PROPOSED DHAULAGIRI MICROFINANCE BITTIYA SANSTHA

LIMITED

BUSINESS PLAN (2074-2079)

Kathmandu, Nepal2074

TABLE OF CONTENT

LIST OF TABLES...................................................................................................................................................iiABBREVIATION....................................................................................................................................................iiSECTION 1: OVERVIEW OF FINANCIAL SECTOR..........................................................................................1Background..............................................................................................................................................................1Macroeconomic Scenario.........................................................................................................................................2

Economic Trends...........................................................................................................................................2Sectoral Performance of the Economy..........................................................................................................3Challenges and Bottlenecks...........................................................................................................................4

Poverty, Income Distribution and Employment.......................................................................................................5Microfinance Activities in Nepal.............................................................................................................................6SECTION 2: PROPOSED DHAULAGIRI MICROFINANCE BITTIYA SANSTHA LIMITED........................8Overview..................................................................................................................................................................8Objectives.................................................................................................................................................................8Mission of Proposed Dhaulagiri MFI.......................................................................................................................9Summary of Institutional Plan..................................................................................................................................9Promoters of Dhaulagiri MFI.................................................................................................................................10Registration and Capital Structure.........................................................................................................................10Institutional Viability.............................................................................................................................................11Situation Analysis..................................................................................................................................................11

Institutional Assessment: Strengths and Weaknesses.................................................................................11Environmental Analysis: Opportunities and Challenges.............................................................................12

Policy of the Proposed Dhaulagiri MFI.................................................................................................................13Strategies of the Proposed Dhaulagiri MFI............................................................................................................14

Operational Strategy....................................................................................................................................15Lending Strategy.........................................................................................................................................16Pricing Strategy...........................................................................................................................................18Financing Strategy.......................................................................................................................................18Implementation Strategy.............................................................................................................................18Human Resources Development Strategy...................................................................................................19

Proposed Working Districts...................................................................................................................................19Market for Microfinance in Proposed Working Areas...........................................................................................20SECTION 3: SALIENT FEATURES OF THE BUSINESS PLAN......................................................................22Expansion...............................................................................................................................................................22Clientele.................................................................................................................................................................22Outreach Projection/Client Composition...............................................................................................................22

Loan Disbursement......................................................................................................................................23Outstanding Loan Balance..........................................................................................................................23Growth Projection.......................................................................................................................................24Potential Enterprise for Group Loan...........................................................................................................24

Operational Mechanism.........................................................................................................................................25Methodology and Steps..........................................................................................................................................26Human Resource Requirement...............................................................................................................................27Salary and Administrative Expenses......................................................................................................................27Fixed Assets...........................................................................................................................................................27Loan Loss Provision...............................................................................................................................................27Cost of Fund...........................................................................................................................................................27Savings Mobilisation..............................................................................................................................................28SECTION 4: ORGANIZATION AND MANAGEMENT....................................................................................30Organizational Structure........................................................................................................................................30Training and Human Resource Development........................................................................................................30Planning Process....................................................................................................................................................30Management Information System..........................................................................................................................31Financial Management...........................................................................................................................................31

Return on performing assets........................................................................................................................32Financial cost ratio......................................................................................................................................32Loan loss provision ratio.............................................................................................................................32Operating cost ratio.....................................................................................................................................32Operational self-sufficiency Ratio...............................................................................................................32

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Financial self-sufficiency ratio....................................................................................................................33Pre-Operating Expenses.........................................................................................................................................33SECTION 5: FINANCIAL PROJECTION...........................................................................................................34Funding...................................................................................................................................................................34Borrowings.............................................................................................................................................................34Savings Mobilization as Internal Source of Loan Fund.........................................................................................34Risk Weighted Assets.............................................................................................................................................35Capital Adequacy Ratio.........................................................................................................................................35SECTION 6: CONCLUSION................................................................................................................................36Annex 1: Status of Microfinance Operation of DCRDC as of July 15, 2017 (Ashad End 2074)..........................37Annex 1a: Status of Microfinance Operation of DCRDC as of July 15, 2017 (Ashad End 2074)........................39Annex 2: Overview of Microfinance Programme of the Proposed Dhaulagiri MFI.............................................41Annex 3: Current Status of Dhauligiri Community Resource Development Centre.............................................45Annex 4: Operational Planning of the Proposed Dhaulagiri MFI..........................................................................52

LIST OF TABLES

TABLE 1: NEPAL: HUMAN DEVELOPMENT INDICATORS, 2015................................................................................1TABLE 2: POVERTY MEASURES: INCIDENCE, POVERTY GAP AND SQUARED POVERTY GAP..................................5TABLE 3: GINI COEFFICIENT (1995/96, 2003/04 AND 2009/10)...............................................................................5TABLE 4: CAPITAL STRUCTURE..............................................................................................................................11TABLE 5: STRENGTHS AND WEAKNESS OF THE PROPOSED DHAULAGIRI MFI......................................................11TABLE 6: OPPORTUNITIES AND CHALLENGES FOR THE PROPOSED DHAULAGIRI MFI..........................................12TABLE 7: PROPOSED DISTRICTS DURING THE FIRST FIVE YEAR PERIOD...............................................................19TABLE 8: ANALYSIS OF THE MARKET FOR MICROFINANCE IN THE PROPOSED WORKING AREAS........................20TABLE 9: OUTREACH *...........................................................................................................................................22TABLE 10: OUTREACH PROJECTION/CLIENT COMPOSITION...................................................................................23TABLE 11: LOAN DISBURSEMENT PLAN – TOTAL..................................................................................................23TABLE 12: OUTSTANDING LOAN BALANCE - TOTAL*...........................................................................................24TABLE 13: POTENTIAL MICRO-ENTERPRISES FOR GROUP GUARANTEE LOAN......................................................25TABLE 14: SAVINGS MOBILIZATION PLAN.............................................................................................................28TABLE 15: FINANCIAL SUSTAINABILITY RATIOS...................................................................................................32TABLE 16: PROJECTED BORROWING STATUS.........................................................................................................34TABLE 17: PROJECTED SAVINGS MOBILIZATION AS INTERNAL SOURCE OF LOAN FUND.....................................34TABLE 18: PROJECTED RISK WEIGHTED ASSETS...................................................................................................35Table 19: Capital Adequacy Ratio.........................................................................................................................35

ABBREVIATION

AGM Annual General MeetingAPA Average Performing AssetAsDB Asian Development BankADB/N Agricultural Development Bank of NepalBAFIA Banks and Financial Institutions Act, 2063CEO Chief Executive OfficerCGISP Community Ground Water Irrigation Sector projectFINGO Financial Intermediary Non-Governmental OrganizationFSS Financial Self-SufficiencyGDP Gross Domestic ProductGON Government of NepalGRT Group Recognition TestHRD Human Resource DevelopmentIC Indian CurrencyICT Information Communication Technology

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MDB Microfinance Development BankSDGs Sustainable Development GoalsMFIs Microfinance InstitutionsMIS Management Information SystemNCC Bank Nepal Credit & Commerce Bank Ltd.NFA Net Foreign AssetsNDA Net Domestic AssetsNEPSE Nepal Stock ExchangeNGO Non-Governmental OrganizationNPC National Planning Commission NRB Nepal Rastra Bank (Central Bank of Nepal)NRs Nepali RupeesO/S Loan Outstanding LoanOSS Operational Self-SufficiencyPOs Partner OrganizationsPRA Participatory Rural AppraisalR&D Research and DevelopmentRDBs Rural Development BanksRMDC Rural Microfinance Development CenterRSRF Rural Self-reliance FundSCCs Savings and Credit CooperativesSCGs Savings and Credit GroupsSFCL Small Farmers Cooperative LimitedSHS Solar Home SystemSKBB Sana Kisan Bikas BankSRGs Self Reliant GroupsVDCs Village Development CommitteesVIDS Voluntary Disclosure of Income Scheme

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Table 1: Nepal: Human Development Indicators, 2015

S.N. Dimension Indicators Unit Value1 Health Life expectancy at birth Years 70.02 Education Expected years of

schoolingYears 12.2

3 Income/Composition of Resources

Gross national income (GNI) per capita

2011 PPP $

2,337

4 Inequality Inequality adjusted HDI HDI 0.4075 Gender Gender and

development index (GDI)

GDP 0.925

6 Poverty Multidimensional Poverty Index (MPI)

MPI 0.116

7 Work, employment and vulnerability

Employment to population ratio

% ages 15 and older

80.5

8 Human security Homicide rate Per 100,000 population

2.9

9 Trade and financial flows

Exports and imports % of GDP 53.2

10 Mobility and communication

Internet user population % 17.6

11 Environmental sustainability

CO2 emission per capita Tones 0.2

12 Demography Total population Millions 28.5Source: Human Development Report, 2016

SECTION 1: OVERVIEW OF FINANCIAL SECTOR

Background

Nepal is one of the 14 Least Developed Countries of the Asia Pacific regions, one of the poorest countries in South Asia and the 12th poorest country in the world. Between 1980 and 2015, Nepal’s Human Development Index (HDI) steadily increased from 0.309 to 0.558; out of 182 countries, Nepal has an HDI ranking of 144. Compared to its HDI ranking, Nepal ranks poorly on the basis of GDP per capita. Literacy rate of women and men of age group (15-24 years) was 86.7% and life expectancy at birth of 67 years.

Difficult topology, feudal history, and inequality on income and human development prevalent in Nepal, large section of the populations including indigenous and occupational groups are by-passed from access to basic services. With approximately 28.5 million populations in 2014, Nepal is characterized by diversity on environment, people, economic activities, customs, culture and access.

Nepal faces considerable development problems and challenges. Nepal’s limited resource base, rapid population growth, environmental degradation, low level of social development and widespread poverty reinforce development challenges. Agricultural productivity is low and declining due to population pressure on marginal land. Ability to expand cultivable land for sustainable crop production, often at the cost of forest resources, is gradually diminishing. Opportunities in non-agricultural sector remain largely unexploited due to lack of resources. Access to financial services is limited, more so among women and further hindered by geographic limitations in remote areas. Improvements in infrastructure, markets, communication facilities, skills training, information, and financial services are required to increase the benefits of microfinance services, allowing micro-entrepreneurs, particularly women, to improve their economic status in those remote areas.

Of the total population, Nepalese microfinance institutions (MFIs) are targeting 7.8 million populations living below poverty line. The demand of rural credit is estimated as NRs. 23 billion and supply from formal sector is only NRs. 8 billion. As of mid-December 2017, 28 commercial banks, 36 development banks (B Category), 24 finance companies (C Category), 58 Microfinance Development Banks (D Category), 25 Financial Intermediary Non-

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Governmental Organizations (FI-NGOs), 14 Savings and Credit Cooperatives (SCCs) with limited banking license holders are active in Nepalese financial sectors1.

Macroeconomic Scenario

Macroeconomic scenario of Nepalese economy has been accounted covering several key dimensions such as real sector, prices, supply and wages; public finance, money and banking, capital market and insurance, external sector, and poverty, income distribution and employment.

Economic Trends

At the start of the new millennium, Nepal was on a progressive growth track started in the 1990’s. The political transformation to pluralism in 1990, economic liberalization towards market-friendly economy, and poverty reduction provided the stimulus. Nepal’s economic development prospects looked promising, but there were problems looming in the horizon. The Maoist political insurgency was slowly spreading in the country, and quota restrictions on world trade was about to be lifted, as part of the World Trade Organization (WTO) trade competitiveness framework being enforced.

Economic Growth:Nepal’s economic growth measured by change in GDP, was over 4% in FY 2003/04. In the following FYs, the economy grew at rates above 3.2%, except in 2006/07 and 2015/16 when it only managed a growth rate of 2.8%. The highest growth rate was achieved in 2007/08 with 5.8% but it could not be sustained. The economy shows a revived symptom with a growth rate of 6.94% in 2016/17. For the next several years between 2008/09 and 2014/15, the economy grew at around 4%. The driving force behind the growth was the impressive performance the service sector, which improved from a negative growth in 2001/02 and remained significant throughout the decade fluctuating between 2.06% (in 2015/160 and 7.35% (in FY 2007/08). The agricultural sector growth was inconsistent, with higher growth rates in some years followed by dismal growth in other years, and negative growth rate of -0.01% in 2015/16. Generally, timely monsoon and adequate rainfall results in good harvest, and high growth rates in other years. The industrial sector also recorded inconsistent growth over the years, some years posting growth of over 4% while other years recording very small or even negative growth, as in 2008/09 (-0.63%) and 2015/16 (-6.45%). The growth rate in industrial sector recorded to be 10.97% in 2016/17. Unfavorable business conditions are responsible for the luck luster performance in most of the years.

Investment:The investment in the economy improved from about NRs. 85 billion, in terms of gross fixed capital formation in 2001/02 to about NRs. 878 billion in 2016/17, at constant prices of 2000/01. The total change in investment became negative after 2009/10. There was significant improvement in government investment in 2006/07 after signing comprehensive peace agreement with Maoist, and it fell considerably in 2011/12 and grow then after Private investment grew at 14.8% in 2003/04, when the quota restrictions on trade ended, fell -0.6% in the following FY, and recorded significant jump in 2005/06 at the end of political insurgency. For the next three fiscal years, it either saw very small change or fell. Again in 2009/10 in the aftermath of first election to Constituent Assembly, private investment rose by

1 Nepal Rastra Bank, Research Department: Report of FY 2074/75.

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18.5%, then started to fall. The volatility is perhaps explained by political instability in the country.

Foreign Trade:The trend in total foreign trade (goods and services) is that total exports and total imports are heading in the opposite direction, with exports declining and imports rising over the years. The imports have been growing, which recorded double digits growth from 2008/09 onwards. On the other hand, exports growth rate is fluctuating both negative and positive growth between 2001/02 and 2016/17. Over the last 5 years, export grew on an average by 2.7% and that of import grew by 14.7%, as a result, disequilibrium in trade increased from 11% of GDP in 2001/02 to 26% in 2011/12. Unlike the trade in goods, the trade in services has remained favorable to Nepal, except for a period from 2005/06 and 2009/10 when imports were higher than the exports. The balance of payments remained positive throughout, except for 2009/10 when imports jumped by 28% that year. According to Trade and Export Promotion Centre, the four leading import items in order were petroleum products, iron and steels and iron steel products, machinery and parts, and motor vehicles and parts in FY 2012/13. The four leading export items for the same FY were woolen carpets, polyester, cotton and other yarns, cardamoms, and textiles. The major export items are agricultural products. In 2016/17, share of export on total trade was 7% and that of import was 92.9%.

Employment:According to Annual Household Survey (AHS) 2012/13, labor force participation rate is 81.1%, and unemployment rate is 3.3% (CBS). Sex wise, female unemployment rate is slightly higher than male: 3.4% vs. 3.2% respectively. Labor underutilization rate, which in-cludes unemployment rate, time related unemployment rate, skills mismatch and inadequate earnings, is 27.8%. Nepal’s current population is estimated to be about 31 million. It was 23.2 million in 2001 and grew to 26.5 million in 2011 (Population Census, 2011). According to AHS 2012/13 data, the share of working age (15-59 years) population is about 57%. Among people who are employed in 2011, most fall under the category of self-employment in agri-culture (61.3%), followed by wage employment in non-agriculture (12.6%), wage employ-ment in agriculture (2.1%) and self-employment in non-agriculture (12.7%) (NLSS, 2011). As a predominantly agricultural country with a small manufacturing sector, economic activi-ties and jobs in the non-agricultural sector are limited. Unemployment and underemployment is a major problem, particularly among urban youths. With the expansion of the services sec-tor, educated and skilled are finding jobs in education, banking, and financial and health sec-tor. However, the growth in these sectors is not enough to absorb the number of college grad-uates each year. Besides, these urban youths are educated and do not go overseas for un-skilled jobs, unlike the rural youths going to Gulf countries or to Malaysia. Although foreign employment has grown at a record pace in recent years, it does not address high urban youth unemployment problem.

Sectoral Performance of the Economy

Agriculture:Agricultural sector contributes 34% in the total GDP in FY 2012/13 and 33.1% in 2016/17. In terms of number, out of the 5.4 million households, 3.5 million households or about 65% are farming households. The total agricultural land is about 2.5 million hectares; about 30% of which is irrigated. Average size of holding is down to 0.68 hectares from 0.8 ha. in 2001/02. There were 7.3 million cattle heads in 2016. Agriculture is characterized by traditional farm-ing technology, small land holdings, and high dependence on monsoon rains for irrigation.

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Most of the farming households are subsistence farmers who consume what they produce, and only 12% of produce is sold in the market. Paddy, wheat, corn, barely and millet is the main cereal crops and lentils, cardamom, soybean, potato, and sugarcane are the other major crops. Cardamom, lentils, tea, and ginger are also the leading agricultural export items. De-spite agricultural economy, food security is a major problem in Nepal. Key challenges to food security are: food consumption as a share of total household expenditure, public expenditure on agricultural research and development, corruption, low GDP per capita, diet diversifica-tion, and protein quality. Land use, labor, improved seeds, fertilizers, access to finance, and infrastructure are key issues in agricultural sector.

Industry:Industrial sector in Nepal is relatively small. The major industrial sector classification accord-ing to Nepal Standard Industrial Classification are construction, manufacturing, electricity, gas, and water; and mining and quarrying. The sector represents about 15.2% of the total GDP in FY 2012/13, which was reduced to 14.2% in FY 2016/17. Most of the manufacturing industries are small, low-tech operation that process agricultural products, produce construc-tion materials such as cement, iron rod, etc., manufacture carpets, garments for exports, or produce household items. Although Nepal’s economy is mostly market based, the govern-ment has investment in industrial infrastructure and energy projects, in the range of billions of rupees. Private sector investment is centered on manufacturing. In recent years, energy sector has also received much investment from the private sector, due to a result of acute power crisis. Although the GoN brought a new industrial policy in 2010 to develop industrial manufacturing sector, this sector continues to suffer. The export of manufactured goods has declined in recent years mainly because of eroding competitiveness. Both internal and exter-nal constraints are responsible but the internal constraints are far more “crippling” than the external constraints.

Services:The service sector includes a range of economic activities, foreign employment, tourism, the financial services, engineering, labor, health, education, telecommunications, transportation, wholesale and retail trade and so on. Services have been growing and expanding in Nepal, accounting for about 50% to GDP in FY 2012/13 which increased further to 53% of the GDP in FY 2016/17. In fact, service sector is now the largest component of the economy and generates about one half to two thirds of total employment in the economy. As the service sector has expanded in Nepal, so has the trade in services. In contrast to trade in goods and services, Nepal’s trade in services has a surplus. Whereas about two thirds of trade in goods is with India, the share of trade in services with India is much smaller. The various service sectors, mentioned above, have grown over time. Hotels and restaurants have recovered from sluggish period during the days of Maoist conflict. Transportation and support facility remains confined to roads and air-based services. One industry that has made great strides in recent times is telecommunications. Financial sector has also grown and expanded; this is obvious from the large number of private banks, finance companies and cooperatives that have opened up mostly Kathmandu and the other major cities.

