DEPOSIT MOBILIZATION

OF
SANA KISHAN BIKASH BANK LIMITED

A Field work Report Proposal

Submitted By:

Pratham Thapa
T.U. Registration No:
Group: Finance
Danfe College
Putalisadak, Kathmandu

Submitted To:
The Faculty of Management
Tribhuvan University
Kathmandu, Nepal

In the partial fulfillment of

The requirement of the degree of Bachelor of Business studies
(BBS)
Kathmandu, Nepal
Date
Contents
INTRODUCTION....................................................................................1
1.1 Background of the study.............................................................1
1.2 Statement of Problem..................................................................3
1.3 Objective of Study...........................................................................3
1.4 Rationale of Study...........................................................................4
1.5 Report Structure.............................................................................4
1.6 Study Limitations............................................................................5
1.7 Related Literature Review..............................................................5
1.8 Research Methodology..................................................................13
1.8.1 Population and Sample.........................................................13
1.8.2 Types of Data.......................................................................13
1.8.3 Secondary Data....................................................................13
1.8.4 Primary Data........................................................................14
1.8.5 Data collection Procedure...................................................14
1.8.6 Techniques to Analysis........................................................15
BIBLIOGRAPHY..................................................................................15
 1

INTRODUCTION

1.1 Background of the study

Deposit is one of the important domestic capital formation factors that lead to increase
in the size of national output income and employment, solving the problems of
inflation and balance of payment and foreign debts. Domestic capital formation helps
in making a country self-sustainable. According to classical economists, one of the
main factors which helped capital formation was the accumulation of capital. Profit
made by the business community constituted the major part of saving in the
community and the saved one has been assumed to be invested. They thought capital
formation indeed plays a device role in determining the level and growth of national
income and economic development (Bendix,1915). In the view of many economists,
capital occupies the central and strategic position in the process of economic
development in an underdeveloped economy that lies in a rapid expansion of the rate
of its capital investment so that it attains a rate of growth of output which exceeds the
rate of growth of population by the significant margin. Only with such rate of capital
investment will the living standard begin to improve the developing countries. In
developing countries, the rate of saving is quite low and existing institutions are half
successful in mobilizing the saving as most of people have incomes so low that
vertically all current income must be spent to maintain a subsistent level of
consumption. Investment is an essence o the national economy. Banking system is the
integral part of the investment system in productive sectors (Mikkelson and Ruback,
1985). It involves the sacrifice of current rupees for future prospect. It is concerned
with the allocation of present fund for later reward, which is uncertain. When people
deposit money in saving account, for example in a bank, the bank must invest the
money in new factories and equipment to increase their production. In addition,
borrowing from the banks most issues stocks and bonds that they sell to investors to
raise capital needed for the business expansion (Sharpe wt al.1998). Government also
issues bond to obtain funds to invest in projects such as the construction of dams,
roads, and schools. All such investment made by individuals, business and
government, a presto sacrifice of income to get and expect future benefits. As a result,
investment raises a nation’s standard of living.
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For the development of any country, the financial sector of the country is responsible
and must be strong. The financial sector is the vast field, which comprises of banks,
cooperatives, insurance companies, financial companies, stock exchange, foreign
exchange markets, mutual funds etc (Shanmugam, 1989). These institutions collect
idle and scattered money from the general public and finally invest in different
enterprises of national economy that consequently help in reducing poverty, increase
in life style of people, increase employment opportunities and thereby developing the
society and country as a whole. Thus, in today’s concept, the financial institutions and
microfinance banks have become one of the bases for measuring level of economic
development of nation.

Micro Finance banks are the main sources which motivate people to save their
earnings. Banks mobilize, allocate and invest much of society ‘s saving (Bergere et al.
2004). Households and business are mainly using banks to save their money to get
loan for their project undertakings. Blanco and Meyer (2001) said that microfinance
banks are important financial intermediaries serving the general public in any society.
In most cases commercial banks hold more assets than any other financial institutions.
Apart from their many functions, microfinance banks facilitate growth and
development. Banks lend in many areas or sectors of the economy.

Bank deals in accepting the saving of people in the form of deposit collection and
invest in the productive area (Fischer, 1989). They provide loan to the people against
real and financial assets. They transfer the monetary sources from savers to users. In
other words, they are intermediate between lender and receiver of fund they mobilize
the depositor fund. Bank deposits represent the most significant components of the
money supply used by the public and changes in money growth are highly correlated
with changes in the prices of goods and services in the economy ( Aredo, 2004).
Development banks are critical to the development process. By granting loans in areas
such as agriculture, manufacturing, services, construction and energy sectors, banks
contribute to the development of the country.

