Help Farmers Reduce Debt Burden

Nepali people mainly in rural parts feel there is a need for savings but they primarily have an access to loans. To many rural women, savings have become a compulsion in different groups promoted by various projects. At certain times, it has also become a burden, as multiple places of savings and multiple sources of loans also means multiple expenses. Due to poverty eradication strategy of governments in different countries, microfinance (MF) projects are implemented. As women have shown to be more disciplined in managing money, savings and giving loans to women in rural areas is a common practice. However, several researches have shown that this money is usually used by the men in business, but when the repayment time comes, women are responsible to repay. 

As they become clients of multiple savings and credit groups and Micro Finance Institutions (MFIs), a time usually comes when they start defaulting as they deplete the capacity to repay back. People also save in kind not just cash. In places like Humla, saving food grain has become a life-saving habit, as they had to tide over several months of food deficient periods. In Mahottari, interaction with groups who were members of MFIs like Chimek, and projects like Micro Enterprise Development Project (MEDEP), or Savings and Credit Cooperative (SACCOs), and Poverty Alleviation Fund (PAF) and other groups like mothers groups, it was learnt that women face difficult to increase their savings and meet the saving schedules. In general the poor people in all three districts have a positive attitude towards savings and see it as means closely linked to their survival and livelihood.

Violation of financial principles 

However, they still need knowledge to sharpen their skills in utilising their savings. There is a need for people to be able to plan and budget before becoming parts of different groups. It is very important for them to understand what the cost of being part of several groups is as opposed to a few selected ones. Also it is very important for them to understand what the different savings products in the market are and what are their advantages and disadvantages. This information was based on a research conducted in early 2000s. However, when one reflects the situation of the MF sector that is now leading towards duplication of clients and defaults, it is clear that both the government and the private sector have not adhered to very simple and basic principles of financial services. 

Nepal does have decades’ long experience of savings in various informal and formal groups, and people especially the poor are used to the “saving concept” in general and particularly in association to accessing loan. It is therefore important for the policy makers and the service providers to make sure that they are also enabled to make informed choices on what products to choose. They should not be compelled to be members of multiple groups which could create more stress on their financial health. Policy makers should have applied Financial Literacy (FL) material that would help the poor people develop a planning system to assess all sources of household income and expenditure to save accordingly.

The FL also needs to focus on making families assess the various savings invested in different groups and understand the need to have larger savings which can earn more for them. If FL is given to people in a proper manner, it will help them address their need to start developing habits to assess what services are offered by the formal and informal institutions. The FL should help remove the concept of linking savings only as collateral for loan and help people to develop a regular habit for savings to help them lead a comfortable life with no fear of running short of finance.  A concept of long term security needs to be associated with savings.

Indebtedness  

This research identified serious indebtedness among rural peasantry and there has been the focus of periodic reforms since the time of King Prithvi Narayan Shah. Despite this, indebtedness remains a pervasive and unresolved problem throughout the country. Chronic debt is aggravated by exorbitant rates of interest and consumes limited household budgets, already strained by low and often declining productivity in traditional agriculture. According to Levine N.E., debt may remain one of the fundamental economic problems in remote hill districts of Nepal. All people no matter whether they are rich or poor need money for survival. If people need loan for certain financial needs, they enter the world of debt. Therefore, it is important to understand how to use debt well before getting it. 

The indebtedness is becoming a big issue. The poor people are falling into the traps of vicious cycle of poverty not because they do not understand the implications of debt but because they lack the skills on how to plan before taking loan and utilising it in a manner that helps them to increase their wealth. There was a general attitude that loan had to be taken to manage financial needs required in their life cycle. However, although the knowledge that debt could push them into poverty is there among all, knowledge of how to prevent it is not there. Access to external financial sources is very important in lives of the poor. Service providers must help them make informed choices, enabling them to lead a debt free and financially sufficient life style. 

(Namrata Sharma is a journalist and women rights activist. namrata1964@yahoo.comTwitter handle: @NamrataSharmaP)