Challenges and Bottlenecks

Improving transport infrastructure, energy crisis, weak institutions, labor unrest and strikes are some of the challenges and bottlenecks of the Nepalese economy.

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Poverty, Income Distribution and Employment

National Living Standards Survey (NLSS) National Living Standards Survey has been conducted three times in Nepal – FY 1995/96, FY 2004/05 and FY 2009/10. NLSS (2009/10) suggest a substantial decline in poverty and an improvement in income equality compared to 2003/04 and 1995/96.

NLSS 1995/96 found that 41.76% of the total population to be below the poverty line and this figure stood at 30.85% in 2003/04. Likewise, NLSS 2009/10 estimates that 25.16% of the total population to be below the poverty line. Over 90% of the poor live in rural areas and a majority of them live in inaccessible hills and mountainous areas.

Close scrutiny of the poverty incidence reveals that poverty is a rural phenomenon in Nepal. The survey shows that poverty is fluctuating in urban areas. NLSS (2003/04) though show decline in poverty incidence in urban areas compared to NLSS (1995/96) while it has unexpectedly increased in the third NLSS (2009/10). In

contrast, poverty incidence of rural areas has indicated gradual improvement, decreasing over time.

There has been gradual improvement in poverty gap index as well. While urban gap index is fluctuating, the rural poverty gap index is gradually declining. Further all three surveys have shown that overall squared poverty gap index to be declining. There has been almost identical trend on the overall squared poverty index both in rural and urban areas as in poverty incidence and poverty gap index. The NLSS findings reveal that though the success of poverty alleviation program was satisfactory, the poverty gap between rural and urban areas as well as across ecological belts and development regions are clearly visible. The incidence of poverty has increased after the devastating earthquake of April 2015.

Incidence of poverty is characterized by limited entitlements, access to assets, education, health facilities, economic infrastructure, savings, and access to paid employment. It is

predominately agrarian and rural economy, with over 66% population depending on agriculture sector for livelihood, which contributes over 33% in GDP.

This was corroborated by findings of significant improvements in key non-consumption indicators. Between 1995/96, 2003/04 and 2009/10 there has been a marked improvement in the well-being of households in the bottom 50 percent of the consumption distribution. Household consumption grew by more than 4 percent per year in real terms

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Table 2: Poverty Measures: Incidence, Poverty Gap and Squared Poverty Gap

  1995/96 2003/04 2009/10Poverty IncidenceNepal 41.76 30.85 25.16Urban 21.55 9.55 15.46Rural 43.27 34.62 27.43       Poverty Gap Index      Nepal 11.75 7.60 5.43Urban 6.54 2.20 3.19

Rural 12.14 8.50 5.96       Squared Poverty Gap Index      Nepal 4.67 2.70 1.81Urban 2.65 0.70 1.01Rural 4.83 3.10 2.00Source: Central Bureau of Statistics

Table 3: Gini Coefficient (1995/96, 2003/04 and 2009/10)

  1995/96 2003/04 2009/10

Nepal 0.34 0.41 0.33

Urban 0.43 0.44 0.35

Rural 0.31 0.35 0.31Source: Central Bureau of Statistics

for those in the lower half of the distribution. Consumption grew for those in the upper half of the distribution as well, but at a slower pace. The improvement in wellbeing, as measured by consumption, was matched by improvements in other dimensions as well. For example, the percent of households with access to electricity almost doubled in this period, increasing from about 37 percent to 70 percent. Similarly, the share of households with access to drinking water (piped to the house) increased from 14 percent to 22 percent.

Gini coefficient in NLSS (1995/96) was 0.34 which rose to 0.41 in NLSS (2003/04). Though FY 2003/04 witnesses some decline in poverty, inequality was found to be increased further. However, in NLSS 2009/10, this has dropped to 0.32. Gini coefficient in urban area which was measured at 0.43 during NLSS 1995/96 increased to 0.44 in NLSS 2003/04 and fell to 0.35 in NLSS 2009/10. Likewise, Gini coefficient in rural areas, which was 0.31 in NLSS 1995/96 rose to 0.35 in NLSS 2003/04 and dropping back to 0.31 in NLSS 2009/10. The pattern of income distribution reveals that there is high gap on income distribution and greater need to address prevailing income inequality within and across rural and urban areas. This reveals that poverty reduction through appropriate program for reducing the inequality gap between the poor and rich is a difficult and challenging task.

According to NLSS 2009/10, 19.9 percent of Nepal’s total population is economically inactive and the rest 80.1 percent are economically active which can be defined as the labor force participation rate. Of the total economically active population, 78.3 percent are employed while the 1.8 percent is unemployed. NLSS 2009/10 estimates employment rate at 97.8 percent while the unemployment rate is only 2.2 percent. Likewise, the family household engaged in agriculture is 76.3 percent while that of non-agricultural sector is found to be 23.7 percent. According to Nepal Labor Force Survey 2008 Report, fully employed population is 70 percent while underutilized rate is 30 percent. As such the problem of under-employment is quite serious in agriculture sector and industrial and service sector has not been able to absorb the unemployed labor force of the country.

As such there is a lack of clear policy and programs towards resolving the ever-increasing unemployment and underemployment problems in Nepal. Gainful employment should be generated as an important medium to eradicate poverty problems among the poor and disadvantaged groups.

Microfinance Activities in Nepal

History of microfinance is relatively short but eventful in Nepal marked by costly process of trial and errors. Access to financial services is regarded as one of the essential services to address poverty problems in Nepal since the advent of planned development efforts in mid-fifties. The cooperative movement became the first vehicle of Nepalese microfinance industry as 13 cooperatives provided access to financial services to flood victims resettled in Chitwan district. Following the success of these self-help concepts, more societies were promoted in other parts of the country. In parallel, rural finance institutions were established such as the Agricultural Development Bank of Nepal (ADB/N), which aimed at providing credit and marketing support to agriculture modernization and development.

NRB has been conducting various microfinance programs in order to uplift the economic conditions of the poor, marginalized, minorities and backward people. MFIs have been encouraged to expand their activities in the backward regions through availing credit at a concessionary rate in addition to supervising the microfinance related projects. As of mid-

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December 2017, one government owned Grameen Bikas Bank, 52 private sector Microfinance Development Bank, and 3 national level wholesale lending institutions - Rural Microfinance Development Centre (RMDC), Sana Kisan Bikas Bank (SKBB), and one regional wholesale microfinance institution (RSDC) are engaged in microfinance in Nepal. In addition, 14 cooperatives and 25 NGOs have been allowed to undertake the limited banking activities. In addition, there is wholesale arrangement from Rural Self-reliance Fund (RSRF), which was established in 1991 with an objective of providing wholesale credit to NGOs/Cooperatives for on lending to rural people of the deprived classes, who were out of access to institutional credit, and Youth Self Employment Fund established in 2010 is also actively supporting access to finance to the youth.

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SECTION 2: PROPOSED DHAULAGIRI MICROFINANCE BITTIYA SANSTHA LIMITED

Overview

According to the NLSS 2010/11/, over 25 percent of the Nepalese population falls below the national poverty line in 2010/11. This mass referred to "deprived sector" were lack of access to basic needs due mainly to socio economic reasons. They had very little access to the formal banking services in the absence of adequate physical assets to offer collateral to the banks. As a result, the people belonging to this stratum are facing hardship in earning sufficient income so as to manage their basic needs, such as, foods, clothes, health care, education and other social needs. The proposed Dhaulagiri Microfinance Bittiya Sanstha Limited (referred to as Dhaulagiri MFI herein after) is committed to uplift the socio-economic status of the people belonging to the deprived sector by providing easy access to financial services they need and provision of the non-financial services wherever relevant.

Dhaulagiri MFI aims to work at national level with a focused intervention in western region of Nepal. It has a vision to create environment wherein people in difficult circumstances, could participate in income and employment generating activities to develop and sustain their human potential. It is heading with a mission to work with and for the poor and disadvantaged people, especially the women to reduce their poverty through increased awareness and self-reliance attitude. The MFI will be governed by a General Assembly at the top comprising of members representing from one of the leading financial intermediary NGO namely Dhaulagiri Community Resource Development Centre (DCRDC), a commercial bank (Prabhu Bank Limited) and leading investors of Nepal, majority of them from Baglung district of Nepal. Initially there will be a seven-member Board of Directors. One professional director, in accordance with NRB provision will be included later. The day to day operation of the bank will be managed by a management team headed by a Chief Executive Officer (CEO) who will be responsible for managing organization and smooth implementation of access to finance projects/programs.

Considering the scenario of current outreach of financial sectors and the growing demand for expansion of the outreach of financial services especially in rural, urban and semi-urban areas, the proposed Dhaulagiri MFI is promoted by joint pool of FI-NGO, commercial bank, and private sector investors of Nepal. The proposed MFI intends to provide the services of experienced team of professionals with an aim to create a new window to provide opportunities for the creation, promotion and scale up of micro-enterprise activities for poverty reduction in Nepal.

Objectives

The proposed Dhaulagiri MFI aims to improve the socio-economic and livelihood status of the vulnerable people in its working areas by providing them with easy and affordable access to financial services, enhance their business skills and grow their enterprises at optimum level. The general and the specific objectives of Dhaulagiri MFI are as hereunder:

General Objectives:

Provide quality and reliable banking/financial intermediary services to people in general and vulnerable people of the society in particular through healthy competition among

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banks and financial institutions (BFIs) and protect and promote rights and interests of depositors.

Generate financial resources through internal and external sources, disburse such resources for establishment, development, extension, and efficiency/capacity and productivity enhancement of agriculture, industry, services, commerce and other commercially viable productive enterprises, and contribute on developing the industrial, commercial and agricultural sectors of the economy.

Mobilize available skill, labor and capital for establishment, operation, development, extension and promotion of production, income, and employment generating enterprises in rural/urban/semi-urban areas; and for that provide adequate financial resources, technical and managerial consultancy services, training and technology and eventually contribute towards fulfilling the national goal of reducing poverty.

Minimize risks in banking/financial services; assist in liberalization process of banking / financial sector and contribute on making strong, stable and viable economy.

Promote the trust of the general public in the overall financial system of the country.

Specific Objectives

Provide micro-entrepreneurs (group members including graduated ones and male or female individuals) with credit services for promotion/establishment of different types of micro-enterprises that generate income, self-employment and/or wage employment opportunities by mobilizing local resources at optimum level;

Mobilize savings from group including group graduates, borrowing individuals and from general public as and when it fulfills NRB's criteria to do so, to strengthen loan disbursement system and stabilize household consumption through effective mobilization of their savings;

Encourage and extend micro-credit services to micro-entrepreneurs for establishing enterprises, including micro-hydropower of up to 50 kwatts capacity, solar home system, solar dryer, biogas, improved cook stoves, wind energy, and improved water mill for increasing the efficiency in production and productivity;

Provide micro-credit services to group graduates and individual micro-entrepreneurs for promotion, development and linkages of the agro-based enterprises with market;

Provide domestic and foreign remittance services from abroad and within the country to clients in coordination with the appropriate agency;

Provide micro-insurance services to the clients in coordination with the appropriate agency; and

Continue identifying the potential enterprises in urban, semi-urban, and rural areas for investment and help establish successful enterprises;

Mission of Proposed Dhaulagiri MFI

Ensuring easy accesses of finance to vulnerable people and support these people to break the vicious circle of poverty. Enhanced access to financial services will create incremental employment opportunities and contribute to generate income among vulnerable people. This would help people to develop their micro-enterprises and improve their livelihoods by accessing to health, education, food and clothes on continued and sustained basis.

Summary of Institutional Plan

The promoters of the company have decided to name the proposed institution as "Dhaulagiri Microfinance Bittiya Sanstha Limited (Dhaulagiri MFI)". The company will be registered

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under the Companies Act, 2063 and will function/operate as per the recently revised Banks and Financial Institutions Act, 2063 (BAFIA), amendment in 2073 as a category "D" financial institution.

Vulnerable people as potential micro-entrepreneurs need to access financial services that would foster their micro-enterprises at different levels and contribute to national economy. Rationale behind the establishment of proposed Dhaulagiri MFI are summarized hereunder.

The growing demand of financial services for micro-enterprise development activities by the vulnerable people has encouraged the promoters to establish a MFI to focus on the development of micro-enterprises and economically empower the vulnerable people to upgrade their livelihood with social honor and dignity. Under BAFIA, 2063, the proposed Dhaulagiri MFI would be one of the options for strengthening access to finance to vulnerable people through the linkages between internal and external resources. People living in urban, semi-urban, and rural areas can access the institution to deposit their savings. This would help enable the institution to be self-reliant in terms of meeting financial self-sufficiency being this case as one of the important factors.

Experiences to date have shown that banks and financial institutions under category A, B and C would be reluctant to go to deprived sector on their own, since it is expensive and demands bigger branch-network. The formal institutional structure of the proposed Dhaulagiri MFI would contribute to disburse more to the needy people and expand the outreach.

NRB would provide with standardized regulatory services for regular monitoring and supervision to the proposed company. This would help consolidating the establishment of a viable financial institution and will work as a strong legal entity for the vulnerable group of the micro-entrepreneurs.

Promoters of Dhaulagiri MFI

The primary promoters of the proposed Dhaulagiri MFI will be the DCRDC (FI-NGO) and renowned social investors residing mainly in Baglung municipality of Nepal and the Prabhu Bank Limited, as an institutional promoter. DCRDC as a lead promoter of the proposed Dhaulagiri MFI has been working in microfinance sector since 2002 as a FI-NGO, and have proven experience of extending affordable and sustainable financial services to the vulnerable people. Prabhu Bank Limited has realized the need to be the part of the Nepalese access to finance movement for the vulnerable people and contribute on expanding the frontier of financial services to vulnerable people groups in Nepal. Prabhu Bank Ltd. is one of the well-established and renowned financial institutions of the Nepal. There are other 37 private promoters of the proposed Dhaulagiri MFI who are committed on supporting poverty reduction mission of the Government of Nepal to promoting affordable access to finance to vulnerable people in inaccessible hills and mountain areas, and financially excluded vulnerable people in accessible areas. Registration and Capital Structure

As stated above, Dhaulagiri MFI will be registered under the Companies Act, 2063 and operate under BAFIA, 2063. The proposed company has been initiated and promoted by two institutions and 37 individual promoters with NRs. 100 million as authorized capital, NRs. 70 million as issued capital and NRs. 70 million as paid up capital.

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Table 4: Capital Structure

S.N. Promoters Number of Shares Amount NRs. '0001 Authorized Capital 1,000,000 100,0002 Issued Capital 700,000 70,0003 Paid-up Capital

Promoters (70 %) General Public (30 %)

700,0000

70,0000

Institutional ViabilityThe proposed Dhaulagiri MFI will have altogether 74,659 active savings clients, and 57,898 active loan clients (group members, group graduates and individuals) in five years. They will be served with a total of 35 branch offices and one central office spread over 21 districts (Table 1 in Appendix 1 in Annex IV). The central office of proposed Dhaulagiri MFI will be located at Baglung Municipality in Baglung district. While working in different places, it will prioritize comparatively to vulnerable group, and potential micro-entrepreneurs. The proposed Dhaulagiri MFI will operate in profit from the second year due to carry forward of the clients and outstanding loan balance of the DCRDC. In the first year, it will have operating loss of NRs. 25,170 thousand, while it will operate in a profitable level from 2nd

year onwards. It will have a profit of NRs. 88,647 thousand profits in second year, which will increase to NRs. 319,828 thousand in the fifth year (Table 3 in Appendix 2 in Annex IV).

Situation Analysis

Institutional assessment and environmental analysis framework was adopted to undertake situation analysis. This was mainly done to understand the institutional context and realities as well as operating environment for the institution.

Institutional Assessment: Strengths and Weaknesses

The institutional capacity of the proposed Dhaulagiri MFI is the most crucial factor in its ability to achieve its goals. In view of this, a thorough assessment of where proposed Dhaulagiri MFI’s strengths lies, where it has significant weaknesses and where it should focus institutional development efforts in order to benefit full potential from the existing opportunities and preparedness required to face the challenges were made. The proposed Dhaulagiri MFI needs to undertake series of activities which focuses six different areas such as credit and savings program, board and management issues, human resource management, administration, financing and financial management as under.

Table 5: Strengths and Weakness of the proposed Dhaulagiri MFI

Core Areas Strengths WeaknessesMicrofinance program Product diversification.

Market led approaches to new product development

Clients’ low level of satisfaction.

Board and management Well constituted and dynamic Board members’ likely involvement

on the proposed Dhaulagiri MFI’s legislation.

Board and management have limited understanding on different dimensions of microfinance operation.

Human resource management

Dedicated and competent staff to be recruited.

Staff well informed about the proposed Dhaulagiri MFI’s policies

Good staff training and technical backstopping support

Staff retention, Selection of competent staff Maintaining staff satisfaction on

salaries and benefits

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Core Areas Strengths WeaknessesAdministration Audit system

Automated MIS Personal policies, organogram,

operational procedures

Resource acquisition and management

Fraud control system Staff capacity on internal control

systemFinancing and financial management

Competency on financial management

Fund management and fund mobilization

Financial analysis and use of financial ratios on operational decision making.

Environmental Analysis: Opportunities and Challenges

Operation of the proposed Dhaulagiri MFI is likely to be affected by the external environment that can provide either opportunities or threats - opportunities if proposed Dhaulagiri MFI can position itself to take advantage of changes in the environment, threats if the changes jeopardize its ability to pursue its goals in the way it had planned. By anticipating the effects of external factors, proposed Dhaulagiri MFI can better position itself to take advantage of its environment. The effect of the environment has been analyzed in terms of competition, collaborators, regulatory factors and other external elements as under.

Table 6: Opportunities and Challenges for the Proposed Dhaulagiri MFI

Core Areas Opportunities ChallengesCompetition Increased competition,

Setting of comparable interest rate across competitors

Scattered branches and competing with diverse types of competitors

Collaboration Non-financial service providers exist. Larger bi-lateral and multilateral

projects implement program on enhancing access to non-financial services

Enhancing the capacity of the clients to access the non-financial services.

Partnership with non-financial service providers

Regulatory factors Market for microfinance exist Process of creating second tier

institution, Good network of financial

infrastructure

Government policies not yet specific for subsidiary MFIs

Relationship between parent organization and subsidiary MFI.

