CHAPTER I

INTRODUCTION
1.1 Background of the study
Nepal is one of the poorest countries in the South Asia region and in the world. Poverty is
the main challenge of economic development in Nepal. The population living below the
poverty line is 23.8 percent and the incidence of poverty is highly prevalent in rural areas.
Poverty is also high among lower castes and disadvantaged social group. The rate of
unemployment and under-employment approaches half of the working age population.
Most of the people who live in rural area of Nepal do not have access of financial
services. As per the Millennium Development Goal Progress Report 2013, poverty
reduction rate in Nepal, which was 1.5 percent between 1996 and 2004, has been 2.5
percent between 2004 and 2013. Nepal has set a goal to graduate from the status of least
developed countries (LDC) to developing country by the year 2022. The ratio of
population with access to food below the minimum daily requirement stood at 15.7
percent in 2013. (Economic Survey, 2014/15).
The idea of microfinance arose in the mid- 1970s when Mohammad Yunus started a pilot
scheme lending small amounts of money to villagers in Bangladesh who, due to a lack of
collateral, had no access to conventional loans. Encouraged by high repayment rates, he
founded the Grameen Bank to run such schemes on a larger scale. Since Grameens early
successes, the concept of micro finance has spread throughout the world, and a plethora
of organizations providing small loans to the poor have come into being( Abbink,
Irlenbusch& Rener, 2006).
The role of microfinance institution is extremely important in the poverty alleviation and
to develop poverty free zone. Various MFIS of Nepal have been established for the self
reliance and to reduce poverty of the rural inhabitants ensuring sustainable development
by empowering women.
Nepalese women extensively involved on agriculture activities. Majority of women are
self employed in manual agriculture activities in rural areas. Women play vital role in

family institution over last 30 years in our society. Womens legal status has changed with
new laws moving towards participation in political and economic sector. A large number
of women are being professional nowadays. Due to lack of technical and managerial
skill, women are out of access to credit market and resources which make them unable to
make significant improvement in their economic condition. In Nepal, financial services
are mostly centered in the urban areas, especially in major cities. Further, financial
institution demands fixed asset as collateral for providing credit. Most of the rural poor
people have no assets to pledge as collateral. Thus, they have generally no access to the
financial sector.
1.2 Statement of the Problem
Nepal is under developing country and have severe problem of poverty. Micro-finance is
a term that is broadly used for the provision of financial services to low income
households and self-employed people. Micro-finance institution (MFI) has to be
concerned with their financial sustainability because it is a precondition for reaching
large numbers of micro-entrepreneurs with micro-finance services over a sustained
period.

Many company and organization reached in village for supporting women with
microfinance program. At that time, they faced many problems. Poverty reduction has
been receiving high priority in the periodic development of five years plans in Nepal.
Different microfinance program are focused on women small farmers and backward
people. Different studies show that welfare impacts on the household are significantly
better when micro finance program was implemented. Considering the factors present
study aimed to assess the socio economic impact to the women in Lekhnath municipality.
So, this research paper deals with following issues.

Does this program support to change the socio economic status of women?
What is the impact of microfinance program on income generation of women?
What role does microfinance play for women decision making in family?

What is the perception of user members towards the services provided by

microfinance?

What is the role of microfinance in poverty alleviation?

1.3 Objectives of the study

The objective of the study is to evaluate the role of microfinance in women
empowerment of Lekhnath municipality. It mainly focuses on the women who are
involved in this microfinance institution. The specific objectives are the following:

To analyze the socio economic status of women after involvement in microfinance

program
To evaluate the impact of microfinance on income generation of women
To examine the role of microfinance in the decision making power of women in
the family

To measure the perception of user members towards the services provided by

microfinance.

To find out the impact of microfinance in alleviation of poverty.