The development bank has been a vital ingredient for economic development of the
country. Capital accumulation plays an essential role of the economic growth of
nations, which in turn is basically determined among others by saving and investment
 3

propensities (Brennan, 1970). But, the capacity of saving in the developing country is
quiet low with relatively higher marginal propensity of consumption. As a result,
developing countries are badly trapped into vicious circle of poverty. The basic
problem of these countries is raising the level of saving and thus investments (Khalily
et al.,1987). In order to collect enough saving and put them into productive channels,
financial institutions like banks are necessary. It will be utilized within the economy
and will either be diverted abroad or used for unproductive consumption.

Microfinance is not simply banking for the poor, it is a development approach with a
social mission and a private sector-based financial bottom line that uses tested and
continually adjusted sets of principles, practices and technologies. The key to success
microfinance lies in the ability of the provider to cost-effectively reach a critical mass
of clients with systems of delivery, market responsiveness, risk management and
control that can generate a profit to the institution. Typically, this profit is ploughed
back to ensure the long-term survival of institution, i.e. the continuous provision of
services demanded by its clients. The two long term goal of microfinance are thus
substantial outreach and sustainability. Financial services enable the poor to increase
and diversify incomes, build human, social and economic assets, and improve their
lives in ways that reflect the multidimensional aspects of poverty.

Small Farmers Development Bank (Sana Kisan Bikas Bank); as an apex microfinance
bank emerged on July 2001 to provide wholesale credit along with the technical
support services mainly to the Small Farmers Agriculture Cooperatives Ltd.
(SFACLs) and similar types.

The banks are incorporated under the company Act and licensed under the Bank and
Financial Institutions Act (BAFIA) 2006 as a “D” class bank. Currently, this bank has
started providing wholesale credit to other cooperatives and Microfinance institutions
(MFIs) too in order to expedite access to microfinance services for the low-income
people especially living in hills and mountains of the country.
The Government of Nepal, the Agriculture Development Bank, Nepal Bank Limited,
Nabil Bank and 21 Small Farmers Agriculture Cooperatives were its initial promoters.
The Bank established for Small Farmers Agriculture Cooperatives, a major portion of
shares of the Agriculture Development Bank and entire shareholding of the
 4

Government of Nepal, been divested to 231 SFACLs. The ownership structure as of

April, 2017 is shown in table.
S. N Name of shareholder Amount in Millions
1 Agriculture Development Bank Ltd. 50.66
2 Nepal Bank Ltd 13.96
3 Nabil Bank Ltd. 6.98
4 SFCLs 89.40
5 Public 69.67
Total 230.68

Its central office is in Kathmandu, 9 regional offices incorporating all geographical

regions. To provide financial and technical services with convenience and ease,
regional offices in Birtamod (for Mechi), Itahari, Sunshari (Koshi), Janakpur,
Dhanusha (for Janakpur and Sagarmatha), Hetauda, Makwanpur (for Narayani),
Gajuri, Dhading (for Bagmati), Butwal, Rupandehi (for Lumbini), Pokhara, Kaski (for
Gandaki and Dhaulagiri), Nepalgunj (for Rapti, Bheri, and Sheti) and Attariya (for
Karnali and Mahakali) have been established. Regional offices provide financial and
technical assistance to SFACLs and other microfinance institutions.

1.2 Statement of Problem

The banking sector in Nepal plays a pivotal role in fostering economic growth by
mobilizing deposits and facilitating capital flow. However, the deposit mobilization
landscape faces significant challenges that necessitate a focused intervention. Low
savings culture, limited financial literacy, rural-urban disparities, and competition
from informal channels are among the prominent challenges that hinder optimal
deposit mobilization.

The research problems may be stated in the form of following questions: -

a. How is the condition of liquidity of the bank?

b. What is the deposit collection and utilization trend of sample bank?

 5

c. What is the relationship of deposits, loan & advances and investments of

sample bank?

1.3 Objective of Study

The general objective of the study is to examine relationship between the amount of
total deposit and amount of total credit and investment granted by the micro finance
banks.
The specific objectives of the study are as follows:
i. To assess the trends of deposit, investment, loans, and advances, and asset
purchased
ii. To assess the relationship between deposits and loans and advances,
investment and assets purchased.
iii. To analyze the movement of deposits with respect to loans and advances,
investment and asset purchased from portfolio analysis.
iv. To analyze the management views and opinions regarding the fund’s
allocation and deposit mobilization in the context of SKBBL.