Macroeconomic factors

High unemployment and under-employment

Opportunity for self-employment generation.

High inflation, Macroeconomic instability Economic growth and

inequality Use of technology

Other factors High demand for financial services High transaction cost for service delivery

Use of information and communication technologies

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Policy of the Proposed Dhaulagiri MFI

The proposed Dhaulagiri MFI will continuously make efforts to fulfill its objective and meet its goal by taking new initiatives and further implementing policies that are instrumental to utilize its strengths, minimize weaknesses, properly use the opportunities and face the challenges. The proposed Dhaulagiri MFI’s policy under its institutional capacity in the given institutional realities and external environment will be as under.

The MFI will design the microfinance programs to the women group members who will be selected using wealth ranking, one of the PRA technique. The potential members should fall within the criteria of the vulnerable population based on the criteria such as human development indicators, housing pattern, land holding status, food sufficiency, employment status and per capita income. It will provide micro-credit to women group members for undertaking income generating activities and micro-enterprises under group guarantee. Such group members' (including the graduated ones) will not be asked for physical collateral.

The MFI will provide basic training to the women group of micro-entrepreneurs keeping in view of the financial discipline members must strict with and the rules and regulations members need to abide by. It will provide micro-enterprise loan bigger than the group loan ceiling to the women group members who have graduated from their groups for undertaking income/employment generating micro-enterprises, and are oriented towards commercialization.

Group graduates are defined as those who have (i) followed the group norms, (ii) deposited monthly mandatory savings with the proposed Dhaulagiri MFI in due time, (iii) been active loan clients, (iv) completed third loan cycle, (v) never defaulted in loan repayments and (vi) made a deposit of at least 20% of the loan amount as voluntary savings with the proposed Dhaulagiri MFI.

The group graduates will receive relatively larger loan amount than the loan size fixed for the group loan. The loan application of graduated clients must be accompanied with the recommendation of the respective group and certification by the "Center Chief" stating the above six requirements and also making commitments that she (center chief) would make her pay or would pay her outstanding loan in the case of default. In this situation, to be eligible for graduated loan, the member must have group guarantee and/or voluntary savings not less than 20 percent of the loan amount, as collateral.

The proposed Dhaulagiri MFI will provide project (micro-enterprise) loan of up to NRs. 300 thousand to individual micro-entrepreneur for undertaking income / employment generating micro-enterprises against adequate physical collateral. It will provide micro-savings services to women group members, group graduates, the individual borrowers and general public at a time when it fulfills NRB's criteria to do so. The proposed Dhaulagiri MFI will regularize women group members to deposit, help inculcate to build the savings habits in their daily life and make members more disciplined in financial matters.

The proposed Dhaulagiri MFI will process loan proposal in line with the project feasibility. It will provide loans for micro-enterprise development activities, income generating activities, small-scale industries, agriculture-based employment generating activities, agro-processing enterprises, market development activities, micro hydropower project of up to 50 Kilo-watts

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capacity (for individual borrower only), solar home system, bio-gas, improved water mill, and other activities that are included under deprived sector.

Group members may use their loan amount to any one or a combination of the above purposes/activities depending upon the availability of their household's working human resources, technical skills and managerial capacity/ability. Household as a whole will be considered as a production unit, and their repayment capacity will be assessed on the basis of their total household income. However, the group graduates and the individual micro-entrepreneurs, may take up only such activities that have been requested for and approved by the proposed Dhaulagiri MFI. Project feasibility will be the main deciding criteria and the repayment terms will be based on the project cash inflow.

Micro-credit will be provided for a period of one year. Such loans will be recovered under equal monthly installments. The proposed Dhaulagiri MFI will implement different financially integrated programs and support women group members and the individual borrowers to bring them into the mainstream of economic development.

The proposed Dhaulagiri MFI will also extend loans to seasonal loan. The volume of such loans will range between Rs. 70 thousand to Rs. 70 thousand to enable the group members meet their upcoming seasonal cash requirements. Besides micro credit and micro savings Dhaulagiri MFI will also extend micro-insurance and remittance services to its clients through partnership with appropriate micro-insurance and remittance service providers.

Strategies of the Proposed Dhaulagiri MFI

The proposed Dhaulagiri MFI will strategically develop its plan of action. It will work hard and generate more revenues while maintaining high quality portfolio of loan outstanding against incurring cost effective operational expenses and achieve financial self-sufficiency. In order to achieve this objective, the proposed Dhaulagiri MFI will adopt the following strategies.

The proposed Dhaulagiri MFI will charge interest at the rate of 18 percent per annum for group guarantee general loan and seasonal loan and 15 percent per annum for microenterprise (project) loan. Declining balance method will be used to calculate the interest. Nonetheless, the interest rate will be changed according to the market rate and the other cost incurred including operational expenses and cost of borrowing. Besides, the proposed Dhaulagiri MFI will also charge a fee of NRs. 300 per loan client.

The proposed Dhaulagiri MFI will prepare programs and develop work plan to convert the operating branches into operationally and financially self-sufficient in a stipulated timeframe. The operational cost will be higher in the initial year and the growth of the branch will be slow. The growth of breadth and scale of outreach will be faster once the operational income covers the operational cost. However, the expansion of branch and the outreach services will be guided by the other factors during the period of implementation.

The proposed Dhaulagiri MFI will increase up to 2,133 [74,659 members/35 branches] as an average number of members (group members, group graduates plus individuals) per branch within five years of its operation. Hence, it will cover altogether 74,659 members through 35 branch offices in five years. Of these 74,659 members, 57,898 will be active loan clients (Table 1 in Appendix 1 in Annex IV).

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The proposed Dhaulagiri MFI will provide group members, group graduates and individual micro-entrepreneurs with different variety of loan products including: group guarantee general loan, seasonal loan and project (other) loan. In the initial 2 years, the entrepreneurs will be provided with comparatively lower size of loan followed by the other variety of loans with higher volume based on their absorption capacity after they successfully complete their previous loan cycles.

The proposed Dhaulagiri MFI will develop different strategies to enhance the efficiency on productivity, i.e. increasing number and volume of outstanding loan per loan officer, reducing the operational cost and increasing financial self-sufficiency ratio, developing transparency in recruitment and promotion system.

Operational Strategy

The proposed Dhaulagiri MFI will adopt the following operational strategies to achieve the above outlined policies.

Group Guarantee General Loan

The proposed Dhaulagiri MFI will identify the potential clients in line with income level, homogeneity, cohesiveness and location from among disadvantaged women members, and organize them into the Savings and Credit Groups (SCGs) of 5 female members and centers of 2 to 10 SCGs introducing the group members an obligatory training package, commonly known as Compulsory Group Training (CGT), compulsory group recognition test (CGT) and providing a group number to successful group prior to any type of loan disbursement to the group members and determining loan limits as per the real need and repayment ability of the members.

The proposed Dhaulagiri MFI will keep loan disbursement process as simple as possible and suitable to members and disburse the first-time loans under 2+2+1 principle. After full payment of the first loan, group members will be eligible to get second cycle loan. Disbursement of loan and collection of monthly repayments and mandatory savings would take place in the center, which each group member must attend at a pre-specified day and time. Failure to attend the center meeting would lead to a penalty.

The proposed Dhaulagiri MFI will keep the loan repayment period as one year building collective liability among clients organized in SCGs for borrowing and monthly installment payment. It will develop to increase loan volume in line with loan cycles and the loan absorption capacity of members and provide loan for different products such as: micro-enterprises, agro-based enterprises, marketing and other micro-businesses.

The proposed Dhaulagiri MFI will make close supervision through strong monitoring system built in head office and branch office and center/group. It will introduce both mandatory and voluntary savings products to regularize the savings habits in members' daily life and build financial base for their homestead activities and maintain financial discipline as well while developing a sense of ownership amongst the clients and create more peer pressure for member's timely loan repayment and constructive community work in developing their society socially and economically. The proposed Dhaulagiri MFI will also introduce supporting schemes, such as loan insurance/different forms of micro-insurance, and

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remittances; while providing access to finance to SCG members without any physical collateral.

Group Graduate – Project Loan

The proposed Dhaulagiri MFI also provides group graduate (project) loan to graduated clients by identifying group members eligible for graduation. It will identify group graduates willing / capable to undertake micro-enterprise project that require investment bigger than the group loan ceiling. The proposed Dhaulagiri MFI also encourages voluntary savings among the group graduates. This being one of the eligibility criteria for loan size bigger than the group loan ceiling and loan will be provided for a period of one year.

The proposed Dhaulagiri MFI will continue collective liability among other group members for borrowing and monthly installment payment. The access to finance will be provided for the promotion/establishment of different types of micro-enterprises that generate renewable energy, income, self-employment and/or employment opportunities by mobilizing local resources at maximum level and increase the loan volume in line with loan cycles and the loan absorption capacity of the group graduate.

The proposed Dhaulagiri MFI shall, with the approval from appropriate agencies, also introduce micro-insurance and remittance services wherever feasible and makes close supervision through strong monitoring system built in head office and branch office and/or center/group.

Seasonal Loan

The proposed Dhaulagiri MFI will provide seasonal loan to SCG members to enable them meet their seasonal cash flow requirements and meet their household needs. Such a loan will help SCG members to meet their seasonable need to maintain stock and expand their business activities. It will also introduce voluntary savings products to the individual borrower while loan volume will be increased in line with loan cycles and the loan absorption capacity of the individual and keeping loan repayment period as one year.

With the approval from concern agency, the proposed Dhaulagiri MFI will provide micro-insurance and remittance services wherever feasible and will make close supervision through strong monitoring system built in head office and branch office and/or center/group.

Lending Strategy

The proposed Dhaulagiri MFI proposes to provide three types of loan products: group guarantee general loan, group graduate (project) loan, and seasonal loan. A discussion on each of these loan products follows hereunder.

Group Guarantee General Loan

The proposed Dhaulagiri MFI will initially build its portfolio with group-based loan product. The maximum term is for one year. It will be a starter loan for group members. The average loan size will gradually increase with a ceiling from NRs. 65,000 or less in the first cycle to NRs. 180,000 in fifth cycle and onwards. The relatively low loan amount for the first cycle will also safeguard against credit risk in the initial period. The group loan will be

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multipurpose in nature, available for a range of activities from agriculture, trading, manufacturing and other micro-enterprise with preference given to activities, which generate regular cash flows. Loans to agricultural production will be supported only in case borrowers are ready to comply with monthly repayments. Loan will also be extended for alternative energy such as Solar Home System (SHS), biogas plants, etc. Loan proportion will be total cost less government subsidy. Efforts will be made to link biogas loans to group members borrowing for livestock loan. These loan products will be implemented in partnership with (i) Biogas Support Programme and Biogas Companies (in case of biogas) and (ii) Energy Sector Assistance Programme and SHS suppliers/Companies (in case of SHS). Loan will be backed by social collateral based on peer pressure and group guarantee. Interest rate on loan will be 18 percent calculated on declining balance with addition of Rs. 300 as loan processing fee (service charge). As financial performance accelerates, bank will reduce the interest rate accordingly.

Group Graduate (Project) Loan

With a view to cater the demand of the group members for higher investment requirements and faster access to larger loans than what is provided under the group guarantee loans, micro-enterprise loan has been provisioned. Thus, micro-enterprise loan will support micro-enterprises, which require relatively higher investments2. Such loans will be extended to the group graduates. Their project proposals will be thoroughly assessed and the projects that generate regular cash flow will be approved. Group graduates will have access to this product only after the completion of the second loan cycle. Their performance during the first two years, in terms of following group norms and repaying group loan (if any) will be some of the important criteria for enterprise loans. As in the case of the group loans, the maximum loan term for micro-enterprise (project) loan to group graduates will also be 12 months. However, the borrower can repay the loan earlier in order to gain faster access to higher cycle. The group graduates must have at least 20 percent of the loan amount as voluntary savings with the proposed Dhaulagiri MFI to be eligible for borrowing, as one of the criteria. The loan will be backed by social and/or the voluntary savings of the borrowing member. Interest rate on loan will be 15 percent calculated on declining balance with addition of Rs. 300 as loan processing fee (service charge). As financial performance accelerates, bank will reduce the interest rate accordingly.

Seasonal Loan

Only women micro-entrepreneurs from households belonging to deprived section will be eligible for microfinance services. They will be provided micro credit services for the promotion/establishment of different types of micro-enterprises that generate renewable energy, income, self-employment and/or employment opportunities by mobilizing local resources at maximum level. Their cash flow fluctuates and upon through assessment of project proposals and the projects that generate seasonal cash flow will be supported under seasonal loan3. The average loan size will gradually increase with a ceiling from NRs. 17,000 or less in the first cycle to NRs. 70,000 in fifth cycle and onwards. The relatively low loan amount for the first cycle will also safeguard against credit risk in the initial period as well as simply to ease borrowers to manage the cash flow requirements. The loan will be backed by the cash flow requirement of the enterprise managed by the SCG members under group general loan. Interest rate on loan will be 18 percent calculated on declining balance with 2 About 33 % group general loan clients will be graduated and eligible for micro-enterprise (project) loans. 3 Ibid.

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addition of Rs. 300 as loan processing fee (service charge). As financial performance accelerates, bank will reduce the interest rate accordingly.

Pricing Strategy

Major income source of the proposed Dhaulagiri MFI will be the interest charged on different loan products. The policy on interest rates is most important aspect for its sustainability. The interest also determines the gross income of the proposed Dhaulagiri MFI. It will charge the interest on declining balances. It’s interest rate will be in line with the cost of fund, overhead cost, cost on financial risk and financial projection. Nevertheless, the interest rates will be adjusted with the existing market. The proposed Dhaulagiri MFI has projected 9-13 percent interest on savings deposits, 15 to 18 percent interest on loan, on and above a Rs. 300 service charge fees.

Financing Strategy

The proposed Dhaulagiri MFI is expected to have two major sources of fund for disbursement. The sources include: the mobilisation of savings and the external loans under deprived sector loan and other loan fund from commercial and wholesale financial institutions namely RMDC. In the first year, the proposed Dhaulagiri MFI will mobilize a total of NRs. 276.31 million savings from borrowers' deposits (Table 6 in Appendix 3 of Annex III) and NRs. 420.00 million from external sources (Table 2 in Appendix 2 of Annex IV). It is projected to mobilize NRs. 2,031.27 million from members' deposits and borrow NRs. 19,000.00 million from external sources in the fifth year of its operation. Borrowing from external sources will be managed through different commercial banks and national wholesaling institutions like RMDC. Strategies will be developed to mobilize deposits as much as possible and rely less on external sources of fund in due course of time. Sources of fund and the resultant costs will govern the cost of fund.

Implementation Strategy

The proposed Dhaulagiri MFI will adopt the principle of sustainability, participatory develop-ment, time and cost-effective service delivery to the target group for program implementa-tion. The proposed Dhaulagiri MFI management believes that financial services complemen-ted with integrated development services should be the basis for breaking existing poverty trap and to uplift poor out of their current situation. The proposed Dhaulagiri MFI will play facilitating role in this process and concentrates in bringing positive changes in community by acting as change-agent/development catalyst and a provider of microfinance services. For this, it will play a role for developing partnership with different stakeholders. The proposed Dhaulagiri MFI management strongly believes that gender equity and women’s empower-ment is a must for balanced and sustainable development. It considers women belonging to the deprived section of the society as primary target group for the provision of the micro-fin-ancial services.

During implementation, the Dhaulagiri MFI will select accessible places for branch offices and appropriate wards/rural municipalities for program implementation in 21 proposed dis-tricts. The proposed Dhaulagiri MFI will provide continuity to its operation 8 existing dis-tricts where DCRDC have been working at present. A branch office will serve, on average 1,552 members [38,811 members/25 branches] in the first year and 2,133 members [74,659 members/35 branches] in five years-time (Annex 2 and Table 1 in Appendix 1 of Annex IV).

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After the establishment of branch, field staff visits the wards/VDCs where community people will be informed and oriented about the programme. Potential members will be identified through the application of PRA. Once target members are identified, they will be encouraged to form group of 5 members. The group will undergo CGT, their understanding level will be tested through a group recognition test and will be recognized as eligible group after success-fully passing the test. The group members usually meet in a fixed place called "Center" where they receive and repay loan and deposit monthly mandatory savings. There are three loan products for which potential client can take loan according to their capacity. Member's out-reach will be increased and would also increase the size of loan portfolio in line with their loan absorption capacity. The proposed Dhaulagiri MFI will follow the strategy of gradual expansion of its outreach both vertically as well as horizontally to attain the financial viability and sustainability.

Human Resources Development Strategy

Efficient human resource will be ensured for the high level of performances. For this, skilled human resource will be recruited and trained accordingly. Training program will be used as an effective HRD tools. Series of training, workshops and observation visits will be organized at beneficiaries, clients and staff level to enhance their capacity.

Proposed Working Districts

Working areas of proposed Dhaulagiri MFI will be 21 districts during the first five-year period. Table 7 provides information on proposed districts for the proposed Dhaulagiri MFI.

Table 7: Proposed Districts during the first Five Year Period

Year Serial Number DistrictBase year 1 BaglungBase year 2 MyagdiBase year 3 ParbatBase year 4 GulmiBase year 5 ArghachanchiBase year 6 KaskiBase year 7 TanahuBase year 8 Syangja

1st year 9 Gorkha1st year 10 Lamjung1st year 11 Kapilvastu1st year 12 Rupendehi1st year 13 Nawalparasi

2nd year 14 Nuwakot2nd year 15 Palpa2nd year 16 Dhading

3rd Year 17 Kavre3rd year 18 Lalitpur

4th year 19 Kathmandu4th year 20 Rasuwa

5th year 21 Mustang

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Currently DCRDC is implementing the microfinance program in eight districts through 21 branch offices. These districts are Baglung, Myagdi, Parbat, Gulmi, Arghachanchi, Kaski, Tanahu, and Syangja. Likewise, in the 1st year, the program will be expanded in five additional districts namely Gorkha, Lamjung, Kapilvastu, Rupendehi and Nawalparasi districts. In the 2nd year, the program will be expanded in Dhading, Nuwakot, and Palpa districts. Further in the 3rd year, the proposed Dhaulagiri MFI will expand its operation in Kavre and Lalitpur districts, and it will extend the program in Kathmandu, and Rasuwa districts in the 4th year. Finally, in the 5th year, operation of the proposed Dhaulagiri MFI will be expanded in Mustang district. This way, over the period of the business plan, the proposed Dhaulagiri MFI will be implemented in 21 districts representing Terai, Hills and Mountain region of Nepal.

