Cooperatives can bring sea-change

The cooperative movement has brought about a sea change in rural economy, said Horst Ammann, Programme Manager, Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH-Inclusive Development of the Economy (INCLUDE), one of the lead contributors to the second Microfinance Summit Nepal 2010.
"Cooperatives are doing good at the primary level," he said adding that at the secondary level it has to be reworked with access to finance. Without broad access to finance, inclusive economic growth cannot be achieved," he said.
"Without cooperatives nothing can move in rural areas," Ammann added. "Apart from access to finance, they should be capacitated, supervised and encouraged."
The German agency had also supported the first microfinance summit in 2008 that has proven a successful tool in uniting microfinance stakeholders in Nepal and abroad towards building a strong and inclusive microfinance sector.
His organisation has helped found many cooperatives, helped manage them and also trained small farmers' cooperative system that provides financial and non-financial services. It was GTZ that helped form Small Farmers Development Bank.
Though they are doing good, the movement needs a another look. "An independent federation of cooperatives would make sense," he said adding that the government can play the role of regulator. The government should give them space for their development and not interfere.
However, Ammann was upbeat about the summit. "We are also looking forward to share experiences from GTZ INCLUDE's programme approach in 14 programme districts of Nepal. We will present our lessons learned vis-à-vis a 'business model for value chain finance through cooperatives' as well as 'linking entrepreneurship development with microfinance clients'. We are also looking forward to the input of stakeholders," he added.
He also called for strong and united messages from stakeholders of the microfinance sector. "We are looking forward to answers to open issues like deprived sector lending, how microfinance can contribute to inclusive growth in Nepal, increasing access to financial services in remote areas and to disadvantaged groups, the missing middle, the commercialisation of microfinance institutions and what more roles cooperatives can play."
Philipp Kruschel, Senior Advisor to GTZ INCLUDE, said he was happy to support the summit. "The summit is a unique opportunity to bring together a broad range of microfinance practitioners with representatives of the public sector as well as development partners here and abroad and jointly develop a vision for the future," he said adding that it would be a great chance to discuss the opportunities for and challenges to the microfinance sector in the light of much-needed inclusive economic growth in Nepal.
For inclusive economic growth, education is a must. "The basic concept of cooperatives is to educate," Ammann said adding that people should understand the value of education. "To push for education, the government has to support and protect the movement."
The educated mass can be involved in economic activities and by delivering financial services to people in rural areas the lower income strata can be brought within the ambit of economic activity.
In a similar fashion, inclusive economic growth can only be achieved if the 'missing middle', which neither has access to micro credit nor to services of commercial banks, will not be left out of this process.

Second Microfinance Summit
The second edition of the Microfinance Summit is going to be held on February 14-16 in Kathmandu.
The summit -- with the theme 'Microfinance for Inclusive Economic Growth' -- is aimed at addressing some new issues in the sector that has been identified after the success of Microfinance Summit 2008 and the seventh National Steering Committee meeting held on September 11 2009.
This summit aims to discuss on how to increase funding for the microfinance sector to improve client retention for microfinance services while simultaneously improving the livelihood of existing clients with entrepreneurial skills; how to make microfinance more inclusive towards excluded groups, the formal financial sector, and the macroeconomic framework of Nepal; how to properly govern Microfinance institutions so that they can not only reach their intended target markets in rural areas, but also provide them with sustainable microfinance practices; how to eradicate the burdens of poverty such as a lack of access to healthcare and education through the incorporation of savings and insurance schemes with microfinance practices; and how to improve credit schemes and creating a model for value chain finance in microfinance in cooperation with commercial banks so as to improve the sustainability of the microfinance sector.
The goal of the Microfinance Summit Nepal 2010 is to unite microfinance stakeholders in Nepal and ensure microfinance for inclusive economic growth. It also aims to improve and increase outreach to all households in need of microfinance services with the development of a joint microfinance strategy and action plan.
The second summit also aims to facilitate a broad dialogue among all stakeholders involved in the field of microfinance: policymakers and regulators, public institutions concerned with the microfinance sector -- including government-owned banks, microfinance practitioners, commercial banks and interested financial sector institutions -- including insurance agencies, remittance service providers, technical support providers and training institutes, and international donors.