1.4 Rationale of Study

Banks and other financial institutions play an important role to increase economic
standard for the development of the country. Economic development becomes slow if
there are incomplete and unfair banking facilities. Especially, Microfinance banks
provide different economic and technical facilities to the people who involve in
business activities. Microfinance banks play a major role in collection of scared small
saving depositors and transfer these funds into productive sectors for the economic
development.
As the research done in any field, there are several key factors that cannot be avoided,
in which significance of study also occurs. Mainly this study covers the deposit and
credit position of microfinance banks, so it helps to reveal the financial position of
banks and study occupies an important role in the series of the studies of microfinance
banks. The significance of the study is:
i. Importance to know how well the bank is utilizing its deposits.
ii. Importance to policy formulator and also be useful academic professionals,
students particularly those involves in commerce, CA and financial institutions
to formulate policies and plans on the basis of the performance of the bank.
 6

iii. Importance to the management party of selected banks for the evaluation of the
performance of their bank and comparison with other banks.
iv. Importance for the investors, customers, (Depositors and loan takers) and
personal of bank to take various decisions regarding deposits and loan advances.

1.5 Report Structure

1. The first chapter is about introduction part which contain general background of the
study, profile of organization, objective of study, rationale of study, organization of
study, review of literature and researcher methodology.
2. The second chapter presents the result and findings which is associated with the
presentation of the data in tables and figure and their analysis and major findings.
3. The last chapter is about the summary, conclusion and recommendations. In this
chapter the researcher summarizes the whole study, draw conclusion based on the
findings made earlier and finally make appropriate recommendation to the concerned
parties.

1.6 Study Limitations

The researcher tries to his best to achieve accurate results. But even if almost care is
taken right form the stage of topic selection through identifying data sources, analysis,
selecting, finding, scope of the study, no research project can achieve 100% accurate
results.
The main limitations of this project are;
1. This study has only focused on deposit mobilization aspect of the bank.
2. This study is based on only five-year annual reports.
3. This study only about Sana Kisan Bikas Bank Limited.
4. The researcher was not in a position to conduct an intensive study of the deposit
mobilization of the bank, due to shortage of time.

1.7 Related Literature Review

Microfinance institutions around the world serve different types of clients. These
institutions offer various services including loans, saving account, insurance products
and various combinations of these services. While microcredit refers to the act of
providing loans of small amounts to the poor and other borrowers that have been
ignored by commercial banks, microfinance is the act of providing borrowers with
financial services such as savings institutions and insurance policies (Sengupta and
 7

Aubuchon, 2008).
More broadly, microfinance is “a word in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high-quality
financial services, including not just credit, but also savings, insurance and fund
transfers” (Robert et al, 2004). The institutions that carry out these activities in
Nigeria is construed to mean “any company licensed to carry on the business of
providing microfinance services, such as savings, loans, domestic funds transfer, and
other financial services that needed by the economically active poor, micro, small,
and medium enterprises conduct or expand their business” (CBN,2005). Micro
finance activities can be available in the form of micro credit, micro savings, and
micro insurance, other “micro” financial services. The idea of microfinance started in
Bangladesh with the establishment of the Grameen Bank.

Conventional banks across the world ordinarily find lending to the poor very difficult
and unprofitable. Difficult because they lack the skills or the expertise needed to put
the borrowed funds to their best possible use; and unprofitable because most of the
loans may go bad and may consequently have to be written off. New thinking now
centers on micro financing with rural poor as the focus. Dupas and Robinson (2009)
in an assessment of the effects of micro savings in Kenya finds access to saving
accounts by micro enterprises in microfinance banks had several positive effects on
the business fortune of the savers. This fact seems interesting because the saving
accounts were not only interest-free, but also featured substantial withdrawal fees.

Also, research in Thailand shows that microfinance institutions, particularly those

targeted at women, promoted asset growth, consumption smoothing, mobility across
occupations and industries, and also reduced reliance on money lenders (Kaboski and
Townsend,2005). Microfinance, according to Otero (1999, p.8) is “the provision of
financial services to low income poor and very poor self-employed people”. These
financial services according to Ledgerwood (1999) generally include saving and
credit but can also include other financial services such as insurance and payment
services. Schreiner and Colombet (2001, p.339) define microfinance as “the attempt
to improve access to small deposits and small loans for poor households neglected by
bank”. Therefore, microfinance involves the provision of financial services such as
savings, loans and insurance to poor people living in both urban and rural setting who
 8

are unable to obtain such services from the formal financial sector.

In the literature, the term micro credit and microfinance are often used
interchangeably, but it is important to highlight the different between them because
both terms are often confused. Sinha (1998, p.2) states “microcredit refers to small
loans, whereas microfinance is appropriate where NGOs and MFIs supplement the
loans with other financial services (savings, insurance)”. Therefore, microcredit is the
component of microfinance in that it involves providing credit to the poor, but
microfinance also involves additional non-profit financial services such as savings,
insurance, pensions, and payment services (Okiocredit, 2005).

The History of Microfinance Microcredit and microfinance are relatively new terms
in the field of development, first coming to prominence in the 1950s, according to
Robinson (2001) and Otero (1999). Prior to then the 1950s through to the 1970s, the
provision of financial services by donors or governments was mainly in the form of
subsidized rural credit programmers. These often resulted in high loan defaults, high
lose and an inability to reach poor rural households (Robinson, 2001).

