Micro credit and its impact in rural area: A case study of Shree Sanjivani co-operations, Phalaicha VDC of Pachthar District

Abstract

Microcredit is defined as an extremely small loan as small as given to impoverished people to help them become self employed. Microcredit was given to the poor individuals for income-generating activities that will improve the borrowers’ living standards. The loans characteristics are, too small, short-term credit (a year or less), no collateral, required weekly repayment, poor borrower and mostly women who are not qualified for a conventional bank loan. Usually the loan pays high interest rates because of the high cost in running microcredit program. Microcredit is also used as the extension of very small loans to those who are in poverty that designed to spur entrepreneurship and help them out from poverty group. Micro-credit is not simply banking for the poor; it is a development approach with a social mission and a private sector-based financial bottom line that uses tested and continually adjusted sets of principles, practices and technologies. The key to successful micro-credit lies in the ability of the provider to cost-effectively reach a critical mass of clients with systems of delivery, market responsiveness, risk management and control that can generate a profit to the institution. Typically, this profit is ploughed back to ensure the long-term survival of the institution, i.e. the continuous provision of services demanded by its clients. The two long-term goals of microfinance are thus substantial outreach and sustainability. This article focus on microfinance services practices in Nepal on the basis of opinion survey. The major constraints faced by the poor entrepreneurs in accessing micro-credit is the lack of collateral with enterprises, such as controlling government policy, uncertainty in supply of raw materials, difficulty in access to technology and market information. Market information and linkages, and policy incentives should be accompanied with the micro-finance to promote the enterprises. In addition, linkages of CFUGs, saving and credit groups, and other MFIs to micro-entrepreneurs is based enterprises to poverty reduction while promoting sustainable forests management. It is evident from the study that the selection of right entrepreneurs and enterprise options, provision of business development services, and continuous follow up and counseling are a key to the success of enterprise development programs.