an agenda. Even analyzing and drawing the conclusion on the problems faced by the cooperatives he did not see anything regarding the depth of outreach. He did this study before the restoration of democracy when cooperative (Sajha) had been promoted by the government as government’s extended wings. There was no substantial people’s participation. In that time access of Dalits had not been an issue. They were completely excluded were not taken even as an issue. So this study gives a plight on the general problems faced by then cooperatives but not discuss on the people’s participation and/or inclusiveness in cooperatives. However, the study provides some background information on then cooperatives which is useful for this study.

Subedi (1991) had studied on the accounting information system of the cooperatives of Nepal. He took information on accounting system through random sampling through out the country. He found very unreliable and unsystematic accounting information system. He also concluded that the poor accounting information system is one of the major causes of failing cooperatives. However, he did not analyze and segregate the information recipients in ethno-caste categories. Even among the members, all do not equally access the information nether understand equally about the book-keeping and accounting reports of the cooperatives. The lack of information denies the access of the services of the cooperatives. The accounting information assures the transparency which creates the trust. However, his study is useful to have the basic knowledge on the information flow in cooperatives and analyze how information system effects in the inclusiveness in its service.

Bk (1993) has undertaken a study on ‘Financial performance Analysis of Nepalese Cooperatve Societies’. The main objective of the study was to observe and comment the financial performance of the cooperative societies. The study aimed to identify the strengths and weaknesses by analyzing financial statement and their behavior over the period of time and investigate the financial soundness of the association.

The research was based on the financial statement analysis to collect six years’ financial statement (from 1972/73 to 1987/88). Mostly, data were collected from secondary sources. They were compiled with the data provided from Cooperative to judge the reliability of the information. Informal talks and interviews were made with concerned heads of the association. Likewise, the statistical tools such as percentage, ratio and graphical representation were applied. From the research, it was found that the net profit over the time was sharply decreasing. Likewise, the revenue growth index also showed the decreasing trend. Return on net worth and return on total assets ratios were also sharply decreasing. Thus it showed the poor utilization of assets and leverage position. Finally, the financial performance of the cooperative has been found very poor. The research has also provided some recommendation, i.e. diversification of the business, cut-down of the administration costs, increasing long-term investment, enlarging the membership and maintaining political neutrality etc.

The study is on the financial performance and nothing regarding social inclusion. As we described earlier that the financial and social intermediations are the two sides of a coin for cooperatives the study remains incomplete until and unless the both side of the coin is analyzed. Thus, the study is one sided looking only in the financial aspects. This study will specially focus on the social performance side focusing to the inclusiveness in cooperative service delivery and governance as well.

Bk (1997) has also developed a country paper to present in a workshop overseas. In the paper author has mentioned that there are two types of constraints in promoting the cooperatives i.e. internal and external. Internal factors contain participation of members, lack of management, lack of coordination, lack of business diversification, lack of congenial environment etc. Likewise, external factors include government policy, social structure, business drive, market mechanism, political consideration, physical infrastructure etc. The paper confirms that the cooperative is the only way to make the rural economy monetized and linked with the national economy. The paper showed that there has been rapidly increasing trend of establishing the cooperative societies after the promulgation of Cooperative Act. In fact, the people promoted cooperative initiated after the restoration of democracy in 1990 which brought the new Act. There has been an increasing trend of people associating in a cooperative for their business in rural areas. The entrepreneurship in the cooperative enterprise has been also gradually developing. However, even in this increasing trend after democracy, what sort of people get involved in cooperative societies has not been studied in this paper. It means the social inclusion part has not been considered.

The CMF (2005) has carried out an impact assessment of four saving and credit cooperative societies (SACCOSs) operating in some hill districts of Nepal in 2005. The overall objective of the impact assessment was to prove that hill-based SACCOSs had generated socio-economic impact on their members and improved their ability to provide their members with the services they needed and wanted. The CMF developed and adapted various quantitative and qualitative impact assessment tools for carrying out the study. This included institutional audit, village profile, structured questionnaire, participatory rural appraisal, case studies and observation method. For this, four SACCOSs- two self-promoted and two program-promoted were selected from hill area. Four hundred member and two hundred non-member households were selected through simple random sampling method for the administration of the pre-coded structured questionnaire.