Robinson states that the 1980s represented a turning point the history of microfinance
in that MFIs such as Grameem Bank and BRI2 began to show that they could provide
small loans and savings services profitably on a large scale. They received no
continuing subsidies, were commercially funded and fully sustainable, and could
attain wide outreach to clients (Robinson, 2001). It was also at this time that the term
“microcredit” came to prominence in credit programs of the 1950s and 1960s was that
microcredit insisted on repayment, on charging interest rates that covered that cost of
credit delivery and by focusing on clients who were depended on informal sector for
credit. It was now clear for the time that microcredit provide large-scale outreach
profitably.

The 1990s “Saw accelerated growth of number of microfinance institutions created

and an increased emphasis on reaching scale”. (Robinson,2001, p.54). Dichter (1999,
p.12) refer to the 1990s as “the microfinance decade”. Microfinance now turned into
an industry according to Robinson (2001). Along with the growth in microcredit
institutions, attention changed from just the provision of credit to the poor
 9

(microcredit), to the provision of other financial services such as savings and pensions
(microfinance) when it became clear that the poor had a demand for these other
services (MIX,2005).

Using the multiple regression method, Agu (1984) concluded a study on the role of
banks in mobilization and allocation of resources for development in the context of
Nigeria. This study had used the variables

Such as saving rate, income, interest rate and wealth. The data was based on
secondary data and the annual data from the period from 1960 to 1980 have been
used. The data employed was extracted from the population Bureau Office Lagos,
annual report and account of CBN, Monthly Report, PNC Okigbo Nigeria’s Financial
System.

The major finding of the study was that the Nigeria banks have potential scope and
prospects for mobilizing financial resources and allocating them to productive
investments which have to be exploited quickly by enlarging the number of banks
offices and also by the banks branching into the rural areas where a lot of saving lie
idle or dissipated and where productive investment projects do not take off because
lack of financial institution to mobilize and channel the funds so mobilized into
productive activities. The strength of the research was that role and scope of the
microfinance banks as financial intermediaries in mobilizing domestic financial
resources for development and the constrains in the efficient performance of this role
was explored in the light of past trends.

The term microfinance was not used in earlier part of the history of rural
microfinance. It has been found used in Nepal only in the part of 1990s. Rural credit
in Nepal began in 1956 with the opening of Credit Cooperatives in Chitwan Valley to
provide loans to the re-settlers coming from the different parts of country. The
government through the creation of the Cooperative Development Fund (CDF)
arranged some credit support to the re-settlers through these cooperatives. In 1963, the
government established the cooperatives Bank, which was later, converted into
Agricultural Development Bank in 1968.The cooperative faced problems of shortage
of fund for credit disbursement to their members on the one hand and
 10

misappropriation of borrowed fund for personal uses by some of their officials on the
other. Hence, the government commissioned a fact –finding mission in 1968 to probe
the operation of 1489 cooperatives then registered with the department of
Cooperatives and the mission found most of them at defunct stage and recommended
for their liquidation. Therefore, the government introduced the Cooperatives
Revitalization Program in 1971. It authorized the Agricultural Development Bank
Nepal to run cooperatives under its guidance and management. In 1976, ‘Sajha
Program ‘was launched and the Cooperatives were renamed as ‘Shaja Societies’. The
compulsory savings collected under the Land reform program of 1964 (2021 B.S.)
were converted into the share capital of Sajha Societies. The NRB conducted a bench
mark survey in 1983/84 to access the situation of the Cooperatives. The study found
that 94% of cooperatives were dealing with transactions of agriculture inputs and 85%
were also found extending credit. Most of the cooperatives were running at losses
and over 75% of the outstanding loan was overdue for more than one year. ADBN
launched the Small Farmer Development Program in 1975- first pilot project at two
sites, Sakhuwa Mahendranagar of Dhanusha district in Terai and Tupche of Nuwakot
district in hills. The Strategy was to organize small farmers, tenants and landless
laborers into groups and strengthen their receiving mechanism for tapping resources
from services agencies. Credit was provided under the group guarantee. It also
focused on developing a habit of thrift and personal Saving among the group of
members. They also started group saving to realize self-reliance in financial
resources. A total of 142,711 members who were organized into 19,597 groups were
benefited from the program by July 1991/1992. After the reinstallation of multiparty
democracy in 1990, the government appointed a seven-member national cooperatives
consultation committee and dissolved the ‘Sajha Central Committee’.

It also set up a National Cooperative Development Board (NCDB) constituted of 11

members to provide policy directives to the cooperatives. The government enacted a
new Cooperatives Act in 1992 to ease promotion and development of cooperatives as
vehicles of economic development in the rural areas. The government also
emphasized the role of cooperatives for extending credit facilities and other services
to the rural people in its Eight National Plan.