1.4 Significance of the Study

In Nepalese perspective, majority of people live in villages. They are suffering from
malnutrition, lack of schooling and other human necessities. They are unable to start new
venture due to lack of financial problem. They have no access to banking system; their
economic condition is being poorer and poorer. It is believed that microfinance is a
powerful tool to fight against the poverty.
Microfinance operates in the rural areas as well as in urban areas to find out problem and
prospect with respect to human, financial and physical resources in near future. It help the
poor households to meet the basic needs and it protects them against risks. Micro credit
helps in reducing poverty by providing the poor with credit facility to start a small
business. It not only supports the economic condition of the poor people but also has
positive impacts on their social life through better standard of living with greater access
to education and health facilities and empowerment to participate in decisions of the
society.
Women empowerment motivates women to speak in their home for their rights and
duties, increase their life style and being independent from their family. So this study of
microfinance is important in our country. Similarly, this present study is hoped to be a
milestone for all foreign economists and sociologist wishing to conduct the similar study
about women. In addition to this, study may provide guidelines to government, NGOs
and INGOs for future development planning.
1.5 Focus of the study
This study is considerable specific with its focus on role of microfinance for women
empowerment and economic activities of micro finance institution in Lekhnath
Municipality. There are enormous researches already done on different aspects of
microfinance on socio economic empowerment of women but this study is specific in
sense that it has focused on the role of microfinance institution in the poverty alleviation
by empowering women through microfinance. Moreover, the study is also focused on the

status of women after involvement in microfinance program. It also tries to measure the
participation and decision making process at household level.
Provision of sustainable community managed financial services is one of the tools for the
reduction of poverty. The development of community managed financial system has
given priority in rural development. Microfinance is powerful tool to reduce the poverty
by empowering women. Commercial banking collateral system has no access to financial
market for the poor. In spite of a micro credit program implemented nominal portion of
population have benefited from the program.
1.6 Limitation of the study
Basically, this research study is an academic study for partial fulfillment of MBA degree.
The main objective of the study is to analyze the role of microfinance institution on
women empowerment. The study has following limitations:

Concentrating only on microfinance of Lekhnath municipality: The study result

may not represent the exact figure of women in other areas of the country and

may not be suitable for generalization.

Not all the direct and indirect impacts of the Micro-Credit program for women

can be studied due to time and budget limitations.

Due to diversities in social, cultural, traditional and economic norms the
recommendation suggested and conclusion derived may not be applicable in other

areas.
The study may not be generalized due to limited sample area.

1.6 Organization of the study

The whole study will be divided into five chapters and the chapters will be organized
systematically as follows for the effective study.
Chapter I: This chapter consists of major issues to investigate along with the objective,
significance, focus and limitation of the study.
Chapter II: This chapter is related to theoretical analysis a brief review of related
literature. It tries to show overall scenario of micro finance in world as well as in Nepal.

Chapter III: This section describes the methodology employed in the study. This chapter
deals with the nature and sources of data selection for study areas, method of analysis etc
Chapter IV: This chapter deals with the presentation and analysis of data and major
findings by using proper tools and techniques.
Chapter V: The last chapter incorporated summary, conclusion and recommendation
emanating from the study.

CHAPTER II
LITERATURE REVIEW
Generally this part of introduction deal with the literature relevant to the study, to deepest
knowledge & understanding about the subject of fieldwork, reviewing literature related
with the chosen topic. Review of the literature will helps to learn how others have defined
and measured key concepts, to identify data sources that other researchers have used, to
identify potential relationships between concepts and to identify researcher able
hypotheses. The purpose of literature review is to find out what research studies have
been conducted in the chosen field of study.
2.1 Conceptual framework
The several impact studies done in microfinance program show that the program can
bring a lot of positive changes in the lives of the poor. However, the fundamental
challenge of microfinance is to reach ever-increasing number of poor people through

