Nepal financial inclusion: Banking on top of the world

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By:
Elliot Wilson
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Nepal’s government wants everyone to have access to a bank and has ordered a branch in each of the country’s 753 districts. Asiamoney journeys to one of the poorest and most remote parts of Asia, high in the Himalayas, to see if its grand financial-inclusion plan is working.


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"We deal with a lot of crazy customers,” says Dwaipayan Regmi. “A crazy bunch of people who just don’t know anything.” 

Without missing a beat, the Nepali banker reels off a list.

There was the farmer who clomped into Regmi’s office in Hangpang in the northeast of Nepal, dumped a big bag of cash on his desk and left. 

“He wasn’t even a customer,” says the veteran employee of Rastriya Banijya Bank (RBB), a state-run Nepali lender founded in 1966 with a remit to bring financial services to the underprivileged.

“He told me: ‘Fill out the forms yourself, I don’t have time’, and left.” 

At a loss, Regmi simply put the bag in his safe until the man returned.

In a typical week, Regmi might get a visit from someone he has never seen before, demanding that he hand over cash held in their name at a different bank. Plenty of other visitors come asking for handouts. 

He has come to regret giving his mobile phone number to new customers in the hope they would ring during office hours with real financial queries. They don’t, seeing it instead as an all-purpose emergency hotline, like the young woman who called very late at night to ask him to top up the credit on her mobile phone.

To understand why this Kathmandu-born banker, with his smooth face and nice suit, is here in Hangpang, a sprawl of shacks in a dirt-poor and remote part of the country, you need to rewind a couple of years. In 2017, a flurry of elections ushered in a coalition government of surprising and genuine stability, led by the Nepal Communist Party. It quickly got to work outlining bold plans to generate growth, boost wages and stitch the south Asian state together by building new highways, airports and dams.

At the heart of its agenda is financial inclusion. Nepal has plenty of licensed financial institutions – 250, by some counts, from commercial banks to remittance houses – but few are well run. Most lavish their attention and resources on the towns and cities, leaving those who live in the vast, rugged hinterland to their own devices.

Bankers in Kathmandu estimate that about 40% of the population has no access to a bank account, which means roughly 12 million people are excluded from the formal financial system. 


Without financial access, we cannot deliver a better life for everyone. People must have access to the financial sector or they will always be isolated 
 - Manoj Gyawali, Jyoti Bikash Bank

Another problem is the widespread lack of a basic education.

“Most people in Nepal are uneducated, illiterate,” says RBB chief executive Kiran Kumar Shrestha. “They don’t know how to do business, write their name or open a bank account.”

The new government, voted in by an electorate tired of political and economic drift and desperate for a better life, knew this had to change. Determined to fix the problem, it unveiled two new, ambitious financial policies: by the end of 2021, it promised, every one of the country’s 753 administrative districts would have at least one physical bank branch, plus every Nepali would have access to a formal bank account, either in his or her own name, or in the name of a family member.

When the governor of Nepal Rastra Bank, Chiranjibi Nepal, drew up a list of financially excluded districts, the tally came to just under 300. 

He issued a cartographic memo to each of Nepal’s 28 ‘Class A’ full-service commercial lenders: where there was a pin in their map, that bank would go and build a branch – no excuses or missed deadlines. 

Himalayan Bank, a large, privately run lender founded in 1992, was told to open new branches in 11 districts dotted around the country. Nabil Bank added 12 branches to its roster, while RBB opened 14. Jyoti Bikash Bank, a nationwide development bank, opened 18 new branches in rural areas between May 2017 and October 2018. The more assets held on a bank’s books, the longer the list of locations.

In many countries, such an edict would provoke uproar, but in Nepal, few banks complained in public, while some actively embraced the task.

“This is absolutely the right thing to do,” says Manoj Gyawali, chief executive of Jyoti Bikash Bank. “Without financial access, we cannot deliver a better life for everyone. People must have access to the financial sector or they will always be isolated.”

Few could deny that the plan, as originally conceived, has been a roaring success: at the end of April 2019, according to central bank data, there were branches in 730 districts, leaving just 23 to go.

It has not been easy. Most of the new branches are located in remote corners of the country that lack almost any kind of infrastructure such as paved roads or phone lines and power grids. In some parts of Nepal, banks struggled simply to find a viable physical structure in which to locate a branch. 