Mrak (1989) carried out a study on role of the informal financial sector in the
 11

mobilization and allocation of household’s savings in the context of Zambia.

Statistical data were used to analyze the important of the informal sector in the
mobilization and allocation of households saving in Zambia and to discuss various
types of informal financial in situations, their historic origin. The study was made on
the basis of study visit to Zambia in the first half of 1987. The analysis of this
research was carried out with the help of secondary data for the period of 1970-1983.

The major finding of this study was that financial sector in Zambia, although
institutionally fairly well develop, has not fulfill its role to mobilize and allocate
households savings. Households’ savings have been largely disregarded due to
availability of external resources and general belief that households, particularly in
rural areas, are too poor to save.

Vogel and Burkett (1986) conceded a study on deposit mobilization in developing

countries: the importance of reciprocity in lending in the context of Thailand, Taiwan,
Mauritius, Tanzania, Sudan, Kenya, Gambai, Singapore, Korea, South Africa, India
and Malawi. Statistical data were used to analyze the situation of deposit mobilization
in the developing countries. This is important not only because of potential through
reciprocity for increasing the amount of savings mobilized and improving the
allocation of these savings by FIs, but also because of the efficiency gains resulting
from economics of scope and group effects involved in lending to depositors.

Bajracharya (1990) performed a study on monetary policy and deposit mobilization in

Nepal. Multiple regression method is used for the study. Primary and secondary data
were used to collect the data. The study has concluded that the mobilization of
domestic savings is one of the monetary policies in Nepal. For this proposes
microfinance banks stood as the vital and active financial intermediary for generating
resources in the form of deposit of the private sector so for providing credit to the
investor in different aspects of economy.

With an objective of analyze the effect of interest rate restriction on the deposit
mobilization of commercial banks in the context of Nigeria, Oyewole (1994) revealed
that implicit interest rates contributed to the observed high cost of banking operation
in the country during the period. The data for this study was obtained from the Annual
 12

Report and Statement of Accounts of 25 Commercial Banks in Nigeria for the period
1980-1986. The number of banks and the period of analysis were determined solely
by the availability of comparable data across the banks.

Pradhan (1996 B.S.) conducted a study on deposit mobilization, its problem and
prospects in the context of Nepalese financial institutions. The study has presented
that deposit is the life-blood of every financial institution, like commercial banks,
finance company and cooperative or non-government organization. Primary and
secondary data were used for the collection of data.

The study further adds in consideration of most of banks and finance companies,
latest figure produces a strong feeling that serious must be made of problems and
prospects of deposit and credit disbursement. The research had recommended for the
prosperity of deposit mobilization by providing sufficient institutional services in the
rural areas, cultivating habit of using rural banking unit, adding services hour system
to bank, organizing training programs to develop skilled manpower by NRB,
spreading cooperative to the rural areas for development of mini-branch services to
these backward areas.

Kafle (1996) conceded a study on NRB and its Polices for Monetary Control opines
and operation efficiently with proper analysis of the project”.

trend o deposit position and investment position of Yeti Finance Company. The study
was conducted on the basis of secondary data and used various financial tools to
analyze the data. The study just covered only period of five years.

The major finding of the study was that the deposit policy is not stale but has highly
fluctuating trend and investment is gradually in increasing trend. The researcher found
there is highly positively correlation between total deposit and total investment the
researcher concluded that Finance Company has been found profit oriented, ignoring
the social responsibility which is not fair strategy to sustain in long run. Therefore, it
is suggested the company should involve in social program which help the derive
people who are depended in agriculture. Agriculture is the paramount of Nepalese
economy so that any finance company should not forget to invest in this sector. In
 13

order to do so, they must open their branches in remote area with an objective of
providing cheaper financial services.

Tennant (2007) carried out a study on a comparison of the mobilization and use of
saving across types of financial intermediaries in the context of Jamaican economy.
The study seeks to compare the performance of different types of financial institutions
in their role as intermediaries. The financial intermediation involves (1) mobilization
of savings, (2) transferred of those savings to the real sector typically through loans
and financial investments: (3) allocation of funds among competing borrowers and
investors; and (4) monitoring of borrowers and investors to ensure that funds are
being used prudently.

