Transforming Rural Economies through Mobile Banking In Nepal

Speeches Shim

More than 70 percent of Nepali households are unbanked, but with new, innovative services launched with support from USAID’s Nepal Economic Agriculture and Trade (NEAT) project, mobile financial services could be available nationwide within five years.

Nepal is renowned for its diverse terrain, from lowland jungles to the world’s highest mountain peak. Unfortunately, in many areas of this still developing nation, infrastructure is poor. Many households, especially in hill and mountain regions, lack access to financial services, and thus walk hours if not days to reach a bank branch. As a result, over 70 percent of Nepalis are disconnected from the formal financial sector. For banks, thriving in rural areas with limited infrastructure has proven difficult and costly. As a result, they are centralized in and around cities, leaving the majority of Nepalis without easy access to finance.

Without formal financial services, households pay more for monetary transactions and cash payments are less secure. Just ask Tulasi Khadka from Kuntabesi Nepal. Tulasi and her husband wanted to give their children a brighter future. He migrated to Dubai for work and she worked in a restaurant so they could send their children to school in Kathmandu. Unfortunately, Tulasi had to travel to Kathmandu many times a year to pay her children’s school fees. Every trip to Kathmandu meant missing work, paying costly travel expenses, and carrying all of their savings in cash.
USAID’s NEAT project recognized the potential of mobile financial services to reach unbanked households. Mobile financial services can include many types of financial transactions, including mobile phone payments, loan disbursements and repayments, savings deposits and withdrawals, and money transfers, among others. In spring 2012, USAID NEAT organized Nepal’s first Mobile Financial Services Summit. The Summit generated momentum in the sector and led to increased interest, enthusiasm, and action among bankers, regulators, platform providers and telecoms. Many ideas that had been discussed for years, but shelved due to the risks involved, soon came to life. A group of banks decided to come together to roll out a shared national platform. NCell, Nepal’s leading mobile service provider and FinAccess, a mobile platform provider, signed an agreement to begin providing mobile money services through input distributors nationwide. Nepal Rastra Bank, the country’s central bank, also released mobile banking regulations and announced its willingness to revisit and improve them as the banks and regulators gain more experience with mobile financial services.
Since 2011, USAID NEAT has partnered with Mega Bank, a Nepali commercial bank, to support the establishment of branchless banking outlets, and with Laxmi Bank, another Nepali commercial bank, to support the rollout of mobile banking—its Mobile Khatta service—using FinAccess’s Hello Paisa shared technology platform. As a result of USAID’s support, over 300 mobile financial services agents in 16 districts are operational in Nepal today. These agents are serving clients like Tulasi Khadkha and will reach more than 15,000 clients this year alone. Tulasi Khadkha now makes her children’s school fee payments by mobile phone instead of carrying cash to Kathmandu. “This is completely reliable,”confirms Khadka. Mobile agents play a critical role in helping banks expand beyond the boundaries of their existing branches. They market bank services and help enroll new bank customers, but at a fraction of the cost of brick and mortar branches. Banks report that transactions conducted through a mobile agent cost less than 1/20th of those conducted through a bank branch. And reducing the outreach cost is critical to getting financial services to the large rural, unbanked population.
USAID NEAT played a catalytic role in launching mobile financial services in the marketplace. Today, a number of banks are gaining experience and refining their strategies, products and pricing to ensure the success and growth of this innovative service. There are now three technology platforms competing for banking partners with which to offer mobile financial services. As FinAccess founder and Nepali mobile financial services visionary Sanjay Shah notes, “Technology is not the innovation here in Nepal; the business model is the innovation.” FinAccess is the centerpiece of a consortium of six financial institutions using the same service, Hello Paisa. However, each bank brands its products to meet the needs of its customers. In Nepal, where banking is fragmented, this innovation—whereby banks collaborate to expand the customer base yet compete on services—has the potential to fuel a very rapid expansion of mobile financial services in the country.
Approximately 50 percent of Nepal’s Gross Domestic Product (GDP) is outside the formal sector. In addition, many of the 70 percent of households without access to financial services save their money “under the mattress.” An expansion of mobile financial services will draw more cash into the formal economy and increase the national savings rate. Banks will have more money to lend to businesses, giving a boost to overall GDP.
An expansion of mobile financial services will also have significant impact at the household level. Not only will Nepal’s unbanked households have an easier, cheaper, and safer way to conduct financial transactions, but also to increase their resilience, as demonstrated by mobile financial service expansion in other countries.
The country’s mobile financial sector still has important hurdles to cross. Additional reforms are needed to ease regulations for registering unbanked households. Banks need to expand their area of coverage so that more rural households can access the network.
Despite these challenges, Nepali private sector leaders estimate that not only will mobile financial services reach all 75 districts of Nepal in five years, but new products such as insurance, health services, and market information will also be available through this channel—benefiting Nepal’s rural population exponentially.
Mobile financial services are here to stay, and are transforming rural households and the economy in Nepal.


Photo Credit: USAID NEAT 

Last updated: July 12, 2021