Market for Microfinance in Proposed Working Areas

In the course of business plan preparation, attempt has been made to assess the market for microfinance services in the working areas proposed by Dhaulagiri MFI. The working areas for the proposed Dhaulagiri MFI are identified to be 23 municipalities and 36 village councils of the 21 districts. Number of microfinance clients in these municipalities and VDCs have been estimated to be 669,573, and that of the current outreach of microfinance services is estimated at 328,155 clients. Considering the market situation, the coverage of the proposed Dhaulagiri MFI in these 21 districts has been estimated to be 83,625.

Table 8: Analysis of the Market for Microfinance in the Proposed Working Areas

S.N. District Location of

branch office

Working AreaPeople without ac-cess to fi-nance (No)

Outreach of Existing FSPs (No)

Potential Clients for proposed Dhaulagiri MFI (No)

Clients Target for proposed Dhaulagiri MFI (No)

Municipal-ity

Village Councils

1 Baglung Baglung bazar 1 1 28,758 12,941 15,817 2,8002 Baglung Burtibang 0 1 23,855 9,542 14,313 3,0003 Baglung Hatiya 0 2 29,360 10,276 19,084 2,5504 Myagdi Beni 1 1 17,748 8,874 8,874 2,8505 Myagdi Darbang 0 1 22,020 8,808 13,212 3,1506 Parbat Kushma 1 1 23,253 11,627 11,627 3,2007 Parbat Phalewas 1 1 22,020 8,808 13,212 3,2008 Parbat Hubas 1 1 15,400 7,700 7,700 2,5009 Gulmi Tamghas 1 1 26,923 13,462 13,462 3,00010 Gulmi Wametaxsar 0 2 20,185 9,083 11,102 2,80011 Gulmi Shantinagar 0 1 14,680 5,872 8,808 3,20012 Arghachanchi Sandhikharka 1 1 25,088 12,544 12,544 3,00013 Arghachanchi Thada 0 2 16,515 6,606 9,909 3,20014 Arghachanchi Hansapur 0 2 13,500 6,750 6,750 2,60015 Kaski Pokhara 1 0 30,068 18,041 12,027 3,00016 Kaski Lekhnath 1 0 35,400 23,010 12,390 2,10017 Kaski Birauta 1 0 25,400 13,970 11,430 1,90018 Kaski Naudanda 0 1 15,800 7,900 7,900 1,80019 Parbat Dumuwa 1 1 12,500 5,625 6,875 2,25020 Gulmi Khairahani 1 1 15,500 7,750 7,750 3,15021 Gulmi Purtighat 0 1 16,800 9,240 7,560 1,60022 Rupendehi Butwal 1 1 20,816 11,449 9,367 3,00023 Kapilvastu Gorusinghe 1 1 17,748 11,536 6,212 3,20024 Nawalparasi Sunowal 1 1 15,400 7,700 7,700 2,40025 Gorkha Prithivinarayan 1 1 16,200 5,670 10,530 2,60026 Gorkha Siranchowk 1 1 12,300 5,535 6,765 1,200

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S.N. District Location of

branch office

Working AreaPeople without ac-cess to fi-nance (No)

Outreach of Existing FSPs (No)

Potential Clients for proposed Dhaulagiri MFI (No)

Clients Target for proposed Dhaulagiri MFI (No)

Municipal-ity

Village Councils

27 Lamjung Beshisahar 1 1 20,185 9,083 11,102 2,00028 Dhading Dhadingbesi 1 1 13,500 5,400 8,100 1,80029 Palpa Tansen 1 1 21,418 9,638 11,780 2,10030 Nuwakot Ranipauwa 0 2 19,583 10,771 8,812 1,75031 Kavre Bhakundebesi 1 1 12,400 6,820 5,580 1,72532 Lalitpur Khokana 1 1 16,450 9,870 6,580 1,50033 Kathmandu Sankhu 1 0 14,800 8,880 5,920 1,50034 Rasuwa Kalikasthan 0 1 11,500 5,750 5,750 1,20035 Mustang Lete 0 1 6,500 1,625 4,875 800  Total   23 36 669,573 328,155 341,418 83,625

Information presented in Table 8 above reveals that the outreach of existing MFIs in the proposed working areas of 23 municipalities and 36 village councils is in the neighborhood of 328,155 persons leaving the potential clients for the proposed Dhaulagiri MFI to around 341,418 persons. Thus, there are enough markets for microfinance operation in the working areas of the proposed Dhaulagiri MFI. Further, the proposed Dhaulagiri MFI will take the strategies of avoiding duplication and ensuring the inclusion of the excluded while expanding the frontier of the access to finance among the vulnerable people.

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SECTION 3: SALIENT FEATURES OF THE BUSINESS PLAN

Expansion

The proposed Dhaulagiri MFI will adopt the gradual approach to expanding the frontier of access to finance among the microfinance service expansion. According to the five years projection, it will serve 57,898 active clients (group members, group graduates, and individuals) by the end of five years to reach a total outstanding portfolio of NRs. 24,488 million], have operational self-sufficiency of 86 percent in 1st year of operation and 117 percent at the end of five year, disburse NRs. 15,463 million loans to 57,797 group members, group graduate and individual borrowers within five years, study continuously the need for new loan and savings products and determine appropriate products, identify training needs for the new recruits and other staff, and improve the quality and efficiency of lending operations and expand them significantly.

Table 9: Outreach *

S. N. Particulars Unit Base year 1st Year 2nd Year 3rd year 4th Year 5th Year

A Coverage              

1 District No. 8 13 16 18 20 21

     

B Branch Expansion  

1 Head Office No. 1 1 1 1 1 1

2 Branches No. 21 25 28 31 33 35

  Total No. 22 26 29 32 34 36

     

C Outreach  

1 Members No. 24,538 38,811 50,761 57,538 65,028 74,659

2 Active borrowers No. 13,893 22,498 31,658 38,417 47,100 57,898

     

D Loan Portfolio  

1 Loan disbursement NRs. '000 897,626 779,406 5,236,200 8,504,621 13,643,627 15,463,903

2 Loan collection NRs. '000 403,932 350,733 2,356,290 3,827,080 6,139,632 6,958,756

3 Loan outstanding NRs. '000 493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

Clientele

The proposed Dhaulagiri MFI will focus on the poor households. Women are primary target households. The target group of the proposed Dhaulagiri MFI will consist of landless, marginal landholders, tenants and other agricultural laborers. Low income groups and the families living below poverty line will be the focused areas where the proposed Dhaulagiri MFI will work to promote different micro-enterprises through proposed loan products.

Outreach Projection/Client Composition

The proposed Dhaulagiri MFI will start operating in eight districts covering 24,538 savings clients and 13,893 active loan clients in the first year of its inception followed by a significant

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growth of members outreach in five years’ time. The proposed Dhaulagiri MFI will directly cover 57,898 active loan clients (group, group graduate and individual) in five years period.

Drop-out rate is estimated at 5 percent of the total clients every year. Of the total clients, 78 percent are assumed to be active loan clients at the time of full operation. Based on these assumptions, there are about 83 percent active loan clients under group loan, 3 percent seasonal loan and 14 percent under group graduate loan plus individual loan each year. By the end of fifth year, the proposed Dhaulagiri MFI will directly cover a total of 57,797 active loan clients of which 42,204 clients will be under group loan, 12,743 clients will be under seasonal loan, and 2,850 under group graduate loan plus individual loan.

Table 10: Outreach Projection/Client Composition

S.N. Particulars Unit

Projection by Year

Hand-over as of Asar 31,

2074

1st

Year2nd Year 3rd Year 4th Year 5th Year

1 Group general loan No 11,500 20,225 28,839 34,637 41,950 42,204

2 Seasonal loan No 1,500 3,720 6,826 8,357 10,303 14,243

3 Microenterprise (project) loan No 893 914 1,232 1,785 2,428 4,700

Total No 13,893 24,859 36,896 44,779 54,682 61,147

Average account per clients % 1.0 1.1 1.2 1.2 1.2 1.06

Note: Some clients will be borrowing on both general and seasonal loan.

Loan Disbursement

Group general, seasonal and enterprise (project) loan will start from the first year. Group graduate loan will be given to the potential group members after completing the third loan cycle under group loan. In the first year 24,859 clients (20,225 group general loan, 3,720 seasonal loan and 914 microenterprise (project) loan) will receive first cycle loan of NRs. 779 million, and in the third year a total of 44,779 clients (34,637 group general loan, 8,357 seasonal loan, and 1,785 microenterprise (project) loan will be provided loan of NRs. 3,827 million. Likewise, in the fifth year, altogether 57,797 clients [42,204 group general loan, 12,743 seasonal loan, and 2,850 microenterprise (project) loan] will be disbursed with a loan equivalent to NRs. 15,463 million. Details are provided in Table 5, 5a, 5b, 5c, and 5d in Appendix 1 of Annex IV.

Table 11: Loan Disbursement Plan – Total

S.N. Particulars Unit

Projection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Total Active Loan Client No. 13,893 24,859 36,896 44,779 54,682 57,797

2 Initial Loan Size Rs. '000 65 31 142 190 250 268

3 Total Loan Disbursement Rs. '000 897,626 779,406 5,236,200 8,504,621 13,643,627 15,463,903

4 Loan Collection Rs. '000 403,932 350,733 2,356,290 3,827,080 6,139,632 6,958,756

5 Outstanding Loan Balance Rs. '000 493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

6 Overdue loan (2%) Rs. '000 13,196 18,447 76,046 169,596 319,676 489,779

7 Average loan size Rs. 35,535 37,103 103,053 189,371 292,307 423,709

Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

Outstanding Loan Balance

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In the first year, of the total outstanding loan of NRs. 922 million, 80 percent will be group general loan, 4 percent seasonal loan and 15 percent microenterprise (project) loan. By the end of third year, 38.0 percent, 30.0 percent and 31.0 percent of the total outstanding loan will be group general loan, seasonal loan and microenterprise (project) loan respectively. Similarly, by the end of the fifth year, 35.0 percent, 32.0 percent and 33.0 percent of the total outstanding loan will be group general loan, seasonal loan and microenterprise (project) loan respectively. Details are presented in Table 12 below and in Table 5e in Appendix 1 of Annex IV.

Table 12: Outstanding Loan Balance - Total*

S.N. Particulars UnitProjection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

A Composition of O/S loan              1 Group general loan Rs. '000 408,141 741,854 1,701,824 3,261,004 5,762,336 8,597,385

2 Seasonal loan Rs. '000 14,161 38,713 998,683 2,557,863 5,059,195 7,894,244

3 Project (other) loan Rs. '000 71,392 141,801 1,101,771 2,660,952 5,162,283 7,997,332

  Total Rs. '000 493,694 922,368 3,802,278 8,479,819 15,983,814

24,488,961

     B Proportion of O/S loan  1 Group loan % 83 80 45 38 36 35

2 Individual loan % 3 4 26 30 32 32

3 SRG Loan % 14 15 29 31 32 33

  Total % 100 100 100 100 100 100

* Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

Growth Projection

The projected disbursement for the first year will be NRs. 779.4 million out of which NRs. 350.7 million will be repaid, while the loan outstanding in the first year of operation, considering the balance of the base year will be NRs. 922.3 million. At the end of 5 th year of operation, the total amount of disbursement is projected to be NRs. 15,464 million and the total loan outstanding will be NRs. 24,488.9 million (Table 5d in Appendix 1 of Annex IV). A policy will be set that 2 percent of total loan disbursed will be provisioned for risk loan, which is expected to cover possible financial losses of loan disbursed and also contribute for ensuring sustainability of the institution.

Potential Enterprise for Group Loan

Regarding the group guarantee general loan, the proposed Dhaulagiri MFI will disburse loans based on the following enterprises. Seasonal loan will be provided to enable the clients to manage the seasonality involved in group guarantee general loan. Some of the major enterprises are also listed below based on the following 6 major categories:

Forest based enterprises, Agriculture based enterprises Service oriented enterprises; Industry based enterprises Trade oriented enterprises Livestock based enterprises

The women of Nepal are relatively poorer than men and have little access to education and have less control over the resources and the economic decisions in their households. They are

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predominantly confined to domestic and agricultural activities and have few economic opportunities working mostly as semi-skilled and unskilled general wageworkers. So, the proposed Dhaulagiri MFI will target these poor women to bring them from the vicious circle of poverty.

Table 13: Potential Micro-Enterprises for Group Guarantee Loan

S.N. Enterprises S.N. Enterprises S.N. Enterprises1 Beekeeping 2 Orange processing 3 Lapsi processing4 Rhododendron Flower

processing5 Dalmoth making 6 Papad pressing

7 Spice grinding 8 Vegetable production 9 Vegetable seeds production

10 Fresh house 11 Ice Candy processing 12 Toffee and chocolate processing

13 Fruit processing 14 Ginger processing 15 Sugarcane crushing16 Sugarcane processing 17 Nettle leaf drying and

processing18 Chyuri fruit processing

19 Milk processing 20 Micro dairy 21 Fish processing22 Marmelous processing 23 Angora rabbit keeping 24 Neem herbal soap

processing25 Incense stick

manufacturing26 Bio-briquette making 27 Charcoal making

28 Pine pole treatment 29 Rosin Tapping from pine trees

30 Bamboo and cane processing

31 Pater leaf processing 32 Leaf plate making 33 Allo processing34 Bhimal processing 35 Lokta processing 36 Timber processing37 Mudha making 38 Babiyo Collection and

Rope making39 Blacksmith workshop

40 Madal and drum making 41 Musical instrument making

42 Dhaka and bag weaving

43 Art and painting 44 Shoes manufacturing 45 Tailoring46 Lac (Laha) bangle making 47 Woolen and cotton fabrics

weaving48 Mithila art painting

49 Embroidery 50 Haircutting saloon 51 Beauty parlor52 Shoes repairing 53 Photography 54 Bicycle repairing55 Retailing 56 Vegetable and other items

vending57 Radio and TV repair

58 Electronic good repair 59 Hotel and lodge 60 Trekkers guide61 Pottering 62 Trekking 63 Traveling64 Ticketing 65 Porter 66 Herbal, fruits and

vegetables production and processing

Operational Mechanism

The proposed Dhaulagiri MFI will develop its business strategies by following the broad guidelines that target on the poor households, service delivery through SCGs, small credit delivery to the members, promotion and mobilization of local savings, promotion of group mechanism for loan administration, treat the target population as a client instead of beneficiary, enhance the knowledge and skill of the target people/groups and extend credit without tangible collateral security to group members and group graduates.

The proposed Dhaulagiri MFI will deliver the proposed microfinance services through different strategies based on the memorandum and article of association. The responsibilities of the Board of Directors are expected to set policies to guide the proposed Dhaulagiri MFI

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management to achieve the set objectives of the company, assume responsibility for the establishment of policies and reviewing financial statements and provision for annual audit, mobilize resources including loan capital and grant to manage financial and non-financial services, ensure the proposed Dhaulagiri MFI management's implementation of board policy and establish good relation with stakeholders/partners.

Methodology and Steps

The implementation methodology and steps of the proposed Dhaulagiri MFI is as follows.

The proposed Dhaulagiri MFI will determine the area of operation within the selected districts/places for program implementation on the basis of the secondary information and pre-survey visit to the concerned rural/urban Municipalities and wards within the Municipalities. The proposed Dhaulagiri MFI staff will visit the identified Rural and urban municipalities and wards within the municipalities to arranges meeting with the representatives of the rural and urban municipalities and the local community members followed by an introductory workshop at the word level of the rural and urban municipalities. The target households will be identified through PRA technique. In the PRA exercise, the community will be oriented on the purpose, objectives, strategies and approaches and methodology of the intended micro-financing program. In the PRA exercise, the community people themselves will identify the target households. It will be cost effective and realistic way to determine the target households for involving them in the program. In the process of PRA, household visits will be conducted to support the previous finding.

Women, Dalit and disadvantaged group of people will be encouraged to participate in the program. Women of the target households will undergo a week-long training program, during which women would be exposed to the prevailing socio-cultural realities, concepts and importance of group savings and credit and rules, regulations and operational procedure of bank. During the training, the target households (the potential women) will be encouraged to form groups of five, such that there is one member from one household, member within a group are economically homogeneous, reside in nearby places and are not members of the groups organized by similar financial institutions. After the group formation, the group members elect a chairperson from among the group. Each member of a group must pass GRT and be able to sign her name to qualify for receiving the proposed Dhaulagiri MFI loan. If any member fails, the training period will be extended till every member gets through the test. Such GRT will be conducted by proposed Dhaulagiri MFI staff.

The successful group will be given a group number which will be referred in all transactions with proposed Dhaulagiri MFI. Such number will identify one from the other group. Groups will have different numbers, so that no two groups will have the same number. Two to ten groups will be federated into a center. The center members elect a Center Chief and a Deputy Center Chief from among the center members. Location of the "Center" will be decided by the group members themselves. Regular monthly meeting will be organized at the center. It is the place where all the activities take place, including banking/literacy/entrepreneurship or skill development training, savings collection, loan disbursement/collection, review of group performance, delivery of different awareness raising messages relating to health, hygiene etc.

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Credit will be provided to the group members on group guarantee basis and the group graduates against group guarantee and/or their voluntary savings with the proposed Dhaulagiri MFI. Group based loan will be provided on 2+2+1 basis. It means that not all the group members get loan at the same time. Initially the two neediest members get the loan. The other two receive loans on the basis of the performance of the first two loaners after four weeks. The group chairperson gets the loan after four weeks of the second set of loans on the basis of the performance of the first and second set of borrowers. Human Resource Requirement

Currently there are 105 staff in DCRDC FI-NGO as of July 15, 2017. These staff will be transferred to the proposed Dhaulagiri MFI. Altogether 137 staff will be deployed in the first year of operation, which will be increased to 243 at the end of five year. CEO will be the head, the overall responsible person for the programme implementation. In the head office, besides one CEO, there will be one Deputy CEO, three Division Chiefs, one R&D Officer, two Internal Auditors, one Officer and one Messenger by the end of five years (Table 2 in Appendix 1 of Annex IV). A qualified and efficient team of staff including Branch Manager and Loan Officers will be deployed in all 35 branch-offices of the bank. The Loan Officers will be front line field staff who will directly deal to the clients. There will be one Messengers in each branch office.

Salary and Administrative Expenses For program implementation, the bank's administrative expenses include: pre-operating expenses, house rent, stationeries, travel cost/daily allowances, utilities (electricity, communication and others), technical advice, board operation, depreciation, audit and others. The administrative cost is projected to be NRs. 45.5 million in the first year and NRs. 74.1 million at the end of five year (Table 3 in Annex 3).

Salary and allowance in the first year and fifth year will be NRs. 29.1 million and NRs. 72.4 million respectively. Details of salary and allowance expenses are shown in Table 2 in Appendix of Annex 3.