The Nepal Rastra Bank (NRB) initiated Small Sector Lending in 1974 directing the
commercial banks to invest 5% of their deposit balance in Small Sector, which was
later designated as the “Priority Sector Lending” in 1976. The NRB subsequently
initiated “Intensive Banking Program” in 1981 to boost up PSL lending to the low-
income group and required CBs to raise PSL to 8% of CBs loans and advances, which
was further raised to 12% in 1989. The main partner of PSL were Nepal bank Ltd.
(NBL) and Ratriya Banijya Bank (RBB)-the two state-controlled CBs. The share of
NBL and RBB in rural credit supply was 4.1% and 2.4% in the sixth and 12.3% and
6.7% in the Seventh Plan periods. Loans under PSL are classified into agriculture,
cottage industries and services. Target group under PSL are low income families with
Rs 2,511 or less per capita income per year. The beneficiary must contribute 20% of
the project cost if the loan size was more than Rs.15,000. NBL and RBB charged 15%
to 16% interest rates on priority sector loans. They provide loans up to 80% of the
appraised value of the collateral for low income and 70% for the high-income
families. However, these CBs provide loans to the group members of Production
Credit for Rural Women (PCRW) formed by Women Development Section (WDS) of
Ministry of Local Development and the groups formed by the bank staff without
collateral on just group guarantee. The loan limit for such loans was Rs.30, 000. The
Grameen Bank model of Bangladesh was replicated in Nepal with the establishment
of Eastern and Far-western Grameen Bikas Bank in 1992. The target groups included
in Terai the farmer with holding less than 1 Bigha (0.67 ha) and hills with holding less
than 10 ropani (0.5 ha) and landless. It followed group extending credit. Credit
 14

displined was given top priority and loans were extended without collateral security
on group guarantee. The broad of director of the GBBs comprised of the NRB and CB
representatives and is headed by the deputy governor or executive director of NRB.
The share capital of first two GBBs was mainly contributed by the government and
the NRB i.e. 75% and by CBs I.e.25%. The first two GBBs started functioning from
middle of 1993. They charged 20% interest rate and the main source of fund for
lending came from NRB and CBs. In the meantime, two NGOs- the Nirdhan and the
Centre for Self-help Development (CSD) also Launched microfinance programs
replicating Grameen model in 1993 and 1994 respectively. The financial
intermediaries act was enacted in 1998 to regulate the financial intermediaries NGOs
on carrying out microfinance activities. This was claimed to be a breakthrough in
legalizing the operation and activities of NGOs as microfinance operators. With the
enforcement of this Act, two FI-NGOs, Nirdhan and the Centre for self-Help
Development also got registered under it. In 2004, the government introduced the
Banks and Financial Institutions Ordinance, which has a provision of licensing
microfinance banks also as class ‘D’ banks. As a result, 13 microfinance banks have
been issued by the NRB till the date. In order to make available small wholesale funds
to cooperatives and NGOs providing to loan to low income groups, the government
had created a fund called Rural Self-Reliant Fund in 1991 with Rs.20 million
contributed by the government. The government with assist from ADB and NRB also
established the Rural Microfinance Development Centre Ltd (RMDC) In 1998, to
provide larger wholesale loan to MFIs through implementation of the ADB assisted
Rural Microfinance Project (RMP). After the operation of RMDC, several MFIs were
added in the microfinance market and the coverage by the microfinance institutions
also increased in faster rate. The government had also instituted another wholesaler,
the Sana Kisan Bikas Bank Limited (SKBBL) in 2001.With all these initiatives and
efforts microfinance has gained a new momentum as an industry. Besides all these
self-help groups also were promoted by several rural and community development
projects of the government and donors to provide small credit to the self-help group
members through grants for seeds funds.

Sylvester (2010), deposit mobilization is considered as key tool in financial

performance of banks, particularly for commercial banks. He argued also those
evaluation of role of deposits mobilization in financial performance of banks generate
 15

mix result. Though most of them supportive to deposit mobilization in financial

performance of banks, they are insufficient, on the side of appropriate ways of
mobilizing more savings, hence the researcher needs to apply it in context of
commercial banks and to analyze other strategies of deposits mobilization that are not
considered in the above literature.

In the view of Pradhan Shekhar Bahadur, in his articles, “Deposit mobilization, its
problem and prospects” Pradhan,S.B, (2010,p-9). He has presented the following
problems in the context of Nepal:
1. People do not have knowledge and proper education for saving institutional
manner. They so now know financial organizational process, withdrawal system,
depositing system etc.
2. Financial institutions do not operate and provide their services in rural areas.
Charioneko and Silva (2002) has analyzed the progress toward commercialization
of microfinance industry in Sri Lanka in their report on Commercialization of
microfinance. They have emphasized to explore the remaining challenges and
implications, prospects, and positive approaches to the commercialization of
microfinance. The researcher pointed out the growing realization that
commercialization allowed MFIS greater opportunities to fulfill their social
objectives of providing the poor with increased access to a whole new array of
demanded-driven microfinance products and services. The report considered
commercialization of microfinance at micro as well as macro levels. The
microfinance industry in Sri Lanka was at an early stage of commercialization.
Microcredit market dissemination appeared high at about 80 percent. Based in
household data and the current savings average outstanding microloan amount
$193 and microenterprises estimated to be around $254.9 million with 2.3 million
microloans. At the end of 2000, MFIs had approximately $202.3 million
outstanding in 1.65 million microloans. In Sri Lanka, cooperatives area dominant
microfinance providers and the movement continues to influence how NGOs
deliver microfinance. While many cooperatives wee sustainable and their
performance varies, more than one third of the supply was provided through
government programs, which can be considered supply –led and not
commercially.
 16