sustainable financial institutions. Ensuring that people, especially those who are very
poor, so receive access to financial services is often difficult. Many MFIs have therefore
resorted to targeting to ensure that the poor and the poorest of the poor are indeed served.
The Consultative Group to Assist the Poor (CGAP) client targeting centre has been
designed to provide information on the targeting tools.
2.2 Review of thesis
A research article published by Sharma (2004) on The Journal of Nepalese Business
Studies about Microfinance: A Powerful Tool for Social Transformation, its Challenges,
and Principles. This research article attempts to explore the role and importance of
microfinance in reducing poverty be generating the income of the poor. Microfinance has
been emphasized for poverty reduction in developing countries through executing dual
articles such as collection of domestic saving and investment of small loan. This article
try to find out the answers of different claiming by institutions such as- Are these
institutions really delivering microfinance services to the poorest of the poor? Are they
really sustainable in the long run? Are they financially efficient?
The conclusion drawn by this article is that the Nepalese MFIs arent being able to reach
the poorest due to inability of proper identification of the poor and lack of commitment
and clear vision of their action. Expanding microfinance programs along with
restructuring the whole financial system is essential so as to ensure financial system to
better serve the rural economy. The time frame to reach or grant based on clients serving
to reach financial self- sufficiency will be shorter for MFIs serving the economically
active poor.
Adhikari (2013) has done a study on role of married women in household decision
making: a case study of Lekhnath municipality of Kaski district. His main objectives
were to examine the demographic and socioeconomic status of married women in study
area to analyze the decision main role of married women for family planning and to
examine the role of married women in household decision making level in terms of caste
and ethnicity in the study area. He concluded that though women were lagging behind in
terms of land ownership and income generating activities, they have satisfactory access in

terms of using the modern resources and household income possession. Their
participation in social activities was in the bottom line. Married women of age group 1549 years were well informed about family planning and most of them were involved in
making decision on choosing the proper method: age wise, women of age greater than or
equal to 30 years; education wise, women with under SLC level of education,; and
caste/ethnicity wise, Brahmin/Chhetri women were found in a better self decision making
position regarding the household activities.
Shrestha (2007) published an article in an 'Agriculture Credit' journal on a topic"
Microfinance". A tool to fight with poverty ? This paper briefly review the targeted
programs and initiatives under taken for creating conductive environment for institution
credit system in a rural areas particularly microfinance . From the research paper, it is
found that poverty decline in sharper in the thousand with lesser number of children,
households with bigger land holding, and also in the household with educated household
heads, collateral based lending practice of commercial banks and development banks
deprived the poor people from institutional sources of credit. Such institutions for women
are productive credit for rural women and micro credit program for women, rural
development banks and other Grameen banks replicates etc.
CHAPTER III
RESEARCH METHODOLOGY
This chapter is designed to fulfill the stated objectives as well as to make it easier in
visualizing the study work clearly. The methodology is a series of underlying
assumptions, theories, principles and philosophies relating to the conceptualization of
material under study and the categories that will be used define, describe, analyze and
talk about it. It is the process in which the data are collected, analyzed, evaluated and
finally inference is drawn. Therefore, it is a specific way of performing an operation that
implies precise deliverables and the end of each stage. Thus, research methodology
simply describes the systematic way of one and different tools and techniques to be
followed by the researcher.

The main objective of the study is to analyze role of microfinance on women in Lekhnath
municipality. This study aims to recommend necessary suggestions to achieve the
targeted objectives. So, this chapter outlines the methodology followed for this purpose.
This chapter has been divided into six sections; research design, study area, population
and sample, nature and source of data, data collection techniques and data analysis
3.1 Research Plan and Design
Both descriptive and analytical research design are used in this study. This method
facilitates the capturing of interesting clients and important impact statement. Field study,
research design describes the attitude, values, perceptions and behavior of the participants
of the microfinance program. The descriptive research design used to assess the opinions,
behaviors or characteristics of sample beneficiaries. To describe the situation and events
occurring, present analytical research design makes analysis of collected information and
data and makes a critical evaluation of it.
3.2 Population and Sample
All the microfinance beneficiaries of Lekhnath will consider as a total population.
Sample respondent members ( sixty women) will be selected randomly from Lekhnath
municipality for the purpose of this study.
3.3 Nature and Sources of Data
This study will mainly base on the primary information. Secondary sources of
information will also been used whenever applicable. To collect necessary information
the researcher will discussed with professional which will be useful for analysis the data.
Primary information will be collected through structured interview questionnaire,
observations and open discussion with sample respondent. Secondary sources of
information include book, journals and financial statement of microfinance of Lekhnath
and other published and unpublished documents.
3.4 Data Collection
The data necessary for the purpose of study will be collected by following methods:

3.4.1 Direct Interview

This method will be used to collect the information related to investment credit, saving,
interest collection, repayment rate and so on.
3.4.2 Questionnaire Survey
This method will be used to guarantee both qualitative as well as quantitative
information. The sample members as stated will be covered under this area. They will be
requested to provide information.
3.5 Data Analysis
The goal of analyzing the data is to handle the evidence fairly, to produce convincing
logical conclusion and to rule out alternative interpretations. Different relevant tools will
be used to find out the best appropriate results. Several hypotheses will also formulate
during the course of the study and analysis. The collected data will processes and
statistically analyze to make them more clear and scientific. Tables and diagrams will be
used as tools and techniques of the data analysis to illustrate the research work.
Descriptive method was used for qualitative data in the study. The qualitative data were
encompassed the study systematically and logically. Also, the variables used to show the
relationship between poverty alleviation and microfinance will be employment, income
and socio-economic well being of households.
3.5 Data Processing Method
The raw data collected will be processed in order to generate meaningful information.
This process involved series of action that helped to eliminate the possible errors that
might have occurred during the collection of data. Some techniques are as follows:

Editing: In this step, careful scrutiny of the completed questionnaire will be done
to assure the data are accurate, consistent with the data generated, uniformly
entered, as complete as possible and have been arranged to facilitate coding and
tabulation.

Coding: Information collected through questionnaire will be coded, mainly

appropriate codes will identify for quantitative variables.

Classification: The data will be classified according to their common

characteristics and put into one class intervals to generate desire information.
Tabulation: Tabulation consists of orderly arrangement of data in columns and
rows.

3.6 Statistical Tools

Following statistical tools will be used in this study.

Arithmetic Mean

Arithmetic mean is the most popular and widely used statistical tool to measure the entire
data by one value called average. The mean value can be obtained when the total of all
the values in a distribution is divided by the number of values in the distribution.
Symbolically,

Arithmetic Mean

i.e.,

Where,

x1 x2 x3 .......................... xn
N

x
=

= Arithmetic Mean

= Sum of Observations

N = Total no. of Observations

Z- Test (Two Proportion test)

Z-Test used to test the significance of parametric test for sampling of attributes.
It is a significance test of great practical utility is the test of significance of proportion or
percentage in which the population is divided into two mutually disjoint classes
representing the qualitative characteristics in such a way that one possesses a particular
attribute and other does not possess that attribute. The same method is use for testing of
significance of sample proportion or percentage as is used for testing of sample mean
except in respect of finding the standard error of proportion which is used in place of
standard error of sample mean for computation of test statistics used for decision making.
Same time in statistical investigation, a problem arise in respect of determining whether
the two sample proportion could have been drawn from the same parent population or
whether two sample proportions differs significantly or not. To verify this assumption, ZStatistics will taken.
Let n1 and n2 denote the size of large sample and Let X1 and X2 which denote the
observed number of one event.
Now, P1= observed sample proportion of event A before MFP= X1/n1
P2= observed sample proportion of event A after MFP= X2/n2

P1 P2
1 1
P Q

n1 n2
X X2
P 1
n1 n2

Where,

Q 1 P

3.7 Time frame

The estimated time frame for the proposed study is presented below:
Key Activities
Proposal Writing and Submission
Analysis of further literature
Data Collection
Data Entry and Analysis
Editing and Finalizing
GRP defense
Figure 3.1: Time Frame

January

February

March

April

May