Fixed Assets

The proposed Dhaulagiri MFI will have fixed assets to manage its operation. There will be assets at establishment and also assets to be added every year. There will also be some handover from DCRDC. These include vehicles, motor cycles, bicycles, computers, printers, photocopiers and computer software. Assets worth NRs. 10.0 million will be purchased in the first year and worth NRs. 12.0 million in the fifth year (Table 4 in Appendix 1 of Annex IV). There will be total asset value of NRs. 27.3 million at the end of the fifth year.

Loan Loss Provision

The proposed Dhaulagiri MFI has made 1 percent provision in case of loan loss. However, it will follow the directives of Nepal Rastra Bank (NRB) to make provision for the possible loan loss. The provision of loan loss is projected to be NRs. 18.4 million for the first year and NRs. 489.7 million for the fifth year (Table 5d in Appendix 1 in Annex 4).

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Cost of Fund

Deposits of borrowers and the external fund would incur the cost. Interest rate for external loan has been estimated at 11 percent. Considering time factors, 5.5 percent was used on current year borrowing and 11 percent on outstanding balance of last year. Similarly, interest for internal fund has been estimated at 9 percent each for group savings, personal savings, centre fund savings, welfare fund savings, and Dhaulagiri education savings, and 12 percent for bright future savings. Hence, the cost of fund for the first year of the operation is anticipated to be NRs. 88.4 million, while at the end of five year, NRs. 2,724 million is expected to be the total cost of fund (on deposits and external borrowings). Details are provided in Table 3 in Appendix 2 of Annex IV.

Savings Mobilisation

The proposed Dhaulagiri MFI will emphasise members to develop their savings habit. It has made provisions for different savings products including group savings, personal savings, centre fund savings, welfare fund savings, Dhaulagiri education fund savings, bright future savings, bright future find, and other savings. Details are presented in Table 14 below.

Table 14: Savings Mobilization Plan

S.N. Particulars UnitProjection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Group Saving              

  Annual group savings collection

Rs. '000 41,832 13,499 18,995 23,050 28,260 34,739

  Total group saving collection Rs. '000 41,832 55,331 74,326 97,376 125,636 160,375     2 Personal Savings  

  Annual personal saving collection

Rs. '000 90,992 11,643 15,228 17,261 19,508 22,398

  Total personal saving collection

Rs. '000 90,992 102,635 117,863 135,125 154,633 177,031

     3 Center Fund Savings  

  Annual center fund saving collection

Rs. '000 2,028 15,588 104,724 170,092 272,873 309,278

  Total center fund saving collection

Rs. '000 2,028 17,616 122,340 292,433 565,305 874,583

     4 Welfare Fund Savings  

  Annual welfare fund saving collection

Rs. '000 1,189 9,139 61,399 99,724 159,983 181,327

  Total welfare fund saving collection

Rs. '000 1,189 10,328 71,727 171,451 331,434 512,761

     5 Dhaulagiri Education Savings  

  Annual Dhaulagiri Education saving collection

Rs. '000 16,194 2,250 3,166 3,842 4,710 5,790

  Total Dhaulagiri Education saving collection

Rs. '000 16,194 18,444 21,610 25,451 30,161 35,951

     6 Bright Future Savings  

  Annual Bright Future Saving Collection

Rs. '000 26,161 9,315 12,183 13,809 15,607 17,918

  Total Bright Future Saving Collection

Rs. '000 26,161 35,476 47,658 61,467 77,074 94,992

     7 Bright Future Fund    Annual Bright Future Fund Rs. '000 89,408 9,315 12,183 13,809 15,607 17,918  Total Bright Future Loan Rs. '000 89,408 98,723 110,905 124,714 140,321 158,239     8 Other savings  

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S.N. Particulars UnitProjection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year   Annual Other Savings Rs. '000 8,507 2,501 1,674 1,733 1,303 1,628  Total Other Savings Rs. '000 8,507 11,008 12,682 14,414 15,717 17,346     

9 Total Internal Fund Generation

 

  Annual Internal Fund Generation

Rs. '000 276,311 70,749 227,877 341,587 516,548 589,368

  Total Fund Generation Rs. '000 276,311 349,561 579,111 922,431 1,440,282 2,031,278

The total fund generation through the members/client’s deposits will be in the order of NRs. 349.5 million in the first year and NRs. 2,031.2 million in the fifth year. The proposed Dhaulagiri MFI will provide 9 percent interest on all types of savings except bright future savings, which will be 12 percent.

As in the case of new loan products, the type of new saving products to be introduced will be studied and implemented.

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SECTION 4: ORGANIZATION AND MANAGEMENT

Organizational Structure

The proposed Dhaulagiri MFI's organization consists of General Assembly under which a Board of Directors at the top will provide policy direction and guidance to the management for the effective operation of its programs and projects. Besides, there will be various sub-committees constituted by the Board to supervise different areas of operation. The CEO, who is the executive head of the management team and will be responsible for the day-to-day management and smooth implementation of programs and projects, will directly report to the Board of Directors. There are mainly two departments under the CEO namely Administration (Monitoring, Evaluation, Administration and HRD) and Program (Finance, Credit, Planning and Research). Sections such as non-financial services, linkage with POs/development partners, funding organizations will be established under each of the relevant sections. The sub-committees referred above will assist CEO in policy, planning and implementation matters. The Division Chiefs/R&D Officers/Internal Auditors/Officers will work under the CEO and control and coordinate all the respective departments/sections under their portfolios. A typical branch office of the proposed Dhaulagiri MFI includes Branch Manager, few Loan Officers and one Messenger. The projected human resource structure in the head office and branch levels are presented in Table 2 in Appendix 1 of Annex IV.

Training and Human Resource Development

A major strength of proposed Dhaulagiri MFI will be its skilled and committed staff, specially the front-line staff. Since inception, identifying correct personnel and developing their skills will be emphasized. In future, the human resource development effort will be the key areas to focus to accelerate banking financial performance.

The proposed Dhaulagiri MFI will need new and additional staff as and when required in line with expansion of office network. These new staff will be provided 3 months pre-service training, if so felt. Similarly, the existing staff too will be provided with necessary skills upgrading in-service training on a continuous basis. The proposed Dhaulagiri MFI will follow the personnel policy that the existing staff will be promoted to higher level if the qualification and performance match the job requirement. To achieve this objective a comprehensive staff performance appraisal system will be developed. This system will consist of an incentive package including staff promotion linked to individual performance.

Planning Process

Every year an annual program is prepared by each branch three months before the beginning of each Fiscal Year based on the outline given by the Head Office. The programs thus prepared by the branches will be discussed in the head office in the presence of the concerned branch managers. Such programs will be appraised and finalized by Finance, Credit and Planning Department at the Head Office.

The process of strategic planning includes outreach extension, target loan demands, loan recovery, fund requirement, liquidity positions, portfolio planning, internal resource mobilization (savings), projected income and expenses, etc. Fund management is done in accordance with the findings of the analysis of data.

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Monitoring and Follow-up

There will be a provision of monthly meeting at the branch office in the presence of all the concerned staff, which monitors the progress over the month. Quarterly review workshops will be held with the participation of concerned Branch Managers and representatives from the Head Office. Progress made and problems faced by each branch during the quarter will be discussed in the quarterly workshops and corrective actions will be recommended for future implementation. The drawbacks come out from the quarterly progress will be rectified in the next quarter so that a branch improves its performance timely and may not fall behind its annual targets. Management Information System

The proposed Dhaulagiri MFI will establish a sound monitoring information system (MIS). The MIS will be based on three levels of record keeping, e.g., client level, branch level and head office level. MIS will be implemented as highly useful information in taking strategic decision by the management.

At the client level each member will possess a passbook. The passbook includes entries like, regular savings, voluntary savings, and product wise borrowings from the proposed Dhaulagiri MFI as well as group savings and the repayment status. The Loan Officer will make the entries in the passbook at the time of centre meetings and confirm the balances of each member. The passbooks will be verified with the records maintained at the branch offices in a monthly basis. At the branch office level membership register, collection sheet, member's loan and savings records, daily income and expense sheet, daily summary sheet, general ledger, trial balance, monthly balance sheet and income statements will be maintained. Software will be developed in due course and the database related to loan and savings will be computerized which are expected to reduce the paper work significantly and enhance staff work efficiency. Updated copies of the computer printouts with individual loan and savings information will replace the manual collection sheet and individual passbook system, which will be provided to related group/ individual after regular interval. The branch office will send monthly report of all transactions to the head office through information communication technology (ICT) network since all of the proposed Dhaulagiri MFI offices will be under its ICT network. The annual and quarterly plans will also be prepared and sent by the branch office to the head office for approval.

The branch office will conduct half yearly and yearly closing of the accounts, prepare balance sheets and the income statements and send a copy to the head office.

At the head office level, monthly summary sheet of all the branch/unit offices will be compiled and analysed. The consolidated monthly statements will be prepared and processed and reported to the donors, banks and line agencies. Financial Management

The proposed Dhaulagiri MFI, while delivering the microfinance services, will be fully governed by two principles. The first is the expansion of outreach and the second is the financial viability. Financial performance of the proposed Dhaulagiri MFI is assessed using financial sustainability ratios. Using the balance sheet and income statement of the proposed Dhaulagiri MFI separately a critical look on sets of indicators will be developed to analyse

31

financial performance. The projected financial sustainability ratios are given in Table 5 in Appendix 2 of Annex IV.

Return on performing assets

Performing assets are defined as: cash, bank balance, gross loans outstanding and long-term investment. Return on average performing asset (APA) is projected to be 16.2 percent in the first year and 16.0 percent at the end of five years.

Financial cost ratio

The average capital cost of funding (debt/savings) on APA will be between 5.2 percent in the 1st year and 10.3 percent in the 5th year.

Loan loss provision ratio

The proposed Dhaulagiri MFI will make provision for loan losses by setting aside 2 percent of loan outstanding for risk fund. Such a provision is expected to cover the loan risk arising due to default and poor payment. It is estimated at 1.9% in the 1st year, and 2.0% in the 5th

year.

Table 15: Financial Sustainability Ratios

S.N. Particulars Unit

Projection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1  Return on average performing asset

% - 16.2 16.1 16.0 16.0 16.0

2  Financial cost ratio % - 9.1 7.6 10.2 11.2 11.1

3  Loan loss provision ratio % - 1.9 2.0 2.0 2.0 2.0

4  Operating cost ratio % - 7.7 2.4 1.3 0.8 0.6

5  Imputed cost of capital ratio % - 0.8 0.7 0.6 0.5 0.6

6  Overdue rate % 2.3 1.9 2.0 2.0 2.0 2.0

7  Operating self-sufficiency % - 86.1 134.4 118.8 114.1 117.0

8  Financial self-sufficiency % - 82.6 127.0 113.9 109.9 112.0

Operating cost ratio

Operating cost ratio is considered to be a key indicator of operational efficiency. Operating cost ratio is in decreasing trend as 7.7 percent in first year and 0.6 percent in the fifth year of operation.

Operational self-sufficiency Ratio

The proposed Dhaulagiri MFI will not reach at operationally break-even in the first year of its operation maintaining 86 percent of operational self-sufficiency ratio and cumulative breakeven in the second year of operation with operational self-sufficiency of 128 percent. In the fifth year of projection, the OSS will be 124 percent.

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Financial self-sufficiency ratio

Financial Self-sufficiency (FSS) ratio is defined as financial income divided by sum of financial cost, operating cost, loan loss provision and inflation rate. Hundred percent FSS is necessary for the healthy banking institution to provide with sustainable credit services over the long period of time without being reliant on concessional borrowings by maintaining its net-worth at present value. FSS of the proposed Dhaulagiri MFI will be 82.6 percent in first year and it will attain viability in the first year of its operation. This is because of its sound base. In the fifth year the proposed Dhaulagiri MFI’s financial self-sufficiency rate will be 119 percent. This is mainly attributable to carry-on effect of DCRDC operation by the proposed Dhaulagiri MFI, which has already established framework for microfinance operation.

Pre-Operating Expenses

The proposed Dhaulagiri MFI will require pre-operating expenses before the implementation of the programme. The total cost for preliminary expenses will be NRs. 4.0 million, which will be amortized for two years. The amount allocated for the preliminary expenses will be used for developing memorandum of association and article of association, registration process, documentation, feasibility study, project management expenses and others. Further, development of business plan and other cost will be incurred before starting the programme.

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SECTION 5: FINANCIAL PROJECTION

Funding

The proposed Dhaulagiri MFI will obtain concessional loans from local commercial banks including the deprived sector lending programme and local wholesale lending institutions like RMDC. Savings mobilization will be integral part of the fund management for the proposed Dhaulagiri MFI and will continue to be its key sustainable sources of funding strategy in the future. In order to achieve this mission, the proposed Dhaulagiri MFI has a strategy to provide extra focus on savings mobilization and management. There is also a need to explore the ICT for extending microfinance services.

Borrowings

The proposed Dhaulagiri MFI will borrow NRs. 420.0 million from outside in the first year. To meet the need of disbursement outside borrowing amount will reach to NRs. 19,000.0 million in the fifth year. The projected borrowing status is given in Table 16.

Table 16: Projected Borrowing Status

S.N. Particulars Unit

Projection by YearHand-over as of Asar 31, 2074

1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Incremental external loan Rs. '000 174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

2 Repayment of external loan Rs. '000 0 174,639 420,000 2,770,000 6,540,000 12,600,000

3 External loan balance Rs. '000 174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

Savings Mobilization as Internal Source of Loan Fund

As projected, NRs. 349 million will be mobilized from savings for the disbursement in first year, while NRs. 2,031.3 million will be the total savings that will be mobilized in the fifth year of projection.

Table 17: Projected Savings Mobilization as Internal Source of Loan Fund

S.N. Particulars Unit

Projection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Group Saving Rs. 0'000 41,832 55,331 74,32

6 97,37

6 125,63

6 160,37

5

2 Personal Savings Rs. '000 90,992 102,635

117,863

135,125

154,633

177,031

3 Welfare Fund Rs. '000 2,028 17,616 122,340

292,433

565,305

874,583

4 Central Fund Rs. '000 1,189 10,328 71,727

171,451

331,434

512,761

5 Bright Future Fund Rs. '000 16,194 18,444 21,610

25,451

30,161

35,951

6 Bright Future Savings Rs. '000 89,408 98,723 110,905

124,714

140,321

158,239

7 Dhaulagiri Education savings Rs. '000 26,161 35,476 47,65

8 61,46

7 77,07

4 94,99

2

8 Other savings Rs. '000 8,507 11,008 12,682

14,414

15,717

17,346

9 Total Savings Rs. '000 276,31 349,56 579,11 922,43 1,440,28 2,031,27

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1 1 1 1 2 8

Risk Weighted Assets

Projected risk weighted assets of the proposed Dhaulagiri MFI are presented in Table 18 below and details are provided in Table 6, 7 and 8 in Appendix 2 of Annex IV.

Table 18: Projected Risk Weighted Assets

S.N. Particulars Unit

Projection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Total Asset Rs. '000

578,865 978,574 3,868,515 8,567,405 16,102,846 24,644,521

2 Total Risk Weighted Asset

Rs. '000

498,188 933,963 3,816,354 8,497,480 16,005,943 24,516,264

3 % of Risk Weighted Asset % 86 95 99 99 99 99

Capital Adequacy Ratio

Details work-out on the capital adequacy ratio of the proposed Dhaulagiri MFI is estimated and presented in Table 19 and in 6, 7 and 8 in Appendix 2 of Annex IV. Ratio of capital fund to risk weighted asset varies from 9 percent to 10 percent, whereas, ratio of primary capital to risk weighted asset varies from 5 percent to 6 percent, indicating that the proposed the proposed Dhaulagiri MFI has adequate capital to ensure continuity and regularity on its operation.

Table 19: Capital Adequacy Ratio

S.N. Particulars UnitProjection by Year

Base year 1st Year 2nd Year 3rd Year 4th Year 5th Year

1 Capital fund Rs. '000 0 76,474 266,336 587,103 1,084,993 1,894,600

2 Core (primary) Capital Rs. '000 0 44,830 158,647 309,818 488,031 807,859

3 Minimum capital to be maintained based on risk weighted asset

             

  Capital fund (8%) Rs. '000 39,855 74,717 305,308 679,798 1,280,475 1,961,301

  Core (primary) capital (4%) Rs. '000 19,928 37,359 152,654 339,899 640,238 980,651

4 Capital adequacy ratio              

  Capital fund/Risk weighted asset

% 0% 10% 9% 9% 9% 10%

  Core (primary) capital/Risk weighted asset

% 0% 6% 6% 5% 5% 5%

 5 Assessment of capital adequacy ratio 

             

  Capital fund (more/less) % -8% 2% 1% 1% 1% 2%

  Core (primary) capital (more/less)

% -4% 2% 2% 1% 1% 1%

35

SECTION 6: CONCLUSION

This Business Plan has been developed for the proposed the proposed Dhaulagiri MFI. As shown in the plan, programme will be implemented through 35 branches in 21 districts of Nepal over the period of the five years. According to the five-year projection, company will serve a total of 57,898 active loan clients. Details of the client compositions are provided in various Tables in Appendix 1 of Ammex IV.

The The proposed Dhaulagiri MFI will have authorized capital, issued capital and paid up capital of NRs. 100 million, NRs. 70 million and NRs. 70 million respectively. As envisaged, the company will steadily gain its recognition as one of the successful MFIs in terms of its outreach and quality of loan portfolio. There has been a general felt need that it would be easier for MFI to enhance access to financial services for the poor and disadvantaged groups. The proposed Dhaulagiri MFI will operate as a for profit institution under Companies Act, 2063 with a mandate to enhance microfinance services within the legal and regulatory framework of Banks and Financial Institutions Act, 2063.

The proposed Dhaulagiri MFI's policy and implementation strategies are guided as per the rules and regulations issued by NRB on establishment and operation of the “D” category financial institution. The governance and management of the proposed Dhaulagiri MFI will strive hard to achieve the set target and contribute towards fulfilling the national goal of reducing poverty through microfinance services, which have been proved as one of the strong development tools in the developing countries. The projected capital adequacy ratio of the proposed MFI is highly satisfactory.