As a finding of the study the self-promoted cooperatives have better financial performance and better performance in book- and record keeping than the program-promoted ones. The program-promoted cooperatives, on the other hand, were strong in community development and in reaching the poor. The self-promoted cooperatives were promoted by the social elites and they have the limited outreach with better off people. Their membership being voluntary, those who are aware and literate joined the program and the poor are left behind. Neither the products are designed for poor nor are the services affordable. On the other hand, the program-promoted cooperatives are strong in the areas of community development and targeting poor because of the mandatory provision. Thus, the study concludes looking at conditions such as geographical remoteness, remote hilly areas, the self-promoted SACCOSs model, without any capacity building and technical assistance package, may not be widely replicable. Therefore, the government and non-government programs should promote SACCOSs in rural hilly areas, along with capacity building and technical assistance package, for the first few years so that they can serve the poor people as sustainable microfinance institutions.

The study has conducted only with four hill cooperative societies and mostly focusing the impact of the services of the cooperatives on their members. It has not segregated its respondents in term of caste and ethnic groups. It has more focused on the income poverty rather than social inclusion issues. Therefore, this research will fulfill the lacking of study on social inclusion in microfinance institutions.


Center for Women and Development and UNICEF (1989) have conducted an Impact Evaluation Study on Production Credit for Rural Women (PCRW). The main objective of the study is to assess the effectiveness of PCRW in meeting the stated objectives especially examine the impact of the project on low income and resource poor women and children in the project area. It also evaluated Women Development Section of government of Nepal in its relationship with line agencies and PCRW site offices. The study also determines its effectiveness in carrying out the PCRW project and supporting Women’s development in Nepal.

For the study 20 percent of the UNICEF supported PCRW sites were taken representing the three ecological zones such as Mountain, Hill and Terai from five sample districts. Survey questionnaires were employed to collect information on socioeconomic background and changes there in and to determine loan activities. Other techniques used were Rapid Rural Appraisal (RRA), case studies and key informant interview and observation on local condition and facilities. Prior to conducting the study, thorough study of project reports and documents, previous evaluations were reviewed. Majority of PCRW participants are relatively young as they are the ones that show the most potentials for engaging in income generating activities.

The study found that group saving schemes have been adopted to complement credit programs and to aid family welfare. The funds are used to meet incidental expenses or are applied to further investment. Income generated from PCRW is generally used to meet household food expenses, although clothing needs are also in a high priority. Women are involved in decision making regarding the placement of taps or wells and often provide voluntary labour. Thus the project helps draw women together and highlight their ability to make significant changes in their committees.

Since the program had focused explicitly to women, it does not cover the inclusion of ethnic groups, Dalits and religious minorities even within women. Even though, the project itself and the study covers the inclusion of women in microfinance it lacks the conceptual analysis of inclusion, even within the women. Therefore, the proposed research will fill the gap of social inclusion in term of most deprived community, Dalits in more analytical way.

Khandker et al. (1997) have conducted a study on Grameen Bank: performance and sustainability with a view to understand the meaning of Grameen Bank (GB), its activities and target group, procedures, and cost and its sustainability and potential for replication in Bangladesh and elsewhere.

The analysis of the study is based on the aggregate data available from the record and from a selected sample of branches. The aggregate data were taken between 1985-94 periods. Data from 118 branches for 1985-91 was supplemented by yearly Thana (Sub district) level data on rainfall, roads, electrification, school and some time variant characteristics such as agro climate and located factors. The branch and program level data are used to determine whether the GB is sustainable in its duel role as a source of credit for the poor and as a program for poverty alleviation.