“My God, did we draw the short straw,” says Ashoke SJB Rana, chief executive of Himalayan Bank. “We went to some really rural areas. In Bajura [a province in northwest Nepal], we just couldn’t find a building to house a branch in. Eventually we found some people who were building a home and we bought it from them and finished it ourselves.”

Asked to describe his greatest logistical headache, Anil Shah, the magnificently mustachioed chief executive of Nabil Bank, points to Pachaljharana, part of Kalikot district, also in the underdeveloped northwest.

“It takes two days to get there from the nearest airport in Surkhet,” he says. “The road is difficult and risky during the rainy season.” 

The branch has no vehicular access, running water or power, and is only accessible viía a rope bridge that is perilous in bad weather. 

“Due to a lack of concrete in the area,” Shah adds, almost casually, “the branch was built out of rocks and mud.”

Remote

Asiamoney decided to put the financial inclusion policy to the test by finding a really remote branch. Hence the visit to Regmi at RBB in Hangpang. The trip from the Yak and Yeti hotel in Kathmandu to Regmi’s office was an adventure in itself, one that starkly illustrates what it is like to set up and run a bank branch in one of Asia’s least developed countries.

The Monday morning flight to Bhadrapur is delayed for two hours due to an “incomplete runway”, according to officials. It is an inauspicious start. On arrival, it turns out that the one daily bus north to Taplejung has gone, so a private car is hired. The next 12 hours alternate between states of fear and Benny Hill comedy as the driver slings his Indian-made 4x4 around vertiginous mountain passes, while his wife, suffering from motion sickness, leans out of the window, alternately vomiting and giggling. It is past midnight when we reach our destination.

From Taplejung, itself little more than a way station on the pilgrim trail to Tibet, it takes another four, hot, spine-cracking hours in a 4x4 filled with villagers, chickens and goats to reach Hangpang. 

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Dwaipayan Regmi at RBB in Hangpang


Regmi is waiting with a warm handshake and an offer of hot tea. He motions toward his office, a simple, concrete room with a pair of desks, one of which is occupied by his deputy, a slight, bespectacled man called Binod Rai, and we settle down to sip tea and discuss the reality of living and banking in the high Himalayas.

What was his first impression of a village that nestles in the shadow of Kanchenjunga, the world’s third-highest mountain?

“When I arrived nine months ago, we didn’t have a home,” he says. “There were only two permanent structures – the local school and this place, which was run by the local Red Cross. We asked them if we could rent it from them and they said yes, so we moved in and they moved down the valley.”

Why here – and why him? RBB was told by the central bank to open a branch in Hangpang, so it did. Before moving here in August 2018, Regmi had never been to this part of Nepal or managed a branch solo. He was an urbanite, and quite unused to life in such a remote setting. On the other hand, he had time to spare, having just received his masters in social science at Kathmandu University. RBB needed experienced and stable figures to run its new, far-flung branches, while Regmi, bored of life in the Letters of Credit department, was keen to test himself. It was a good match. 


They are highly self-sufficient and don’t need anything from outside, except maybe oil and salt. So what did they need us for? 
 - Dwaipayan Regmi, RBB

“Honestly, I thought it would be a good experience,” he says.

There is no running water here. When the power grid fails, it does so spectacularly, crashing for weeks on end.

“It is like a hardship posting: the equivalent of being sent overseas to gain knowledge, skills and expertise,” says Regmi. “It offered a new world, a chance to get away from credit transfers. Plus I’m not married, which is bloody helpful. The great thing here is that we are all in it together.” 

[There are three RBB employees living and working in Hangpang, not counting a rifle-toting security guard who patrols the yard with great solemnity]. 

“We have to play every role, from opening accounts to dealing with any kind of problem.”

The first problem that Regmi faced, after getting the two-room branch up and running, was convincing the locals to engage. For the first couple of months, no one came into the office. The first accounts he opened were internal: one to pay the Red Cross the monthly rent and another set up, almost as a trial run, by an intern. The first real customer was an electrician from Taplejung who came to install the wiring.

Villagers would loiter on the steps outside, wary of entering. 

“They were scared,” Regmi says. “Many still are. They feel that banks are not for them, that they are for the ‘big people’ from town. Few can sign their own name, in which case we get them to ‘sign’ with their thumbs. Most of them are farmers and small traders. They are highly self-sufficient and don’t need anything from outside, except maybe oil and salt. So what did they need us for?”