36

Annex 1: Status of Microfinance Operation of DCRDC as of July 15, 2017 (Ashad End 2074)S.N. Basic Indicators Location of Branch Office

Baglung Parbat Beni Gulmi Arghakhanchi Burtibang Darbang Thada Hatya Wami Shantipur Pokhara

A Office network                        

1 Branch Office 1 1 1 1 1 - 1 1 1 1 1 1

2 Sub Branch Office - - - - - 1 - - - - - -

                           

B Staff Structure                        

1 Total Staff 6 6 7 7 6 7 7 5 6 6 6 8

2 Branch Manager - 1 1 1 1 - 1 1 1 1 1 1

3 Sub Branch Manager 1 - - - - 1 - - - - - -

4 Account Staff 1 1 1 - 1 1 1 1 1 1 - 1

5 Field staff 2 2 2 2 1 1 1 2 - 1 2 3

6 Trainee 1 1 2 3 2 3 3 - 3 2 2 2

7 Runner 1 1 1 1 1 1 1 1 1 1 1 1

                           

C Outreach                        

1 District 2 3 2 2 1 2 1 1 2 2 2 1

2 Village Council 15 12 8 11 11 15 13 10 2 16 15 2

3 Municipality 2 1 1 1 1 - - 1 2 - - 2

4 Center 97 106 100 78 98 103 111 90 91 90 100 95

5 Group 316 374 304 345 460 552 584 400 316 305 404 186

6 Active Member 1,294 1,800 1,473 1,638 1,836 2,225 2,225 1,972 1,243 1,470 1,797 584

7 Lonee 772 1,017 1,143 846 1,001 1,453 1,603 1,026 725 740 957 267

8 Drop out Member 1,754 1,998 692 916 1,421 251 158 324 390 96 102 415

                           

D Saving Status                        

1 Group Saving 2,640,299 3,694,106 4,213,870 4,660,810 3,612,213 3,813,882 3,723,964 3,646,250 1,680,624 2,207,836 2,550,356 479,361

2 Personal Saving 4,633,833 6,633,988 14,287,134 4,266,495 8,353,121 6,329,407 9,261,056 9,296,198 3,991,577 4,113,560 2,928,508 2,154,765

3 Bright Future Saving 4,954,450 8,021,850 9,631,250 7,678,250 7,330,717 8,894,900 7,253,400 7,479,250 4,296,200 4,827,400 6,354,550 855,100

4 Education Saving 1,503,005 1,098,337 3,012,996 719,993 572,747 707,212 496,286 691,898 1,225,685 1,126,578 1,000,746 413,790

5 Fixed saving - 668,808 12,000 73,234 - 59,284 1,362,900 1,658,500 - 41,500 150,180 -

6 Paropakar Fund 161,990 162,913 175,229 94,806 83,161 64,277 103,103 32,590 44,203 31,830 56,886 80,708

7 Center Fund 246,972 622,425 355,658 342,887 338,808 - - 121,222 - - - -

8 Okhati Saving 252,086 904 837,448 452,504 - 483,225 206,995 87,191 20,413 56,005 309,256 20,396

  Total Saving 14,392,635 20,903,331 32,525,585 18,288,979 20,290,767 20,352,187 22,407,704 23,013,099 11,258,702 12,404,709 13,350,482 4,004,120

37

S.N. Basic Indicators Location of Branch Office

Baglung Parbat Beni Gulmi Arghakhanchi Burtibang Darbang Thada Hatya Wami Shantipur Pokhara

                           

E Loan Operation                        

1 Loan Disbursement 309,680,382 299,085,000 516,977,250 218,925,500 444,360,065 216,550,000 333,574,000 192,726,000 114,590,000 88,989,000 97,115,000 70,100,000

2 Loan Recovery 285,472,096 261,638,040 459,825,376 189,958,849 412,960,703 172,940,606 268,931,638 157,298,700 92,161,120 65,497,783 67,119,964 63,698,277

3 Due loan 1,200,214 305,340 399,875 343,546 264,822 210,510 - - - - - 1,930,158

4 Due Loan Member 83 - 39 16 16 1 - - - 14 - -

5 Repayment Rate - 100 - 100 99 99 100 1 100 100 1 70

                           

F Income Structure 4,022,948 7,675,004 12,562,713 5,242,302 6,414,700 8,165,691 12,794,937 7,058,251 4,183,584 4,740,963 5,493,526 2,742,818

1 Income Loan Interest 3,501,072 6,835,642 11,256,903 4,653,772 5,729,016 7,258,330 11,409,185 6,309,820 3,661,421 4,190,866 4,741,992 2,518,953

2 Income Branch Interest - - - - - - - - - - - -

3 Service Charge 428,700 734,899 1,151,450 525,660 596,075 818,130 1,287,080 681,470 452,120 505,215 681,680 85,200

4 Other Income 93,176 104,463 154,360 62,870 89,609 89,231 98,672 66,961 70,043 44,882 69,854 138,665

                           

G Expense Structure 3,208,138 4,846,519 6,953,538 3,733,707 4,033,315 5,376,545 7,580,145 4,542,877 3,561,236 3,743,597 4,261,123 3,475,258

1 Staff Salary 1,073,375 1,236,796 1,323,005 1,186,190 1,114,572 1,150,079 1,304,485 1,255,707 1,024,986 1,095,893 1,009,833 1,359,226

2 Administrative Expenses 688,011 580,307 951,650 600,478 501,192 858,746 1,006,046 472,117 786,647 587,465 851,171 793,431

3 Cost of Fund Interest 1,446,752 3,029,416 4,678,883 1,947,039 2,417,551 3,367,720 5,269,614 2,815,053 1,749,603 2,060,239 2,398,455 1,322,601

4 Cost of Fund Bank Interest - - - - - - - - - - 1,664 -

5 Operational Status Ratio 125 158 181 140 159 152 169 155 117 127 129 1

                           

H Net Profit and Loss 814,810 2,828,485 5,609,175 1,508,595 2,381,386 2,789,146 5,214,792 2,515,374 622,348 997,366 1,232,403 (732,440)

38

Annex 1a: Status of Microfinance Operation of DCRDC as of July 15, 2017 (Ashad End 2074)

S.N. Basic Indicators Location of the Branch Office Head Office Total Average Falbash Lekhnath Biruita Huwash Dumre Naudada Khaireni Purtighat Hamsupur

A Office network                        

1 Branch Office 1 1 - 1 1 1 1 1 - 1 19  

2 Sub Branch Office - - 1 - - - - - 1 - 3  

                          

B Staff Structure                       

1 Total Staff 6 6 6 5 6 6 6 5 1 8 132 6

2 Branch Manager 1 1 - 1 1 1 1 1 - - 17  

3 Sub Branch Manager - - 1 - - - - - 1 - 4  

4 Account Staff 1 - - 1 1 1 - 1 - 2 17  

5 Field staff 1 1 1 1 - - 1 - - 5 29 1

6 Trainee 3 3 4 2 2 3 4 3 - - 48 2

7 Runner 1 1 - - 1 1 - - - 1 17 1

                          

C Outreach                       

1 District 2 1 1 1 2 1 1 1 -   31 1

2 Village Council 17 3 4 11 9 5 10 2 -   191 9

3 Municipality - 1 1 - 1 1 - - -   15 1

4 Center 87 52 24 65 38 45 52 18 -   1,540 73

5 Group 306 124 59 185 43 95 66 44 -   5,468 260

6 Active Member 153 527 275 848 573 475 706 224 -   23,338 1,111

7 Lonee 601 400 158 353 214 256 264 97 -   13,893 662

8 Drop out Member 139 62 7 4 4 9 15 - -   8,757 417

                          

D Saving Status                -      

1 Group Saving 2,015,857 570,760 173,314 635,215 408,805 298,658 702,607 101,495 -   41,830,282 1,991,918

2 Personal Saving 3,319,644 3,433,955 1,657,201 1,892,056 998,638 1,724,355 1,617,901 98,796 -   90,992,188 4,332,961

3 Bright Future Saving 4,371,200 1,645,652 723,000 1,133,200 1,089,300 1,228,200 1,378,950 162,000 -   89,308,819 4,252,801

4 Education Saving 596,222 1,024,519 418,802 571,574 425,280 310,779 251,239 26,935 -   16,194,623 771,173

5 Fixed saving 76,000 - - - - 906,100 153,500 - -   5,162,006 245,810

6 Paropakar Fund 35,411 16,875 12,498 2,282 4,566 8,753 16,632 - -   1,188,713 56,605

7 Center Fund - - - - - - - - -   2,027,972 96,570

8 Okhati Saving 24,333 - 157,623 - 10,140 39,711 132,162 29,026 -   3,119,418 148,544

39

S.N. Basic Indicators Location of the Branch Office Head Office Total Average Falbash Lekhnath Biruita Huwash Dumre Naudada Khaireni Purtighat Hamsupur

  Total Saving 10,438,667 6,691,761 3,142,438 4,234,327 2,936,729 4,516,556 4,252,991 418,252 -   249,824,021 11,896,382

                          

E Loan Operation                       

1 Loan Disbursement 71,070,471 43,440,000 10,926,500 2,188,000 18,177,000 22,420,000 19,040,000 5,230,000 -   3,095,164,168 147,388,770

2 Loan Recovery 53,426,414 28,396,351 6,115,136 9,272,165 8,610,138 9,220,819 10,073,292 1,395,938 -   2,624,013,405 124,953,019

3 Due loan 30,000 41,666 - - - - - - -   4,726,131 225,054

4 Due Loan Member - - - - - - - - -   169 8

5 Repayment Rate 100 100 100 100 100 100 100 100 100   1,669 79

                          

F Income Structure 3,430,199 2,751,533 820,315 1,442,518 1,216,544 1,390,624 1,271,903 293,102 -   93,714,175 4,462,580

1 Income Loan Interest 3,024,019 2,357,527 700,334 1,157,177 1,014,741 1,083,031 1,030,552 202,802 -   82,637,155 3,935,103

2 Income Branch Interest - - - - - - - - -   - -

3 Service Charge 342,230 324,250 87,065 215,260 178,610 249,450 203,290 72,300 -   9,620,134 458,102

4 Other Income 63,950 69,756 32,916 70,081 23,193 58,143 38,061 18,000 -   1,456,886 69,376

                          

G Expense Structure 2,919,251 2,944,648 1,934,269 2,310,560 2,092,829 2,229,874 1,988,400 1,192,321 155,819   73,083,967 3,480,189

1 Staff Salary 988,310 1,126,544 933,269 1,002,956 867,937 906,829 854,085 613,801 90,939   21,518,817 1,024,706

2 Administrative Expenses 462,833 618,933 532,387 587,708 523,847 618,369 534,949 381,897 62,674   13,000,855 619,088

3 Cost of Fund Interest 1,468,108 1,199,171 468,613 719,897 701,045 704,676 599,366 196,623 2,206   38,562,631 1,836,316

4 Cost of Fund Bank Interest - - - - - - - - -   1,664 79

5 Operational Status Ratio 118 - 42 62 58 - 64 25 -   1,983 94

                          

H Net Profit and Loss 510,949 (193,115) (1,113,954) (868,043) (876,285) (839,250) (716,497) (899,219) (155,819)   20,630,208 982,391

40

Annex 2: Overview of Microfinance Programme of the Proposed Dhaulagiri MFI

S.N. District Year of

Operation TypeClients by Year*

Base year 1st Year 2nd Year 3rd year 4th Year

5th Year

1 Baglung - Municipality Base year New 1,294 500 400 300 200 250

      Drop out - 65 86 102 112 116

      Cumula-tive

1,294 1,729 2,043 2,241 2,329 2,462

       

2 Baglung - Burtibang Base year New 2,225 500 400 300 200 250

      Drop out - 111 131 144 152 154

      Cumula-tive

2,225 2,614 2,883 3,039 3,087 3,183

       

3 Baglung - Hatiya Base year New 1,243 500 400 300 200 250

      Drop out - 62 84 100 110 114

      Cumula-tive

1,243 1,681 1,997 2,197 2,287 2,423

       

4 Myagdi - Beni Base year New 1,473 500 400 300 200 250

      Drop out - 74 95 110 120 124

      Cumula-tive

1,473 1,899 2,204 2,394 2,474 2,601

       

5 Myagdi - Darbang Base year New 2,225 500 400 300 200 250

      Drop out - 111 131 144 152 154

      Cumula-tive

2,225 2,614 2,883 3,039 3,087 3,183

       

6 Parbat - Kushma Base year New 1,800 800 600 500 400 500

      Drop out - 90 126 149 167 178

      Cumula-tive

1,800 2,510 2,985 3,335 3,569 3,890

       

7 Parbat - Phalewas Base year New 1,353 900 600 300 300 300

      Drop out - 68 109 134 142 150

      Cumula-tive

1,353 2,185 2,676 2,842 3,000 3,150

       

8 Gulmi - Tamghas Base year New 1,638 500 400 300 200 250

      Drop out - 82 103 118 127 130

      Cumula-tive

1,638 2,056 2,353 2,536 2,609 2,728

       

9 Gulmi - Wametaxsar Base year New 1,470 700 500 300 200 300

      Drop out - 74 105 125 133 137

      Cumula-tive

1,470 2,097 2,492 2,667 2,734 2,897

       

10 Gulmi - Shantinagar Base year New 1,797 600 500 400 300 300

      Drop out - 90 115 135 148 155

      Cumula-tive

1,797 2,307 2,692 2,957 3,109 3,254

       

11 Arghakhanchi - Sand- Base year New 1,836 500 400 300 200 250

41

S.N. District Year of

Operation TypeClients by Year*

Base year 1st Year 2nd Year 3rd year 4th Year

5th Year

hikharka      Drop out - 92 112 127 135 139

      Cumula-tive

1,836 2,244 2,532 2,705 2,770 2,882

       

12 Arghakhanchi - Thada Base year New 1,972 700 600 300 350 400

      Drop out - 99 129 152 160 169

      Cumula-tive

1,972 2,573 3,045 3,192 3,383 3,614

       

13 Kaski - Pokhara Base year New 584 600 500 250 300 350

      Drop out - 29 58 80 88 99

      Cumula-tive

584 1,155 1,597 1,767 1,979 2,230

       

14 Syangja - Lekhnath Base year New 527 600 500 250 300 350

      Drop out - 26 55 77 86 97

      Cumula-tive

527 1,101 1,546 1,718 1,932 2,186

       

15 Kaski - Birauta Base year New 275 500 400 250 300 350

      Drop out - 14 38 56 66 78

      Cumula-tive

275 761 1,123 1,317 1,551 1,824

       

16 Parbat - Hawas Base year New 848 600 500 250 300 350

      Drop out - 42 70 92 100 110

      Cumula-tive

848 1,406 1,835 1,994 2,194 2,434

       

17 Tanahu - Dumre Base year New 573 500 400 250 300 350

      Drop out - 29 52 70 79 90

      Cumula-tive

573 1,044 1,392 1,573 1,794 2,054

       

18 Kaski - Naudanda Base year New 475 400 300 250 300 350

      Drop out - 24 43 55 65 77

      Cumula-tive

475 851 1,109 1,303 1,538 1,811

       

19 Tanahu - Khaireni Base year New 706 600 500 250 300 350

      Drop out - 35 64 85 94 104

      Cumula-tive

706 1,271 1,707 1,872 2,078 2,324

       

20 Syangja - Purtighat Base year New 224 400 350 250 300 350

      Drop out - 11 31 47 57 69

      Cumula-tive

224 613 932 1,136 1,379 1,660

       

21 Gulmi - Hansapur Base year New - 500 400 250 300 350

      Drop out - - 25 44 54 66

      Cumula-tive

- 500 875 1,081 1,327 1,611

42

S.N. District Year of

Operation TypeClients by Year*

Base year 1st Year 2nd Year 3rd year 4th Year

5th Year

       

22 Rupendehi - Butwal 1st New - 1,000 800 250 300 350

      Drop out - - 50 88 96 106

      Cumula-tive

- 1,000 1,750 1,913 2,117 2,361

       

23 Kapilvastu - Gorusinghe 1st New - 1,000 600 250 300 350

      Drop out - - 50 78 86 97

      Cumula-tive

- 1,000 1,550 1,723 1,936 2,190

       

24 Nawalparasi - Sunowal 1st New - 800 700 250 300 350

      Drop out - - 40 73 82 93

      Cumula-tive

- 800 1,460 1,637 1,855 2,112

       

25 Gorkha - Prithivinarayan 1st New - 400 600 250 300 350

      Drop out - - 20 49 59 71

      Cumula-tive

- 400 980 1,181 1,422 1,701

       

26 Lamjung - Beshisahar 1st New - 400 500 250 300 350

      Drop out - - 20 44 54 67

      Cumula-tive

- 400 880 1,086 1,332 1,615

       

27 Palpa - Tansen 2nd New - - 400 300 400 450

      Drop out - - - 20 34 52

      Cumula-tive

- - 400 680 1,046 1,444

       

28 Dhading - Dhading Beshi 2nd New - - 400 300 400 450

      Drop out - - - 20 34 52

      Cumula-tive

- - 400 680 1,046 1,444

       

29 Nuwakot - Rani Pauwa 2nd New - - 300 300 400 450

      Drop out - - - 15 29 48

      Cumula-tive

- - 300 585 956 1,358

       

30 Kavre - Bhakundebesi 3rd New - - - 400 500 500

      Drop out - - - - 20 44

      Cumula-tive

- - - 400 880 1,336

       

31 Lalitpur - Khokana 3rd New - - - 350 200 400

      Drop out - - - - 18 27

      Cumula-tive

- - - 350 533 906

       

43

S.N. District Year of

Operation TypeClients by Year*

Base year 1st Year 2nd Year 3rd year 4th Year

5th Year

32 Kathmandu- Sankhu 4th New - - - - 500 500

      Drop out - - - - - 25

      Cumula-tive

- - - - 500 975

       

33 Rasuwa - Kalikasthan 4th New - - - - 500 500

      Drop out - - - - - 25

      Cumula-tive

- - - - 500 975

       

34 Gorkha - Siranchowk 5th New - - - - - 500

      Drop out - - - - - -

      Cumula-tive

- - - - - 500

       

35 Mustang - Lete 5th New - - - - - 300

      Drop out - - - - - -

      Cumula-tive

- - - - - 300

       

  Total   New 24,538 15,500 13,750 9,050 10,050 12,500

      Drop out - 1,227 1,801 2,273 2,559 2,869

      Cumula-tive

24,538 38,811 50,761 57,538 65,028 74,659

44

Annex 3: Current Status of Dhaulagiri Community Resource Development Centre

Table 1: Outreach

S.N. Particulars Unit Current Situation

1 Total Clients      New No. 24,538  Drop-out No. -  Cumulative No. 24,538     2 Active loan clients*    New No. 13,893  Drop-out No. -  Cumulative No. 13,893     3 Office network    Head Office No. 1  Branch/Sub-branch No. 21

* Includes group loan clients, group graduate clients and individual loan clients only.