With regard to GB coverage and expansion the study revealed that GB served half of all villages in Bangladesh in 1994. In 1994 alone it lent about US $ 385 million and mobilized an additional US $ 306 million as savings and deposit with a cumulative loan outstanding of US $ 281 million. Its total membership was over 2 million of whom 94 percent were women. Women received over 90 percent of the total cumulative disbursement of Taka (TK) 44,640 million (US $ 1.1 billion) and accounted for 76 percent of all savings mobilized by the GB so far.

To analyze borrowers’ viability, benefits accruing to members and their financial performances were taken as indicators and effect of the program placement on rural wages. The results showed that the GB has had a significant positive effect on men's and children's wages. The report revealed that overall the program is able to operate without relying on subsidized fund for the near future. Given its performances in loan disbursement and saving mobilization without respect to the cost structure GB branches can expand membership and disbursement in order to be profitable. There is also ample room for expansion given the socioeconomic environment in Bangladesh. However, the study has not taken care of what sort of people are involved in GB. It does not analyze the study in term of social inclusion.

Pitt and Khandker (1996) conducted a study on Household and Intra household impact of the Grameen Bank and Similar Targeted Credit Program in Bangladesh. The study aims to evaluate the effects of three group-based microcredit program such as the Grameen Bank, the Bangladesh Rural Advancement Committee (BRAC), and the Bangladesh Rural Development Board's (BRDB) Rural Development (RD)-12 program. The study measures the household welfare and intra-household distribution of resources. These programs are the major small scale credit programs in Bangladesh that provide credit and other services to the poor, who are otherwise excluded from formal credit institution because they lack material collateral. While the BRAC is an NGO, BRDB's RD-12 is a government project, and the GB is a rural bank with only about 10 percent of equity owned by the government, all three programs work with and for poor. A multi-purpose quasi-experimental survey was conducted in 87 villages of 29 Thanas (sub districts) in Rural Bangladesh during the year 1991-92.

The sample consists of 29 Thanas randomly drawn from 391 Thanas (Sub district) in Bangladesh. Out of 29 Thanas selected for the study, 24 have at least one of the three credit programs in operation, while five Thanas have none. That is, the proportion of Thanas surveyed under each program, is 28 percent while 16 percent of the 29 Thanas do not have any program. The program Thanas are distributed among four regions in the following ways: 8 Thanas in Khulna Region, three Thanas in Chitagong region, 10 Thanas in Dhaka region, and eight Thanas in Rajbansi region. Weighted means and standard deviation of dependent and independent variables are used in the regression. There are 38 independent variables and 21 dependent variables. The study reveals the following.

Based on the joint test, the credit variables of both male and female are statistically significant at the 0.05 level of significance in all eight key behaviors studied. However, the credit provided to women somewhat more often has statistically significant effect on the eight outcomes (girls' and boy's schooling, women's and men's labor supply, total household expenditure, contraception, fertility, and value of women's non land assets) than credit provided to them. Credit provided by the GB had the greatest positive impact on variables typically associated with household wealth and women's power and independence than credit from any other program source. GB credit to women had the largest impacts on girls schooling women's labor supply and total household expenditure, and GB credit to men had the largest impact on fertility (tied with male BRDB credit). Women credit from the BRDB had the largest impact on boy's schooling and the value of women's assets. Study reveals that program has benefited the poor, especially women and children. Furthermore, the magnitude of benefits accruing to individuals in a participating household depends on whether the participant is a women or a man.

The study made policy conclusions that as the GB can "empower" women by increasing their contribution to household consumption expenditure, their hours devoted to production form the market, and value of their assets. Targeted credit program can be seen as anti-poverty scheme. Poverty in rural Bangladesh largely means low levels of consumption. In this regard, study results clearly indicate that credit from all three programs increases the total per capita consumption of the poor and the asset holdings of women. Third group-based credit provided to men can also have beneficial effects, particularly on the schooling of children, contraceptive use, fertility and total household expenditure.