Fermando (2006) explained that the MFIs charging high prices to cover costs for
any business was an essential practice. His study report that the highest interest
rates charged by most of the MFIs in the region ranged from 30 percent to 70
percent a year on a reducing balance basis. The question arises why microcredit
rates are so high? Because of these four key factors: the cost of funds; the MFIs’s
operating expenses; loan losses” and profit needed to expand their capital base and
fund expected future growth, determined rates. Imposing ceiling on microcredit
interest rates was not the permanent solution of the problem, although lower
microcredit interest rates will help to increase the availability of affordable
finance for poor household. The study has shown in the Asia Pacific region, which
strongly supports the view that liberal interest rate policies fuel the growth of the
microfinance industry. More than 50 million poor people have access to
microcredit from formal and semi-formal institutions in the region. The study has
explained in detail about impact of ceiling of interest rates on microcredit such as,
short term, medium term and long-term effects on supply as well as in demand
side. In those countries in which interest rates ceiling have been a major
characteristic of the market, growth of outreach had been disappointingly low. In
most of the developing economy, the best available investment opportunities for a
majority of poor households involve those with moderate returns. Household in
this category cannot be expected to have same ability to service loan taken at high
rate of interest as those who realize high returns on their investments. Similarly,
poor households need credit to meet expenditure on health, education and many
lifecycle events. Policy makers can oppose requests to impose rate ceiling that
will slow down the growth of MFIs industry and result in reducing the supply of
microcredit and other financial services, harming rather than helping poor and
low-income households.

INAFI SAP-Nepal 2004 conducted a thematic research study on the “Impact of

Microfinance Services on Poverty Reduction in Nepal”. The main objective of the
study was to find out the overall impact of microfinance services on poverty
reduction in the country. The study focused on (i) outreach of microfinance, (ii)
access use and contribution of microfinance, (iii) micro-enterprise development,
(iv) managing risks and vulnerabilities by clients, (v) empowerment of women
and (vi) poverty reduction. Both primary and secondary data were used for the
 17

analysis. In the study, both “before and after’ and ‘with and without’ approaches
were used. The major findings of the study were the positive impact of
microfinance on poverty reduction. Microfinance enabled the poor to enhance
their access to financing. For income growth and welfare improvement through
micro-enterprise development and increased ability to address vulnerability and.
Economic empowerment; Microcredit was used for production (66%) and the
remaining for consumption. Microfinance contributed to reduce poverty in client
households. Respondents increased their incomes by 56 % after participation in
the microfinance programs. Beneficiaries have increased slightly more financial,
physical and human capital than non-clients; Microcredit has served to lessen their
dependency on moneylenders, reducing the average interest rate burden especially
for the poor lives. Microfinance has promoted micro-enterprise activities, which in
turn have increased wage and self-employment opportunities for beneficiaries and
the community people. There is great need to expand the MFIs in high hills and
mountains, where the majority of poor lives. Bashyal (2005) studied and evaluated
the impact of microfinance program on poverty reduction in her Ph.D dissertation
entitled “Impact of Microfinance Programs on Poverty Alleviation in Nepal : A
case if Rupandehi District”. She gave more emphasis on her study that women
will not be empowered until and unless they get benefited both qualitatively and
quantitatively with the promotion of gender equality. Overall objectives of the
study were to evaluate the socio-economic impact and implications of
microfinance on poverty alleviation through the women empowered and also
evaluate the impact on natural resource management. The Nirdhan Uthan Bank
Limited situated in rupandehi district, Bhairahawa, was selected for the purpose of
case study. This study assumed that microfinance can reduce both income and
human poverty over a period of time.

Shrestha (2010) analyzed the Microfinance and social Mobilization in the context
of ADBL in promoting SFCLs (Small Farmers Cooperative Limited) in his book
titled “Financial Performance of Small Farmers Cooperative Limited in Nepal”.
Considering the positive outcome of SFDP in terms of targeting the poor for their
overall well –being, expansion of the program was highly demanded in rural areas
of Nepal to deliver services to the poor and disadvantaged groups. Social
mobilization is also equally required in order to improve and maintain the better
 18

financial performances of SFCLs. Microfinance and its contribution in the

economy are significant. This sector contributes to reduce poverty, unemployment
and inequality. This sector is self-employment generation and tries to raise leaving
standard of people. Very few researchers have been carried out in the case of
developing countries like Nepal. But some effort has made to find put the problem
and these efforts are not sufficient.