But as the months passed, they began to drift in, drawn by a mix of curiosity and government pressure. The first demographic to recognize the benefits of having a simple deposit account were teachers and health workers living high above Hangpang, in forests filled with birdsong.

“Before, they would have to walk to Taplejung to cash their pay cheques, a journey of 12 hours in either direction. We might be two or three hours by foot, but we are a lot closer.” Public officials will typically pool their resources, taking turns to come and cash everyone’s salaries.

Sweetener

A far bigger change took place shortly before Asiamoney’s visit. On April 14, 2019, the government rolled out new plans to speed up financial inclusion. To sweeten the deal, anyone opening a bank account would find NRs100 (90 cents) already stashed inside. That might not sound much, but in a country where the average annual salary is estimated as $750 by the World Bank, and where living standards are sharply lower outside the big cities, it matters a great deal.

The incentive worked. Regmi reckons that in the nine months after opening his branch to the public, 550 people, mostly farmers and public servants, plus a few students and senior citizens, opened an account at RBB. But in the week after April 14, 110 people wandered in to open an account, including 40 the day before Asiamoney’s visit.

“For many, it was a case of ‘now or never’, I think,” he says. “Most wanted to talk about remittances – everyone in Nepal has at least one family member working abroad.”

But during the two hours that we talk, only one customer enters the bank, a girl of no more than 16 years of age. Her name is Renu Limbu and she lives up the hill from the bank. 

“It was my mother’s idea,” she says. “She opened an account last week and said it was time I got one too.”

Two factors emerge during our meeting. The first is the sheer amount of financial education that is still required to convince locals to trust the banking system. Services that offer a tangible benefit have been a big hit. Regmi reckons 80% of his customers have taken to digital banking quite easily, as it allows them to carry out simple tasks like topping up their cellphones or pay-TV accounts

A flurry of pocket-sized IPOs on the Nepal Stock Exchange in early 2019 offered a chance to convince account holders to invest in some of the country’s best young companies.

“Quite a few people took the opportunity to buy shares – more than we thought,” he says.

Regmi also spends a lot of his time talking to young parents about investing in their children’s futures: NRs500, set aside religiously each month, goes a long way. 

“They get that quickly,” he says. “People marry so young out here – girls elope at 16 or 17, and if they aren’t married by 18, they are seen by society as leaving it late. They want to give their children a better life than they had, to educate them abroad if possible.” 


We just couldn’t find a building to house a branch in. Eventually we found some people who were building a home and we bought it from them and finished it ourselves 
 - Ashoke SJB Rana, Himalayan Bank

But for many, old habits are hard to shake. Farmers in particular are wont to bring in a pile of cash, open an account – then withdraw it all and take it home. “They hide it under the pillow,” Regmi says, with a shake of his head.

“People still prefer hard cash they can hold,” he adds. “They are insecure. They don’t trust banks to hold their money and keep it for them.” 

This also makes his branch a curiously unidirectional operation, with cash driven in each week from Taplejung, only to flow through his branch and out the other side.

“We never know where it goes,” he sighs. “Every week we get cash in, right up to our limit, and every week it’s all gone. We never return cash to Taplejung – there’s nothing to take.” 

Is that unusual, even for new and super-remote branches like his? 

“Maybe. We ask [customers] all the time where the money goes, but they never tell us.”

The second factor is one that, while thought up in Kathmandu, is only apparent in such a remote setting. From the outset, Nepal’s government saw financial inclusion as the best – perhaps the only – way to foster economic inclusion. Just opening a new branch in a rural setting filled with the financially excluded would not foment the change they sought. Each new branch also needed to lend, probably aggressively, in order to encourage locals to open accounts, to borrow and spend and, ultimately, to embrace the digital age and pay their taxes.

All of which is happening – in Hangpang at least. The village is a hive of activity. Trees and meadows are being uprooted or dug up and replaced with new settlements – signs of growth that also jar with the bank’s proudly held green credentials. The heavily cratered track from Taplejung is being widened. In the narrow valley gorge below, hoardings herald the imminent arrival of a new, Chinese-led hydroelectric dam. Every house appears to be getting a serious upgrade, from new façades to extra floors. A few yards from Regmi’s office, a Mitsubishi bulldozer is scraping thick layers of loamy soil from the side of the hill.

The banker admits the new money sloshing around the community stems from loans disbursed to villagers by Rastriya Banijya Bank.