The authors of the study recommend that their own understanding should be broaden about the influence of these credit programs in altering the lives of the participants and their families. However, they have not analyzed the inclusiveness of the participants of the credit program in a segregated form. Therefore, the proposed research aims to find out the inclusiveness of the clients served by the microfinance cooperatives.

DEPROSC-Nepal (1997) has conducted a study on ‘an Assessment of the RSDC-SDPP programme in Mid-West’ to examine the effectiveness and efficiency of Self Reliant Development of the poor by the poor. Rural Self Reliance Development Center (RSDC) has been implementing an action project entitled Self-Reliant Development of the poor by the poor (SDPP) under the financial support of Helvetas-Nepal since 1993 in Mid West region. Overall objective of Helvetas and RSDC implementing this project lies at assisting to ameliorate precarious socioeconomic status of rural populace especially poorest households. Basic approach of this programme is Swablamban i.e. self reliance which could be attained through self-help efforts and by building self confidence among the poor at grassroots level.

With regard to methodology, the study has used both primary and secondary information. Secondary information was obtained from review of official records, progress report in Helvetas office and RSDC central office. Primary sources of information include the information from field survey of the selected program sites by employing PRA and household survey. In this study three stage sampling has been done i.e. VDC selection; IGG selection and beneficiary household selections were adopted. Accordingly, 12 VDCs (52 percent) were selected which consisted of 87 IGGs and 2,173 members. The study has revealed that SDPP was quite successful for developing self reliance and assessing community need. Magnitude of resources under SDPP was too small to meet community needs. The original self reliance approach conceptualized and designed 12 years ago was still applicable and effective in this project. the Major strengths of this program that the study found includes: institutional development of beneficiaries, outreach to remote hills and neglected areas in Terai, targeting to poorest, generation of local resources, reducing the dependency of the poorest with money lenders, efficient internal coordination system, well developed and comprehensive information flow system, periodic review and monitoring at field level and good partnership relation with Helvetas. Despite these strengths in program implementation SDPP was not able to bring about desired impact to participating households in Mid West mainly due to factors such as lack of clear cut policy on program implementation, motivators working as catalyst of the program, lack of linkage development with line agencies, lack of system of collecting information on overdue build up credit transaction, small size of revolving fund and incentive grant etc. Based on above findings the study has made some recommendations for improving the implementation of the program such as designing strategies and policy guidelines, developing catalyst among IGG members, developing linkages with government line agencies, initiating financial information system, etc.

Even though the program focuses on poorest of the poor, it has no specific information of the inclusion of indigenous groups and Dalits. The study also does not describe about the barriers of the inclusion and way to break down the barriers. Neither has it had any engagement with theoretical concept of social inclusion. Thus, the proposed research fulfils this lacking of the study.

Rahman (1997) has published an article called "Poverty, Profitability of Microenterprises and the Role of NGO Credit” through the experience of Bangladeshi’ practices. In his article he has described that the criticisms against the NGOs for not reaching poor households or for their failure in strict adherence to the target group criterion have recently taken a more specific form. The exclusion of the poorest has been identified as the crux of the problem. The inclusion of marginally better off households would not be considered as a serious deprivation from the goal of poverty alleviation if this was done after the entire bottom segment of poorest households had been covered with loans. He has agreed that the bottom five to ten percent is excluded. According to him the general inadequate understanding of the reasons behind the exclusion of the extreme poor is the poor repayment prospects by the poorest households because perfect recovery of loan is the goal of most NGOs. They consider loans to the poorest group as an obstacle to that goal. The empirical evidence does not provide support for this hypothesis. Studies on the default of agricultural credit emphasize large scale default by non-poor farm households. Even among NGO clients, the ‘not-so-poor’ do not always demonstrate their superiority to the ‘poorest of the poor’ in terms of good repayment and stable group behavior.