Table 2: Staffing Pattern, Salary Structure and Salary Expenses

S.N. Particulars Unit Current Situation

1 Staffing Pattern No. 105a Head Office No. 4  Chief Executive Officer No. 1  Division Chief No. 1  Internal Auditor No. 1  Peon/Messenger No. 1     

b Branch Offices No. 101  Branch Manager No. 21  Loan Officer No. 80     2 Annual Salary Structure per Staff  a Head Office    Chief Executive Officer Rs. '000 650  Division Chief Rs. '000 325  Internal Auditor Rs. '000 234  Officer Rs. '000 195  Peon Rs. '000 104     

b Branch Offices    Branch Manager Rs. '000 234  Loan officer Rs. '000 130     3 Salary cost Rs.

'00016,627

45

S.N. Particulars Unit Current Situation

a Head Office Rs. '000

1,313

  Chief Executive Officer Rs. '000 650  Division Chief Rs. '000 325  Internal Auditor Rs. '000 234  Peon Rs. '000 104     

b Branch Offices Rs. '000

15,314

  Branch Manager Rs. '000 4,914  Loan officer Rs. '000 10,400

Table 3: Estimates on Administrative Cost

S.N. Particulars Unit Current Situation

1 Stationary expenses Rs. '000 7,3612 House rent Rs. '000 1,4403 Travel cost/Daily Allowance Rs. '000 3,7804 Electricity, Communication and Other Rs. '000 2885 Technical advice Rs. '000 1,2006 Board operation Rs. '000 1,2007 Depreciation Rs. '000 1738 Other Rs. '000 2,300  Total Rs.

'00017,742

Table 4: Fixed Asset Structure

S.N. Particulars Unit Current Situation

1 Book Value of Asset Rs. '000 4,667 2 Depreciation Rs. '000 173 3 Net fixed asset Rs. '000 4,494

Table 5a: Loan Disbursement Plan - General Group Loan

S.N. Particulars Unit Current Situation

1 Total Active Loan Client No. 11,5002 Initial Loan Size Rs. '000 653 Total Loan Disbursement Rs. '000 742,0754 Loan collection Rs. '000 333,9345 Outstanding loan balance Rs. '000 408,1416 Overdue loan (2%) Rs. '000 10,9097 Average loan size Rs. 35,491

Table 5b: Loan Disbursement Plan - Seasonal Loan

46

S.N. Particulars Unit Current Situation

1 Total Active Loan Client No. 1,5002 Initial Loan Size Rs. '000 173 Total Loan Disbursement Rs. '000 25,7474 Loan collection Rs. '000 11,5865 Outstanding loan balance Rs. '000 14,1616 Overdue loan (2%) Rs. '000 3797 Average loan size Rs. 9,441

Table 5c: Loan Disbursement Plan - Project Loan (Other Loan)

S.N. Particulars Unit Current Situation

1 Total Active Loan Client No. 8932 Initial Loan Size Rs. '000 1453 Total Loan Disbursement Rs. '000 129,8044 Loan Collection Rs. '000 58,4125 Outstanding Loan Balance Rs. '000 71,3926 Overdue loan (2%) Rs. '000 1,9087 Average Loan Size Rs. '000 79,946

Table 5d: Loan Disbursement Plan - Total*

S.N. Particulars Unit Current Situation

1 Total Active Loan Client No. 13,8932 Initial Loan Size Rs. '000 653 Total Loan Disbursement Rs. '000 897,6264 Loan Collection Rs. '000 403,9325 Outstanding Loan Balance Rs. '000 493,6946 Overdue loan (2%) Rs. '000 13,1967 Average loan size Rs. 35,535

* Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

Table 5e: Outstanding Loan Balance - Total*

S.N. Particulars Unit Current Situation

A Composition of O/S loan  1 Group general loan Rs. '000 408,1412 Seasonal loan Rs. '000 14,1613 Project (other) loan Rs. '000 71,392  Total Rs.

'000493,694

     B Proportion of O/S loan  1 Group loan % 832 Individual loan % 33 Project (other) loan % 14  Total % 100

* Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

47

Table 6: Savings Mobilization Plan

S.N. Particulars Unit Current Situation

1 Group Saving    Annual group savings collection Rs. '000 41,832  Total group saving collection Rs. '000 41,832     2 Personal Savings    Annual personal saving collection Rs. '000 90,992  Total personal saving collection Rs. '000 90,992     3 Center Fund Savings    Annual center fund saving collection Rs. '000 2,028  Total center fund saving collection Rs. '000 2,028     4 Welfare Fund Savings    Annual welfare fund saving collection Rs. '000 1,189  Total welfare fund saving collection Rs. '000 1,189     5 Dhaulagiri Education Savings    Annual Dhaulagiri Education saving collection Rs. '000 16,194  Total Dhaulagiri Education saving collection Rs. '000 16,194     6 Bright Future Savings    Annual Bright Future Saving Collection Rs. '000 26,161  Total Bright Future Saving Collection Rs. '000 26,161     7 Bright Future Fund    Annual Bright Future Fund Rs. '000 89,408  Total Bright Future Loan Rs. '000 89,408     8 Other savings    Annual Other Savings Rs. '000 8,507  Total Other Savings Rs. '000 8,507     9 Total Internal Fund Generation    Annual Internal Fund Generation Rs. '000 276,311  Total Fund Generation Rs. '000 276,311

Annex IV: Status of Financial Modeling and Forecast

Table 1: Cash Flow Projection

S.N. Particulars Unit Current Situation

1 Cash Inflow Rs. '000

627,511

  Reserve Fund Rs. '000 78,915  Additional external loan Rs. '000 174,639

48

S.N. Particulars Unit Current Situation

  Incremental internal fund Rs. '000 276,311  Financial income Rs. '000 97,646     

2 Cash Outflow Rs. '000

547,460

  Incremental loan disbursement Rs. '000 356,835  Financial expenses Rs. '000 28,472  Salary and administrative expenses Rs. '000 32,059  Repayment of external loans Rs. '000 130,094     

3 Net Cash Balance Rs. '000

80,051

Table 2: Projected External Borrowing Plan

S.N. Particulars Unit Current Situation

1 Incremental external loan Rs. '000 304,7332 Repayment of external loan Rs. '000 130,0943 External loan balance Rs. '000 174,639

Table 3: Projected Income Statement Projection

S.N. Particulars Unit Current Situation

1 Operating Income Rs. '000

97,646

  Interest income Rs. '000 83,032  Fee income Rs. '000 756  Other income Rs. '000 13,858     2 Operating Expenses Rs.

'00073,727

  Interest on external loan Rs. '000 10,217  Interest on internal fund Rs. '000 18,255  Loan loss provision Rs. '000 13,196  Salary and administrative expenses Rs. '000 32,059     3 Net Operating Income Rs.

'00023,919

Table 4: Balance Sheet

S.N. Particulars Unit Current Situation

1 Asset Rs. '000

578,864

  Cash/Bank Balance Rs. '000 80,051  Outstanding loan balance Rs. '000 493,694  Fixed asset Rs. '000 4,494  Other receivables Rs. '000 625

49

S.N. Particulars Unit Current Situation

     2 Liabilities Rs.

'000499,949

  External loan Rs. '000 174,639  Internal fund Rs. '000 276,311  Other fund (loan and life insurance) Rs. '000 28,151  Loan Loss Provision Rs. '000 13,196  Other payable Rs. '000 7,652     3 Net Worth Rs.

'00078,915

  Reserve fund Rs. '000 54,996  Profit/Loss Rs. '000 23,919     4 Total Liabilities/Net Worth Rs.

'000578,864

Table 5: Financial Analysis and Evaluation

S.N. Particulars Unit Current Situation

1 Financial Sustainability Analysis      Average performing asset Rs. '000 573,745  Return on average performing asset Rs. '000 97,646  Financial cost Rs. '000 10,217  Loan loss provision Rs. '000 13,196  Salary and administrative expenses Rs. '000 32,059  Imputed cost of capital Rs. '000 7,892  Overdue loan Rs. '000 13,196  Portfolio at risk Rs. '000 79,176     2 Financial and Operational Ratios    Return on average performing asset % 17.0  Financial cost ratio % 1.8  Loan loss provision ratio % 2.3  Operating cost ratio % 5.6  Imputed cost of capital ratio % 1.4  Overdue rate % 2.3  Operating self-sufficiency % 176.0  Financial self-sufficiency % 154.1     3 Productivity Ratio  

  Cost per unit of loan Rs. 0.04  Cost per loan client Rs. '000 2.31  Active client per staff No. 174  Outstanding loan per staff Rs. '000 4,702  Credit officer to total staff ratio Rs. 76     

50

S.N. Particulars Unit Current Situation

4 Average loan size Rs. 35,535

Table 13: Summary

S.N. Particulars Unit Current Situation

1 Active savings clients No. 245382 Active loan clients No. 138933 Branch offices No. 214 Staff No. 105  Head Office No. 4  Field Office No. 1015 Fixed assets Rs. '000 44946 Loan clients    Group loan No. 11500  Individual loan No. 1500  Institutional loan No. 8937 Outstanding loan balance Rs. '000 493694.0  Group loan Rs. '000 408141.0  Individual loan Rs. '000 14161.0  Institutional loan Rs. '000 71392.08 Overdue loan Rs. '000 26013.5  Group loan Rs. '000 10909.2  Individual loan Rs. '000 13196.0  Institutional loan Rs. '000 1908.29 Internal fund generation Rs. '000 276311.0

10 External borrowing Rs. '000 174639.011 Financial income Rs. '000 97,646.012 Financial expenses Rs. '000 73,727.013 Net income Rs. '000 23,919.014 Total assets Rs. '000 578,86415 Total liabilities Rs. '000 499,94916 Total net worth Rs. '000 78,915

51

Annex 4: Business Planning of the Proposed Dhaulagiri MFIAppendix 1: Operational Planning

Table 1: Outreach Projection

S.N. Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Total Clients              

  New No. 24,538 15,500 13,750 9,050 10,050 12,500

  Drop-out No. - 1,227 1,801 2,273 2,559 2,869

  Cumulative No. 24,538 38,811 50,761 57,538 65,028 74,659

     

2 Active loan clients*  

  New No. 13,893 9,300 9,625 7,240 9,045 11,250

  Drop-out No. - 695 465 481 362 452

  Cumulative No. 13,893 22,498 31,658 38,417 47,100 57,898

     

3 Office network  

  Head Office No. 1 1 1 1 1 1

  Branch/Sub-branch No. 21 25 28 31 33 35

* Includes group loan clients, group graduate clients and individual loan clients only.

Table 2: Staffing Pattern, Salary Structure and Salary Expenses

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Staffing Pattern No. 105 137 165 190 217 243

a Head Office No. 4 12 15 17 19 21

  Chief Executive Of-ficer

No. 1 1 1 1 1 1

  Deputy Chief Execu-tive Officer

No. - 1 1 1 1 1

  Division Chief No. 1 2 3 3 3 3

  R&D Officer No. - 1 1 1 1 1

  Internal Auditor No. 1 3 4 5 6 7

  Officer No. - 2 3 4 5 6

  Peon/Messenger No. 1 2 2 2 2 2

     

b Branch Offices No. 101 125 150 173 198 222

  Branch Manager No. 21 25 28 31 33 35

  Loan Officer No. 80 75 94 111 132 152

  Peon/Messenger (Lo-cal)

No. - 25 28 31 33 35

     

2 Annual Salary Structure per Staff

 

a Head Office  

  Chief Executive Of-ficer

Rs. '000 650 1,300 1,430 1,573 1,730 1,903

  Deputy Chief Execu-tive Officer

Rs. '000 - 975 1,073 1,180 1,298 1,427

  Division Chief Rs. '000 325 650 715 787 865 952

52

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  R&D Officer Rs. '000 - 520 572 629 692 761

  Internal Auditor Rs. '000 234 520 572 629 692 761

  Officer Rs. '000 195 520 572 629 692 761

  Peon Rs. '000 104 195 215 236 260 285

     

b Branch Offices  

  Branch Manager Rs. '000 234 257 283 311 343 377

  Loan officer Rs. '000 130 143 157 173 190 209

  Peon (local) Rs. '000 - 195 215 236 260 285

     

3 Salary cost Rs. '000

16,627 29,120 38,373 48,052 59,443 72,422

a Head Office Rs. '000

1,313 7,085 9,653 11,876 14,448 17,415

  Chief Executive Of-ficer

Rs. '000 650 1,300 1,430 1,573 1,730 1,903

  Deputy Chief Execu-tive Officer

Rs. '000 - 975 1,073 1,180 1,298 1,427

  Division Chief Rs. '000 325 1,300 2,145 2,360 2,595 2,855

  R&D Officer Rs. '000 - 520 572 629 692 761

  Internal Auditor Rs. '000 234 1,560 2,288 3,146 4,153 5,329

  Officer Rs. '000 - 1,040 1,716 2,517 3,461 4,568

  Peon Rs. '000 104 390 429 472 519 571

     b Branch Offices Rs.

'00015,314 22,035 28,720 36,176 44,995 55,006

  Branch Manager Rs. '000 4,914 6,435 7,928 9,655 11,306 13,190

  Loan officer Rs. '000 10,400 10,725 14,786 19,206 25,124 31,824

  Peon (local) Rs. '000 - 4,875 6,006 7,314 8,565 9,992

Table 3: Estimates on Administrative Cost

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Pre-operating ex-penses

Rs. '000 - 3,000 1,000 - - -

2 Stationary expenses Rs. '000 - 15,524 20,304 23,015 26,011 29,864

3 House rent Rs. '000 - 4,800 5,340 5,880 6,240 6,600

4 Travel cost/Daily Al-lowance

Rs. '000 - 9,864 11,880 13,680 15,624 17,496

5 Electricity, Commu-nication and Other

Rs. '000 - 1,440 1,602 1,764 1,872 1,980

6 Technical advice Rs. '000 - 2,000 2,000 2,000 2,000 2,000

7 Board operation Rs. '000 - 2,000 2,000 2,000 2,000 2,000

8 Depreciation Rs. '000 - 2,899 3,519 4,415 5,532 6,826

9 Other Rs. '000 - 4,000 5,900 6,500 6,900 7,300

  Total Rs. '000

- 45,527 53,545 59,254 66,179 74,065

Table 4: Fixed Asset Structure

S.N Particulars Unit Projection by Year

53

. Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Fixed asset Rs. '000

4,667 10,000 6,000 8,000 10,000 12,000

  Assets at es-tablishment

Rs. '000

4,667 - - - - -

  Asset to be added every year

Rs. '000

- 10,000 6,000 8,000 10,000 12,000

     

2 Net fixed as-set

Rs. '000

4,494 11,595 14,076 17,661 22,129 27,303

  Total fixed asset

Rs. '000

4,667 14,494 17,595 22,076 27,661 34,129

  Depreciation Rs. '000

173 2,899 3,519 4,415 5,532 6,826

Table 5a: Loan Disbursement Plan - General Group Loan

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Total Active Loan Client

No. 11,500 20,225 28,839 34,637 41,950 42,204

2 Initial Loan Size

Rs. '000

65 30 50 90 140 180

3 Total Loan Disburse-ment

Rs. '000

742,075 606,750 1,745,400 2,834,874 4,547,876 5,154,634

4 Loan collec-tion

Rs. '000

333,934 273,038 785,430 1,275,693 2,046,544 2,319,585

5 Outstanding loan balance

Rs. '000

408,141 741,854 1,701,824 3,261,004 5,762,336 8,597,385

6 Overdue loan (2%)

Rs. '000

10,909 14,837 34,036 65,220 115,247 171,948

7 Average loan size

Rs. 35,491 36,680 59,012 94,149 137,362 203,710

Table 5b: Loan Disbursement Plan - Seasonal Loan

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Total Active Loan Client

No. 1,500 3,720 6,826 8,357 10,303 12,743

2 Initial Loan Size Rs. '000

17 12 15 30 50 70

3 Total Loan Disburse-ment

Rs. '000

25,747 44,640 1,745,400 2,834,874 4,547,876 5,154,634

4 Loan collection Rs. '000

11,586 20,088 785,430 1,275,693 2,046,544 2,319,585

5 Outstanding loan bal-ance

Rs. '000

14,161 38,713 998,683 2,557,863 5,059,195 7,894,244

6 Overdue loan (2%) Rs. '000

379 774 19,974 51,157 101,184 157,885

7 Average loan size Rs. 9,441 10,407 146,306 306,082 491,020 619,509

Table 5c: Loan Disbursement Plan - Project Loan (Other Loan)

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Total Active Loan Client

No. 893 914 1,232 1,785 2,428 2,850

2 Initial Loan Size

  145 140 150 180 250 300

3 Total Loan Rs. 129,804 128,016 1,745,400 2,834,874 4,547,876 5,154,634

54

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

Disburse-ment

'000

4 Loan Collec-tion

Rs. '000

58,412 57,607 785,430 1,275,693 2,046,544 2,319,585

5 Outstanding Loan Bal-ance

Rs. '000

71,392 141,801 1,101,771 2,660,952 5,162,283 7,997,332

6 Overdue loan (2%)

Rs. '000

1,908 2,836 22,035 53,219 103,246 159,947

7 Average Loan Size

Rs. '000

79,946 155,075 894,643 1,490,549 2,125,995 2,806,160

Table 5d: Loan Disbursement Plan – Total*

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Total Active Loan Client

No. 13,893 24,859 36,896 44,779 54,682 57,797

2 Initial Loan Size

Rs. '000

65 31 142 190 250 268

3 Total Loan Disburse-ment

Rs. '000

897,626 779,406 5,236,200 8,504,621 13,643,627 15,463,903

4 Loan Collec-tion

Rs. '000

403,932 350,733 2,356,290 3,827,080 6,139,632 6,958,756

5 Outstanding Loan Bal-ance

Rs. '000

493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

6 Overdue loan (2%)

Rs. '000

13,196 18,447 76,046 169,596 319,676 489,779

7 Average loan size

Rs. 35,535 37,103 103,053 189,371 292,307 423,709

* Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

Table 5e: Outstanding Loan Balance - Total*

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

A Composition of O/S loan

             

1 Group general loan Rs. '000 408,141 741,854 1,701,824 3,261,004 5,762,336 8,597,385

2 Seasonal loan Rs. '000 14,161 38,713 998,683 2,557,863 5,059,195 7,894,244

3 Project (other) loan Rs. '000 71,392 141,801 1,101,771 2,660,952 5,162,283 7,997,332

  Total Rs. '000

493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

     

B Proportion of O/S loan  

1 Group loan % 83 80 45 38 36 35

2 Individual loan % 3 4 26 30 32 32

3 Project (other) loan % 14 15 29 31 32 33

  Total % 100 100 100 100 100 100

* Includes all the three loan products, i.e., general group loan, seasonal loan and project (other) loan.