It aims at discussing the issues for further development of the sector and to develop strategies to overcome any shortcomings; share information on current microfinance practices in Nepal and provide participants with up-to-date information on experimental trends and innovations -- both technical and strategic -- in the national and international microfinance sector; encourage policymakers to adopt recommended policies in order to improve the effectiveness of the microfinance sector in the national development strategy; showcase the achievements of Nepal's microfinance sector and the commitment of its stakeholders through a presentation of the results of the summit at the Global Micro-credit forum.
Microfinance has been one of the effective tools for poverty reduction in the developing countries. Despite ongoing development efforts, poverty remains rampant in Nepal with approximately 31 per cent of the population living below the poverty line. The incidence of poverty is highest in remote and rural areas. Through the creation of sound microfinance institutions and systems, poor people can safely deposit money and accumulate funds for future investments or emergencies as well as access loans for productive purposes leading to higher incomes.
Microfinance also produces an impact in other areas including good governance, participation in the political processes, women empowerment, social inclusion, and conflict transformation.
Currently, more than 1.6 million individuals in the rural population have access to microfinance services. This figure represents approximately eight per cent of the population and approximately 26 per cent of the people living below the poverty line.
However, the outreach of sustainable and sound microfinance institutions to the rural and urban poor must be increased to obtain more effective statistics and further diminish poverty.
The Microfinance Summit Nepal 2010 will attempt to address the broader theme by focusing on Value Chain Finance, innovative products and services, clients and protection, sources of fund and competitiveness.
Thus, the summit is expected to bring a series of outcomes. The first outcome will be that stakeholders shall see themselves as an integral part of the microfinance movement in Nepal. Despite the fact that some of the institutions involved will attempt to operate with a competitive mindset, all stakeholders shall recognize the need to coordinate with each other for the greater good of developing the microfinance sector. The second outcome is that stakeholders can plan and implement their strategies and activities based on an improved knowledge of the status of microfinance in Nepal and worldwide. This means that institutional development plans of the individual stakeholders will be based on a sound understanding of their own strengths and weaknesses in addition to any opportunities and threats present in Nepal’s microfinance market.The third outcome is that policymakers and regulators will have a much better understanding of what the sector further needs to grow and provide information regarding the international practices in microfinance regulation. This enables them to make informed decisions and develop strategies and policies which are understood and supported by microfinance practitioners. In addition, the event creates mutual trust between the public and the private sector by openly showing each other’s capabilities and limitations.The fourth outcome is the product diversification of microfinance in Nepal such as clean and green finance, remittances, education, health insurance, value chain, and savings and credit schemes.The fifth outcome is an increased awareness in Nepal and elsewhere regarding the efforts all stakeholders are making to improve the living conditions of the poor in Nepal. A showcase of the product diversification of microfinance has the intention of not only raising awareness, but also of depicting the potentials that lie within microfinance. This should manifest itself in an increase in sources of funding available for microfinance development and support for inclusive economic growth.The final outcome that is expected from the Summit is the protection of microfinance clientele. The practice of client duplication not only provides inaccurate statistics regarding the range of the microfinance sector, but also increases the chances of loan defaults and the disruption of the client's way of life. Through efforts to increase the entrepreneurial skills of clients, it is hoped that they will be able to use their loans effectively and reduce the incentive to accept loans from other microfinance institutions.
The impact would result in the emergence of sounder microfinance institutions and networks, and a stronger microfinance support structures through updating national microfinance strategies to match international standards and procedures aimed at increasing the capacity for inclusive economic growth; broader support for microfinance saving schemes from the financial sector, private sector, and the international community; and creation of a framework structured at not only providing legal recognition towards community based projects, but also facilitating in the sustainability of microfinance projects. This, in turn, should help Nepal’s poor to gain access to affordable and sustainable micro-financial services.
At the end of the Summit, a joint declaration will be prepared which shall incorporate the suggestions of all participants on how to improve the microfinance sector in Nepal.
The Declaration will provide policymakers with feedback on how microfinance stakeholders envision the future of the sector and could be helpful to the government in preparing strategy papers and policies.