The study concludes that the ‘poverty’ alone is not responsible for the inability to repay. There are number of characteristics of the poor which differentiate their ability to repay. One should turn to the analysis of these factors to understand why some of the poorest households may be credit-worthy while the others are not. A special group among the extreme poor identified as suspect is the work-averse beggars, disabled, vagabonds, singers, performers etc. This group is unable or unwilling to perform hard physical labor and their exclusion is easily justified. In addition to this work-averse group, these may be households who constitute a type of ‘floating population’. Extreme poor households who do not even possess homestead land, may be residing in others’ houses where they are attached as laborers. They may easily shift their residence and move to other areas. This type of household is considered a bad credit risk and would be excluded. However, according to him the size of the excluded group of extreme poor is much larger than implied by the above description. Thus, he has recommended this issue as a priority research.

The researcher has described exclusion more in the sense of income poverty as there is more the class exclusion in Bangladesh. However, there are some numbers of Dalits in the most deprivation situation; they have neither discussed nor reached by the microfinance institutions. As he agreed that the reason of exclusion is not the repayment rather the non-congenial relationships, the proposed research analyses this relationship in term of caste hierarchical structure.

Osmal (1998) has written an article on "Impact of credit on the Relative Well-being of Women, Evidence from the Grameen Bank" based on some study. The objective of the study is to examine the impact of this process on their relative well being. For the purposes of this study women's wellbeing (relative to men) has been defined in terms of three sets of capabilities: i) the degree of autonomy with which women can live their lives, ii) their ability to control decision making within the family and iii) their relative access to household resources such a food, education, health care etc.

The study is based on the information collected from a household level survey during July – October 1993 in the area served by the Hemnagar branch of Grameen Bank in district Tangail, Bangladesh. The total sample size of 100 households was to consist of two equal sub samples of i) the project group – households from which the wife had borrowed money from the Grameen Bank and continued to be a borrower at the time of the survey, and ii) the control group – household from which no women had borrowed money from the Grameen Bank or similar institutions.

The study revealed that GB credit ensures higher income if credit is used productively in non-farm self employed activities. The benefit of higher income goes to those who are already experienced in non farm self employed activities. Other findings are that the household income of women is positively significant after joining the GB. The land owned by wife is positively significant for the women in the household at higher level of income.

Other asset owned by wife and the support by herself have been found positively significant. Work load and overall family welfare are found not significant. Autonomy with regard to the ability of women in spending family income independently is positively significant. This impact is stronger at higher levels of income, where as control over decision making is found insignificant at over all level and positively significant on family planning. Access to resources such as food and health care is found positive impact on women's relative access to resources by both subjective and objective criteria with the exception of personal effects.

Johnson (1998) has written an article on “Programme Impact Assessment in Microfinance, the need for analysis of real markets”. The author has opined that impact assessment in microfinance has focused merely on the impact of services on users and the ability of the organization delivering those services to sustain its operations into the future. Since there is assumption that focus on building organizations’ capability of long-term provision would have a positive impact on the efficiency of the financial market. Test of such assumption has so far been neglected. She has suggested the search for a framework within which such assessment must incorporated the complex array of social and political as well as economic relationships which financial markets embody. The study proposes a four-fold analytical approach which incorporates gender relations and focuses on state involvement, market organization, market structure and social embedded ness. She mentions that the current state of the art of impact assessment in microfinance involves two main schools of thought: the intended beneficiary school which focuses on impact on users, and the intermediary school termed by Hulme (1997 cited in Johnson, 1998), which focuses on the ability of the service provider to sustain its operations into the future. However, her impact assessment does not segregate the beneficiaries in a caste based category neither she talks on inclusive governance of the MFIs.

National Saving and Credit Development Project of the Canadian Center for International Studies and Cooperation (1998) has conducted a study on Community Based Saving and Credit Organizations in Nepal to identify a set of "Best Practices" that have been proven to be effective in the promotion and management of sustainable community based savings and credit organizations (SCOs). The best practices identified through the study was planned to provide the basis for designing improved strategies, training curriculum and management tools for strengthening the performance of both SCO promoters and SCO themselves.