“We offer bank guarantees for all the construction work going on here,” he says. Asked what kind of collateral the locals offer, he clucks his tongue: “As a bank, we are not entirely profit-seeking. We have been offering loans to independent traders, the unskilled, small-scale industries, people who make pickles. Our headquarters see this branch as a social service. We act as an economic driver, as a medium for development.”

'Big loss'

His message is clear. If RBB must swallow a loss on each of its new far-flung offices, so be it. Regmi admits openly that the branch in Hangpang “may well never make a profit. We will make a big loss this year almost certainly. Of our 219 branches, we will be in the top five in terms of loss-making” in the financial year to the middle of July 2019. “We were told that by our head office.”

Bankers in Kathmandu stress not just the economic benefits of financial inclusion, but also the relative lack of expense involved in setting up and opening a new branch, even in remote areas. 

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Anil Shah, chief executive of Nabil Bank


Nabil Bank’s Shah puts the cost of setting up and opening a new rural branch at between NRs700,000 and NRs750,000 ($6,250 to $6,700), compared with NRs16 million for a similar operation in Kathmandu. Himalayan Bank’s Rana puts the average cost of installing a new branch in a remote part of Nepal at NRs3.5 million, with costs rising the farther you get from the capital. One wonders, though, about the hidden long-term cost of spraying cash around indiscriminately in rural areas. Will lenders come to be seen as purveyors of financial advice and pillars of stability in places like Hangpang, or as a permanent source of cheap loans?

Yet it is clear that Hangpang has been transformed by RBB’s arrival, and officials at rival lenders have similar tales to tell. Regmi reckons that without the push for greater financial inclusion, “there would be no village here in 50 years’ time, as before we arrived, everyone was leaving to get a job elsewhere”. Perhaps now, he adds hopefully, “some of them will stay”.

Gyawali at Jyoti Bikash Bank says evidence from his own network suggests new branches are killing off the loan sharks who once preyed on farmers and traders by charging punitive interest rates.

Some say it makes little or no sense for Nepal to open hundreds of new branches at a time when technology is allowing banks to close physical outlets almost everywhere else. Why not simply encourage people to go straight to digital banking? This is, after all, a country with a mobile phone penetration rate estimated at 130% at the end of 2018, according to state operator Nepal Telecom. 


Every Nepali has access to a smartphone – it’s how they keep in touch with family working abroad. We want to slide banking applications into those devices 
 - Anil Shah, Nabil Bank

While some bank chief executives (despite their public proclamations of support for financial inclusion) love that idea, it just wouldn’t work. 

Gyawali cites the issue of financial literacy. 

“You cannot expect people [in rural areas] to just adopt digital technology” overnight, he says. “They don’t understand SMS- or e-banking. Most of them don’t even understand what banking is – they still borrow money when they need it and then stuff it under the mattress.”


The only way it will work is through a continuous process of financial education – and that can only happen face to face.

“We sit with people and talk to them – a lot,” says RBB chief executive Shrestha. “We encourage them to put their money to work with us, convince them that their money is safer in a bank than in their house, where it could be stolen, or burned in a fire. Later, we offer simple savings accounts and go from there. In places where lights and roads are still new, it takes time to develop.”

Digital banking started late in Nepal, but most people in the financial sector here expect adoption to accelerate as new services and platforms are rolled out.

“Every Nepali has access to a smartphone – it’s how they keep in touch with family working abroad,” says Nabil Bank’s Shah. “We want to slide banking applications into those devices.” 

Anirvan Ghosh Dastidar, country chief executive at Standard Chartered Bank, is also optimistic. 

“Our view is that, with a median age of 23 years, Nepal will just catapult into the digital age,” he says.

Up in remote Hangpang, where Regmi must convince locals to bring their money to the bank and keep it there, such talk can feel like a world away. His only direct communication with head office is via a bright yellow, old-fashioned Nokia; it takes a month on average for freshly ordered debit cards to arrive from Kathmandu.

Yet, he says, he loves every single day and cherishes the experience gleaned from working in a tight-knit community and the knowledge that both he and RBB have done some good.

“It would be more comfortable to be sitting back at my old desk in Kathmandu but, honestly, it has been a real privilege being here,” he says. “We are a team, and we are proud to be able to serve the village.” 

Would he stay on in Hangpang, after his two years are up in the middle of 2020, or accept another hardship posting? 

Regmi smiles shyly.  “No, I want to go back and get married. It’s time.”