Table 6: Savings Mobilization Plan

55

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Group Saving              

56

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  Annual group savings collec-tion

Rs. '000

41,832 13,499 18,995 23,050 28,260 34,739

  Total group saving collec-tion

Rs. '000

41,832 55,331 74,326 97,376 125,636 160,375

     

2 Personal Sav-ings

 

  Annual per-sonal saving collection

Rs. '000

90,992 11,643 15,228 17,261 19,508 22,398

  Total personal saving collec-tion

Rs. '000

90,992 102,635 117,863 135,125 154,633 177,031

     3 Center Fund

Savings 

  Annual center fund saving collection

Rs. '000

2,028 15,588 104,724 170,092 272,873 309,278

  Total center fund saving collection

Rs. '000

2,028 17,616 122,340 292,433 565,305 874,583

     4 Welfare Fund

Savings 

  Annual wel-fare fund sav-ing collection

Rs. '000

1,189 9,139 61,399 99,724 159,983 181,327

  Total welfare fund saving collection

Rs. '000

1,189 10,328 71,727 171,451 331,434 512,761

     

5 Dhaulagiri Education Savings

 

  Annual Dhaulagiri Ed-ucation saving collection

Rs. '000

16,194 2,250 3,166 3,842 4,710 5,790

  Total Dhaula-giri Education saving collec-tion

Rs. '000

16,194 18,444 21,610 25,451 30,161 35,951

     

6 Bright Future Fund

 

  Annual Bright Future Saving Collection

Rs. '000

26,161 9,315 12,183 13,809 15,607 17,918

  Total Bright Future Saving Collection

Rs. '000

26,161 35,476 47,658 61,467 77,074 94,992

     

7 Bright Future Savings

 

  Annual Bright Future Fund

Rs. '000

89,408 9,315 12,183 13,809 15,607 17,918

  Total Bright Future Loan

Rs. '000

89,408 98,723 110,905 124,714 140,321 158,239

     

8 Other savings  

  Annual Other Savings

Rs. '000

8,507 2,501 1,674 1,733 1,303 1,628

57

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  Total Other Savings

Rs. '000

8,507 11,008 12,682 14,414 15,717 17,346

     

9 Total Internal Fund Genera-tion

 

  Annual Inter-nal Fund Gen-eration

Rs. '000

276,311 73,250 229,551 343,320 517,851 590,996

  Total Fund Generation

Rs. '000

276,311 349,561 579,111 922,431 1,440,282 2,031,278

Appendix 2: Financial Modeling and Forecast

1Table 1: Cash Flow Projection

S.N. Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Cash Inflow Rs. '000

578,239 818,025 3,739,077 8,503,535 16,078,033 24,109,551

  Reserve Fund Rs. '000 - 18,447 76,046 169,596 319,676 489,779

  Share capital Rs. '000 - 70,000 - 30,000 - -

  External loan Rs. '000 174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

  Internal fund (savings)

Rs. '000 276,311 73,250 229,551 343,320 517,851 590,996

  DCRDC payable

Rs. '000 127,289 - - - - -

  Financial in-come

Rs. '000 - 156,277 618,869 1,368,458 2,570,582 3,931,873

  Brought fore-word

Rs. '000 - 80,051 44,612 52,161 69,924 96,903

     

2 Cash Out-flow

Rs. '000

498,188 773,413 3,686,916 8,433,610 15,981,131 23,981,293

  Fixed asset Rs. '000 4,494 10,000 6,000 8,000 10,000 12,000

  Outstanding loan balance

Rs. '000 493,694 428,673 2,879,910 4,677,542 7,503,995 8,505,147

  Financial ex-penses

Rs. '000 - 88,353 292,607 875,178 1,807,046 2,724,485

  Salary and administra-tive expenses

Rs. '000 - 71,748 88,399 102,891 120,090 139,661

  Repayment of external loans

Rs. '000 - 174,639 420,000 2,770,000 6,540,000 12,600,000

     

3 Net Cash Balance

Rs. '000

80,051 44,612 52,161 69,924 96,903 128,258

Table 2: Projected External Borrowing Plan

S.N.

Particulars Unit Projection by Year

Hand-over 1st Year 2nd Year 3rd year 4th Year 5th Year1 External loan

(borrowing)Rs. '000

174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

2 Repayment of external loan

Rs. '000

- 174,639 420,000 2,770,000 6,540,000 12,600,000

3 External loan balance

Rs. '000

174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

58

Table 3: Projected Income Statement Projection

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Operating Income Rs. '000

- 156,277 618,869 1,368,458 2,570,582 3,931,873

  Interest income Rs. '000 - 152,548 613,334 1,361,741 2,562,380 3,923,203

  Fee income Rs. '000 - 2,486 3,690 4,478 5,468 5,780

  Other income Rs. '000 - 1,243 1,845 2,239 2,734 2,890

     

2 Operating Expenses Rs. '000

- 181,447 460,570 1,152,080 2,252,344 3,360,752

  Interest on external loan Rs. '000 - 50,003 234,650 785,200 1,669,200 2,532,000

  Interest on internal fund Rs. '000 - 38,350 57,957 89,978 137,846 192,485

  Loan loss provision Rs. '000 - 18,447 76,046 169,596 319,676 489,779

  Salary and administra-tive expenses

Rs. '000 - 74,647 91,918 107,306 125,622 146,487

     

3 Profit before Tax and staff bonus)

Rs. '000 - (25,170) 158,298 216,377 318,238 571,121

  Tax (30% of net in-come)

Rs. '000 - - 47,489 64,913 95,471 171,336

     

4 Profit after Tax Rs. '000 - (25,170) 110,809 151,464 222,766 399,785

  Staff bonus Rs. '000 - - 22,162 30,293 44,553 79,957

     

5 Net Profit Rs. '000

- (25,170) 88,647 121,171 178,213 319,828

Table 4: Projected Balance Sheet

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Asset Rs. '000

578,865 978,574 3,868,515 8,567,405 16,102,846 24,644,521

  Cash/Bank Balance Rs. '000 80,051 44,612 52,161 69,924 96,903 128,258

  Outstanding loan bal-ance

Rs. '000 493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

  Fixed asset Rs. '000 4,494 11,595 14,076 17,661 22,129 27,303

  Receivable Rs. '000 626 - - - - -

     

2 Liabilities Rs. '000

578,865 902,101 3,602,178 8,068,948 15,227,671 23,137,952

  External loan Rs. '000 174,639 420,000 2,770,000 6,540,000 12,600,000 19,000,000

  Internal fund Rs. '000 276,311 349,561 579,111 922,431 1,440,282 2,031,278

  Payables Rs. '000 127,915 132,540 253,067 606,517 1,187,389 2,106,674

     

3 Net Worth Rs. '000

- 76,474 266,336 498,457 875,175 1,506,569

  Reserve fund Rs. '000 - 31,643 107,689 277,285 596,962 1,086,741

  Share capital Rs. '000 - 70,000 70,000 100,000 100,000 100,000

  Profit/Loss Rs. '000 - (25,170) 88,647 121,171 178,213 319,828

     

59

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

4 Total Liabilities/Net Worth

Rs. '000

578,865 978,574 3,868,514 8,567,405 16,102,846 24,644,521

Table 5: Financial Analysis and Evaluation of the Business Plan

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

1 Financial Sustainability Analysis

             

  Average performing asset Rs. '000

573,745 966,979 3,854,438 8,549,744 16,080,717 24,617,218

  Return on average performing asset

Rs. '000

- 156,277 618,869 1,368,458 2,570,582 3,931,873

  Financial cost Rs. '000

- 88,353 292,607 875,178 1,807,046 2,724,485

  Loan loss provision Rs. '000

- 18,447 76,046 169,596 319,676 489,779

  Salary and administrative expenses

Rs. '000

- 74,647 91,918 107,306 125,622 146,487

  Imputed cost of capital Rs. '000

- 7,647 26,634 49,846 87,517 150,657

  Overdue loan Rs. '000

13,196 18,447 76,046 169,596 319,676 489,779

  Portfolio at risk Rs. '000

79,176 110,684 456,273 1,017,578 1,918,058 2,938,675

     

2 Financial and Operational Ratios

 

  Return on average performing asset

% 0.0 16.2 16.1 16.0 16.0 16.0

  Financial cost ratio % 0.0 9.1 7.6 10.2 11.2 11.1

  Loan loss provision ratio % 0.0 1.9 2.0 2.0 2.0 2.0

  Operating cost ratio % 0.0 7.7 2.4 1.3 0.8 0.6

  Imputed cost of capital ratio

% 0.0 0.8 0.7 0.6 0.5 0.6

  Overdue rate % 2.3 1.9 2.0 2.0 2.0 2.0

  Operating self-sufficiency

% 0.0 86.1 134.4 118.8 114.1 117.0

  Financial self-sufficiency % 0.0 82.6 127.0 113.9 109.9 112.0

     

3 Productivity Ratio  

  Cost per unit of loan Rs. - 0.10 0.02 0.01 0.01 0.01

  Cost per loan client Rs. '000

- 3.00 2.49 2.40 2.30 2.53

  Active client per staff No. 174 331 393 403 414 380

  Outstanding loan per staff

Rs. '000

4,702 6,733 23,044 44,631 73,658 100,778

  Credit officer to total staff ratio

Rs. 76 55 57 58 61 63

  Salary of credit officer to total salary ratio

Rs. 62.5 36.8 38.5 40.0 42.3 43.9

     

4 Average loan size Rs. 35,535 37,103 103,053 189,371 292,307 423,709

Table 6: Assessment of Capital Adequacy

60

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

A Core Capital Rs. '000 - 44,830 158,647 309,818 488,031 807,859

1 Paid up capital (Ordinary share)

Rs. '000 - 70,000 70,000 100,000 100,000 100,000

2 Proposed bonus share Rs. '000 - - - - - -

3 Share premium Rs. '000 - - - - - -

4 Irredeemable preference share

Rs. '000 - - - - - -

5 General reserve fund Rs. '000 - - - - - -

6 Accumulated profile/loss up to last year

Rs. '000 - - - 88,647 209,818 388,031

7 Current year profit/loss amount presented in balance sheet

Rs. '000 - (25,170) 88,647 121,171 178,213 319,828

8 Capital redemption reserve Rs. '000 - - - - - -9 Capital Adjustment Fund Rs. '000 - - - - - -

10 Calls in advance Rs. '000 - - - - - -

11 Other free reserves Rs. '000 - - - - - -

  Less  1 Goodwill Rs. '000 - - - - - -

2 Investment exceeding limits Rs. '000 - - - - - -

3 Fictitious loans Rs. '000 - - - - - -

4 Investment made in shares and securities of the corpo-rate bodies having own finan-cial interests

Rs. '000 - - - - - -

     

B Supplementary Capital Rs. '000 - 31,643 107,689 277,285 596,962 1,086,741

1 Provision for general loan losses

Rs. '000 - 31,643 107,689 277,285 596,962 1,086,741

2 Asset revaluation fund Rs. '000 - - - - - -

3 Hybrid capital instruments Rs. '000 - - - - - -

4 Unsecured Sub-ordinated term loans

Rs. '000 - - - - - -

5 Exchange equalization fund Rs. '000 - - - - - -

6 Additional loan loss provi-sion

Rs. '000 - - - - - -

7 Investment equalization fund Rs. '000 - - - - - -

8 Provision for investment losses

Rs. '000 - - - - - -

     

C Total Capital Fund Rs. '000 - 76,474 266,336 587,103 1,084,993 1,894,600

D Minimum capital to be main-tained based on risk weighted asset

Rs. '000

  Capital fund (8%) Rs. '000 39,855 74,717 305,308 679,798 1,280,475 1,961,301

  Primary capital (4%) Rs. '000 19,928 37,359 152,654 339,899 640,238 980,651

E Capital Adequacy Ratio  

  Capital fund % 0% 10% 9% 9% 9% 10%

  Primary capital % 0% 6% 6% 5% 5% 5%

     

  Capital fund (more/less) % -8% 2% 1% 1% 1% 2%

  Primary capital (more/less) % -4% 2% 2% 1% 1% 1%

61

Table 7: Statement on Risk Weighted Asset

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

A On-balance sheet items

             

  Cash balance Rs.'000 20013 11153 13040 17481 24226 32064

  Gold deposit (tradable) Rs.'000 0 0

  Deposit with NRB Rs.'000 60038 33459 39121 52443 72677 96193

  Investment in GON bonds

Rs.'000 0 0 0 0 0 0

  Investment on NRB bond

Rs.'000 0 0 0 0 0 0

  Fixed receipt pledged loan extended against one's own fixed receipt to be most secured

Rs.'000 0 0 0 0 0 0

  Loan extended against security of government bond to be most se-cured

Rs.'000 0 0 0 0 0 0

  Accrued interests for government bonds

Rs.'000 0 0 0 0 0 0

  Amount deposited by class "B" and "C" li-censed institutions in the Youth and Small Entrepreneurs Self Em-ployment Fund under the Deprived Sector Lending

Rs.'000 0 0 0 0 0 0

  Claims of deposits/fixed receipts at the do-mestic banks and finan-cial institutions

Rs.'000 0 0 0 0 0 0

  Fixed receipts pledged loan extended against fixed receipts of other banks and financial in-stitutions to be most se-cured

Rs.'000 0 0 0 0 0 0

  Deposit with foreign banks

Rs.'000 0 0 0 0 0 0

  Money at call Rs.'000 0 0 0 0 0 0

  Loan extended against guarantee of interna-tionally rated licensed institutions

Rs.'000 0 0 0 0 0 0

  Other investment made in internationally rated Banks

Rs.'000 0 0 0 0 0 0

  Inter-bank lending Rs.'000 0 0 0 0 0 0

  Investment in shares, debentures and bonds

Rs.'000 0 0 0 0 0 0

  Other investments Rs.'000 0 0 0 0 0 0

  Total loans, credit and bills purchased / dis-count

Rs.'000 493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

62

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  Fixed assets Rs.'000 4,494 11,595 14,076 17,661 22,129 27,303

  Other net interest amount to be received

Rs.'000 - - - - - -

  All other assets (except advance income tax payment)

Rs.'000 - - - - - -

  Real estate / residential housing loans exceed-ing the limits

Rs.'000 - - - - - -

  Total Rs.'000

578,239 978,574 3,868,515 8,567,405 16,102,846 24,644,521

     

B Off-balance sheet transactions

  - - - - - -

  Bills collection Rs.'000 - - - - - -

  Forward foreign ex-change contract

Rs.'000 - - - - - -

  Letter of credit of less than 6-month duration (full amount)

Rs.'000 - - - - - -

  Guarantee issued against the guarantee of internationally rated foreign licensed institu-tion

Rs.'000 - - - - - -

  Letter of credit of more than 6 months duration (full amount)

Rs.'000 - - - - - -

  Commitments rating to bid bond, performance bond and underwriting

Rs.'000 - - - - - -

  Credit purchase / repur-chase and take-over

Rs.'000 - - - - - -

  Advance payment guar-antee

Rs.'000 - - - - - -

  Financial and another guarantee

Rs.'000 - - - - - -

  Irrecoverable loan com-mitment

Rs.'000 - - - - - -

  Possible liabilities for income tax

Rs.'000 - - - - - -

  All types of possible li-abilities including ac-ceptance

Rs.'000 - - - - - -

  Unpaid guarantee claims

Rs.'000 - - - - - -

  Total Rs.'000

- - - - - -

     

C Total Asset Rs.'000

578,239 978,574 3,868,515 8,567,405 16,102,846 24,644,521

Annex 8: Calculation of Risk Weighted Asset

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

A On-balance sheet items              

  Cash balance 0% 0 0 0 0 0 0

  Gold deposit (tradable) 0% 0 0 0 0 0 0

  Deposit with NRB 0% 0 0 0 0 0 0

  Investment in GON bonds 0% 0 0 0 0 0 0

63

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  Investment on NRB bond 0% 0 0 0 0 0 0

  Fixed receipt pledged loan extended against one's own fixed receipt to be most se-cured

0% 0 0 0 0 0 0

  Loan extended against secu-rity of government bond to be most secured

0% 0 0 0 0 0 0

  Accrued interests for gov-ernment bonds

0% 0 0 0 0 0 0

  Amount deposited by class "B" and "C" licensed institu-tions in the Youth and Small Entrepreneurs Self Employ-ment Fund under the De-prived Sector Lending

0% 0 0 0 0 0 0

  Claims of deposits / fixed receipts at the domestic banks and financial institu-tions

20% 0 0 0 0 0 0

  Fixed receipts pledged loan extended against fixed re-ceipts of other banks and fi-nancial institutions to be most secured

20% 0 0 0 0 0 0

  Deposit with foreign banks 20% 0 0 0 0 0 0

  Money at call 20% 0 0 0 0 0 0

  Loan extended against guar-antee of internationally rated licensed institutions

20% 0 0 0 0 0 0

  Other investment made in internationally rated Banks

20% 0 0 0 0 0 0

  Inter-bank lending 20% 0 0 0 0 0 0

  Investment in shares, deben-tures and bonds

100% 0 0 0 0 0 0

  Other investments 100% 0 0 0 0 0 0

  Loans, credit and bills pur-chased / discount

100% 493,694 922,368 3,802,278 8,479,819 15,983,814 24,488,961

  Fixed assets 100% 4,494 11,595 14,076 17,661 22,129 27,303

  Other net interest amount to be received

100% - - - - - -

  All other assets (except ad-vance income tax payment)

100% - - - - - -

  Real estate/residential hous-ing loans exceeding the lim-its

150% - - - - - -

  Total   498,188 933,963 3,816,354 8,497,480 16,005,943 24,516,264

B Off-balance sheet transac-tions

 

  Bills collection 0% - - - - - -

  Forward foreign exchange contract

10% - - - - - -

  Letter of credit of less than 6-month duration (full amount)

20% - - - - - -

  Guarantee issued against the guarantee of internationally rated foreign licensed insti-tution

20% - - - - - -

  Letter of credit of more than 6 months duration (full amount)

50% - - - - - -

64

S.N.

Particulars Unit Projection by Year

Hand-over as of Asar 31, 2074

1st Year 2nd Year 3rd year 4th Year 5th Year

  Commitments rating to bid bond, performance bond and underwriting

50% - - - - - -

  Credit purchase/re-purchase / take-over

50% - - - - - -

  Advance payment guarantee 100% - - - - - -

  Financial and another guar-antee

100% - - - - - -

  Irrecoverable loan commit-ment

100% - - - - - -

  Possible liabilities for in-come tax

100% - - - - - -

  All types of possible liabili-ties including acceptance

100% - - - - - -

  Unpaid guarantee claims 200% - - - - - -

  Total   - - - - - -

     

C Total Risk Weighted Asset   498,188 933,963 3,816,354 8,497,480 16,005,943 24,516,264

65