The SCO for the study were selected on the basis of multi-stage purposive sampling. Consultations were made with different agencies such as NGOs, INGOs, government agencies and cooperatives to take the samples from SCOs. Both secondary and primary sources of information were used to collect the information. Secondary information source includes related reports and documents and primary information encompasses the SCO leaders, members, managers/treasurers and staff of the respective promoting agencies. The questionnaires were pre-tested and revised and audited financial statements were collected to supplement the data received from the field.

The study revealed that the SCO sector is premature in Nepal but SCOs in recent years have been accumulating considerable resources, primarily in the form of members’ savings. To date, most SCOs do not have in place the required accounting and management information systems, audit controls, or financial management skills to provide adequate security of these savings. This has been a major concern for the community based movements as a whole, and must serve to qualify all that follows in the discussion of SCOs best practices.

Although there is a great diversity of strategic approaches and operational in the field, at least 80 percent of the sample SCOs have practiced a set of core practices which are proposed to be the basis for elaborating the set of best practices. They are vision for growth, effective governance, financial sustainability, credit services and institutional development as the basis for best practices. The study has found out some problems and recommended to bring improvement in the areas such as long term planning skills and strategic vision especially with regards to the institutional development of SCOs, record keeping and management information, monitoring and control, and protection and institutional linkages most notably with federation and formal financial sectors. However, the study does not gone through the social inclusion aspect; neither has it described anything regarding the access of most deprived community, Dalits.

Adhikari (1998) has conducted a study on “Effectiveness of Grameen Bikash Bank (GBB) in Nepal”. The main objective of the study is to examine the effectiveness of GBB which includes cost structure, income structure of GBB, analysis of benefits accrued by the beneficiaries and assess the raising awareness of women and sustainability of the program.

The study has employed both primary information and secondary information. Primary data included the field survey. For the primary information mainly five centers and groups were studied. Branches, centers and groups were randomly selected. The study revealed that both the lending and borrowers of GB are increasing steadily. The study showed that the generation of personal and group savings is also expanding in a reasonable speed. In case of institutional development GBBs are on the right track. The study showed that the staff productivity is increased steadily overtime and Eastern GBB and Western GBB have got loss according to their balance sheet. Remaining banks have got profit but they have invested their fund in fixed deposit and treasury bills but from total operating cost and total income point of view Eastern GBB only has got financially sustainability. The study showed high operating cost and official expenses of the GBBs. However, the borrowers have been able to increase their income and employment opportunity. Women have learnt how to earn confidence in them. They have developed their leadership quality.

Some of the major recommendations made by the study are reduction in delivery cost through increasing productivity of staffs, reduction in management cost through interchanging ideas, experiences among staffs, and avoidance of political interference. Even though the study revealed that the clients of GBB are increasing it has not analyzed what sort of clients are increasing and how inclusive is the GBB in its service delivery and governance as well.

The International Network of Alternative Financial Institutions (INAFI) and SAP-Nepal has conducted a study in 2005 on “Impact of Microfinance Services on Poverty Reduction in Nepal. The study aims to find out the overall impact of microfinance on poverty reduction by assessing the different dimensions of impact on poverty. This study analyzes the direct and indirect impact of microfinance services on poverty reduction. Of the two approaches of microfinance services provision i.e. the welfare approach and institutional approach, this study has followed the welfare approach to make the assessment of the impact of microfinance services on poverty reduction. The data required for this study were obtained from secondary and primary sources. Both extensive and intensive methods have been followed for data collection and analysis in this study. The extensive approach of this study adopts the before and after comparison method using information collected while preparing the project completion survey of the Micro Credit Project for Women (MCPW) wherein a survey was made of 1081 households from 10 districts served by 10 Women Development Section and 12 partner NGOs. The intensive approach compares before and after situations as well as clients with and without microfinance services. The survey was conducted in two districts (Bara and Lumjung) covering a total of 210 clients, 70 non- clients and 20 dropout clients. Information was collected using mix of data collection tools encompassing both quantitative and qualitative tools so as to enable a comparison of information collected and find out qualitative justification of quantitative findings.

