Microfinance has been evolving as an indispensable tool of poverty eradication and rural improvement. At present, almost all the commercial banks have delved into the microfinance foray and offer various lucrative schemes designed for the rural poor, specifically to carry out their own small economic activities. This chapter attempts to study the perception of the people in the microfinance business of Janakpur, Nepal. This study is taken from explanatory research design and collected data using a structure questionnaire, and the sample taken is 283 users of microfinance. SEM was used to test the hypothesis. It is found that microfinance needs to focus more on training assessment, better compensation structure, and women-friendly policies for the workforce. This study reveals that though all have delved into microfinance, a lot of effort is still required to pave the way for microfinance in Janakpur, Nepal.
TopIntroduction
Microfinance is a method of providing a wide range of financial services to the poor based on market forces and commercial approaches, such as savings mobilization, credit disbursement, money transfer, and microinsurance (Dhungana, 2021). It covers both formal and informal financial institutions that provide small-scale financial services to rural people. In the age-old banking industry, microfinance is a relatively new innovation. In Nepal's rural areas, microfinance is an effective tool for poverty reduction (Mansori et al., 2020). Microfinance institutions have helped to alleviate poverty in the country by providing microfinance to the poor. Making microfinance institutions more affordable to the poor is a top priority for the world (Dhungana, 2021).
Savings and credit cooperatives (SACCOs) and small farmer cooperatives (SFCs) abound, Banks and financial institutions (BAFIA) regulate microfinance institutions in Nepal, which are governed by the Cooperative Act (1992) (Kayastha, 2013). The Financial Intermediary Act (1998) regulates the activities of non-governmental financial intermediaries (FINGEs). The processes for obtaining services from various microfinance modalities vary. As a result, a single umbrella act is required to make microfinance simple, understandable, and accessible(Kandil, 2018).
Microfinance is now widely recognized as a strong tool for poverty reduction and women's empowerment, as well as a promising source of funding for banks, financial institutions, and non-governmental organizations (Shrestha et al., 2019). Nepal's microfinance industry faces both opportunities and challenges. This industry faces numerous challenges, including lack of accessibility, unhealthy competition, seasonal migration, political ignorance, and the exclusion of vulnerable groups (Guérin et al., 2015). Poverty in Nepal, combined with opportunities, is paving the way for the growth of this sector and providing a large market for microfinance. On this basis, the industry offers numerous opportunities, including economic growth stimulation, women empowerment, increased volume, accessibility and outreach, and scope economics, among others (Karn, 2018).
Today, most countries are globally integrated the need for sustainable development has gained great importance and popularity around the globe. Nepal is progressing towards globalization through an integrated economy and the slogan of sustainable development (Karn, 2018). The people perception about microfinance in Nepal despite the fact that all nationalized banks have delved into microfinance, this shows that much work remains to be done to pave the way for microfinance in the commercial banking sector (Mansori et al., 2020). Banks undoubtedly provide a variety of microfinance services, but the question is how many target beneficiaries are aware of these services and how many use them. The poor are reluctant to approach banks for their financial needs due to the long procedural formalities involved in obtaining credit from them. They prefer to raise money in less formal, but more convenient, ways (Dhungana, 2021). Furthermore, banks need collateral, which the poor are unable to provide.
In order to alleviate poverty in Nepal, the government established microfinance banks, institutions, and cooperatives. In Nepal's rural areas, microfinance banks have been providing microcredit, savings, informal education, first-aid health services, training, and skill growth (Dhungana, 2021). Microfinance is a form of lending that provides “the little” money. It aids in the improvement of the poor and severe poor's situation by increasing income and benefit, thus lifting them out of poverty and raising their living standards (Karn, 2018). To retain and develop their revenue portfolio, microfinance institutions should focus on other income-generating activities (i.e., micro-enterprise).