1.8 Research Methodology

“Research methodology refers to the various sequential steps to be adopted by a

research in studying the problem with certain objectives in view”.(Kothari,1985)
research methodology is the research method used to test the hypothesis. It
sequentially refers to the various steps to adopt by a researcher in studying a problem
with certain objectives in view. In other words, research methodology describes the
methods and process applied in the entire subject of the study.

1.8.1 Population and Sample

The history of microfinance in Nepal is relatively new. The Nepali government’s

attempt to promote microfinance services dates back to 1975. It was recognized as an
official poverty alleviation tool only in the country’s Sixth plan (1980/81-1984/85).
The sector has, however, gained momentum after the restoration of democracy in
1991. Credit Development Banks in Nepal are licensed by Nepal Rastra Bank in
‘Class D’. Micro credit Development Banks in Nepal are also playing vital roles for
the Development of economy status of Nepal. Nepal has many nationalized and
private Micro credit Development Banks, There are 21 Micro Credit Development
Banks licensed by NRB in Nepal.

1.8.2 Types of Data

Both primary and secondary data have been used for this study. Primary data has been
used in order to assess the opinions of the bank managers on funds allocation and
deposit mobilization of Nepalese Microfinance bank. In addition, the primary data
attempts to reveal other facets regarding funds allocation and deposits mobilization
situation in Nepalese banking sector. At the same time, secondary data has been
employed in order to analyze the relationship between deposit and its explanatory
 19

variables.

1.8.3 Secondary Data

Secondary data were used to test the ability of the micro finance development banks
on the utilization and mobilization of the deposits available and the effects of various
elements such as Loans and advances, Investment and Assets purchased on the
profitability of the bank. The secondary data mainly obtain from office of Security
Board of Nepal (SEBON) and annual report published by banks. The periods of study
have been taken from 2012 to 2017 A.D Data on yearly deposits, investments, loans
and advances and assets purchased are obtain from the financial report of the
microfinance development banks. Data required on accounting figures have been
collection from office of NEPSE, office of respective companies, and SEBON. All
firms their fiscal year end in Ashad; therefore, test did not have deal with matching
the accounting data for all fiscal year ends in every calendar year. Thus, this study has
use panel data to analyze the relationship between deposits and its explanatory
variables.

1.8.4 Primary Data

The basic purpose of primary sources of information is to survey the opinion of chief
executives, financial managers and financial analysts regarding the fund’s allocation
and deposit mobilization of commercial bank. The primary data are generated form
field study based on questionnaire survey. The survey has been basically designed to
understand the opinion of respondents as how they perceive the fundamental variables
affecting deposits in Nepalese Banking Industry. The primary data have been
collected thorough the questionnaire distributed to the chief executive, manager,
finance officer and operation managers of sample bank. The set of questionnaires
were distributed to all respondents.

1.8.5 Data collection Procedure

Correlation research attempts to determine the extent of a relationship between two or
more variables using statistical data. In this type of design, relationships between and
 20

among a number of facts are sought and interpreted. This type of research is
recognizing trends and patterns in data, but it does not go so far in its analysis to
prove cause or these observed patterns. Cause and effect are not the basis of this type
of observational research. The data, relationships, and distributions of variables are
studied only. Variables are not manipulated; they are only identified and are studied
as they occur in a natural setting. The research is based on balanced panel data.

The study based on primary and secondary source of data. The primary data are
generated from field study based on questionnaire survey. The survey has been
basically designed to understand the opinions of respondents as hoe they perceive the
fundamental variables. The primary data has been collected

Manly through questionnaire distributed to the staff’s members and operation

managers of Sana Kisan Bikas Bank. The relevant secondary data has been collected
mainly through the annual report of Sana Kisan BIkas Bank, from the data base of
NRB, various reports and other studies like studies in Tribhuvan University Central
Library, Pokhara University Central Library, different journals, magazines, reports,
Master degree thesis papers, websites articles, books articles have also been referred.
The study is confined only to the specific areas such as impact of various types of
deposit on total deposits, deposits mobilizations by the banks, loans and advances,
investments, liquidity and assets for the five years period starting from 2012/13 to the
year 2016/17.

1.8.6 Techniques to Analysis

A series of actions or steps performed on data to verify, organize, transform, integrate,
and extract data in an appropriate output form for subsequent use. Methods of
processing must be rigorously documented to ensure the utility and integrity of the
data.
The data collected from the above stated sources has been classified, tabulated and
interpreted for easier study.
 21

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Websites

WWW.nrb.org.np

WWW.financialdictionary.com

WWW.sanakisanbikasbank.com