The study has found out that microfinance contributes significantly to reduction in the poverty of client households. About 56 percent of clients have reported income increase and have been able to build slightly more financial, physical and human capital compared to non-clients. Micro-credit has served to reduce a dependency on moneylenders, reduce the average interest rate burden especially for the poor and has indirectly assisted in promoting enterprises that hire non-family labor. It has led to some increase in income earning opportunities. MFIs have provided a safe savings mechanism and options for micro-credit. They compare favorably with formal bank loans in terms of accessibility and act as alternatives to informal moneylenders in terms of cost. According to the study, about 21 percent of MFI clients are Dalits and 36 percent are Janajatis. It shows that the MFIs serve all castes and communities including Dalits and Janajatis.

The study has also involved a part of social inclusion in term of Dalits’ and Janajatis’ access to microfinance and shows that the participation of these castes and ethnic groups is higher than their population. However, the study has been confined with five MFIs of different nature. It has no analysis about the pros and cons of Dalits’ access in MFIs. Likewise, it has collected data on outreach. It has no information regarding access of Dalits in governance and decision making. Neither the study has gone up to the group level. Therefore, the proposed research collects multiple information and gives details of the access of Dalits in MFIs in various levels.

Asian Development Bank (2000) has conducted a study on the Role of Central Banks in Microfinance in Asia and the Pacific. The study has examined the role and operations of central banks in microfinance in 12 member developing countries of Asian Development Bank. The study has made effort to address the inaccessibility of the financial services to the poor and mentioned that the poor and disadvantaged low income people are deprived of getting financial services although they have greater demand of such microfinance services. The study has assessed that since the late seventies emphasis has been laid on developing and establishing financial system to reach the poor in a sustainable manner. It was assumed that if the poor are given access to saving services they will be able to generate capital for productive investment in creation of self-employment opportunities. However, the study has not segregated the poor in caste and ethnic criteria.

Coleman (2002) has conducted a study on "Microfinance in Northeast Thailand: Who Benefits and How Much?" with a view to "test the assumption that microfinance reaches the poor and positively affects their welfare." To assess the outreach and impact on the poor is another objective of the study. To investigate the above objectives a survey of two Northeast Thailand "village bank" programs was carried out. The study was conducted in 1995-1996. The above two programs have been launched by two Thai NGOs such as the Rural Friends Association (RFA) situated in the Northeast province of Surin, and the Foundation for Integrated Agricultural Management (FIAM) established in the neighboring province of Roi-Et. RFA and FIAM both have initiated microfinance program since 1988 and received financial and technical assistance from the American NGO Catholic Relief Service (CRS). Both of these NGOs adopted the "village bank" group lending methodology of the Foundation for International Community Assistance in which all the borrowers are women and they form their own peer groups of 20 to 60 members. They receive the loan from these NGOs based on the group guarantee. If the members do not repay the loan in the stipulated time the group members will not be liable to get the future credit".


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Social Inclusion in Microfinance Cooperative Societies
Tribhuvan University  (Faculty of Humanities and Social Sciences)
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This is a PhD dissertation on Social Inclusion in Microfinance submitted in 2010 and awarded PhD degree in 2011. Social inclusion and the microfinance have the rising concern globally I think it is worth-publishing. The model of inclusive microfinance called 'Community-owned Microbanking' has been recognized as the third generation microfinance. French writer Ms. Isabelle Duquesne has mentioned the approach in her book 'Nepal Zone of Peace: A Revised Concept' published in 2011. The model has also acknowledged with letter of appreciation by the Global Microcredit Summit Campaign in 2012.
social, inclusion, microfinance, cooperative, societies
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Dr. Man Bishwakarma (Author), 2010, Social Inclusion in Microfinance Cooperative Societies, Munich, GRIN Verlag,


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