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JULY 2016

FINAL REPORT
REVIEW OF PERFORMANCE OF REVOLVING FUND UNDER
POVERTY ALLEVIATION FUND PROJECT

SUBMITTED TO: THE WORLD BANK

MICRO-CREDIT RATINGS INTERNATIONAL LIMITED


542 MEGAPOLIS, SOHNA ROAD, GURGAON 122018, INDIA
Table of Contents

Chapter Page
Preface & Acknowledgements I
Acronyms and Abbreviations ii
Glossary of terms iii
Executive Summary iv

1 Introduction to review
1.1 About the programme 1
1.2 Objectives and scope of review 3
1.3 Methodology 4
1.4 Profile of COs 9
1.5 Limitations 13

2 Impressionistic findings on the performance of COs


2.1 Governance 14
2.2 Management of revolving fund 17
2.3 Savings mobilisation 27
2.4 Bookkeeping 30
2.5 Summary & conclusions 36

3 How effective are the POs and PAF in supporting COs?


3.1 Profile of POs 39
3.2 Monitoring and reporting of CO activities 42
3.3 Capacity building of COs 43
3.4 Role of PAF staff in supporting COs 46
3.5 Summary & conclusions 47

4 Supporting very poor families in remote areas conclusions & suggestions


4.1 Key achievements 48
4.2 Challenges and potential areas for improvement 49
4.3 The way forward 54

Annexes
1 List of COs and POs covered 60
2 Data collection template for COs 64
3 Data collection template for POs 73
4 Brief cases on use of RF for improved incomes/livelihoods of members 78
Preface and Acknowledgements
Poverty Alleviation Fund (PAF) was created by Government of Nepal in 2003 to reduce extreme
poverty in Nepal and build an equitable and sustainable society and is financed by the Government
through a succession of IDA grants from the World Bank. Initially established by an ordinance in 2003,
PAF is governed by an act since 2006. Thus PAF is now an autonomous and professional organization
governed by a separate law.

To realize the development objective, PAF has four major programmes social mobilization, capacity
building, income generating activities and infrastructure building at community level. Revolving Fund
(RF) is part of the income generating activities. For income generating activities, PAF provides 90%
grant to Community Organisations (COs) to launch activities, exclusively for the target groups. The
groups or CO members borrow money from CO's Revolving Fund in the form of loan to launch IGAs.
M-CRIL has been engaged by the World Bank to review the performance of RF under PAF with the
following objective

To review the performance of a selected number of revolving funds in COs in the selected
districts, assessing their financial soundness and to make recommendations to address
potential issues observed and to improve monitoring of the revolving funds in the future.

The findings of the study have been organised into four chapters in this this report.

Chapter 1 is a brief introduction to the PAF programme and the methodology adopted by the
evaluation team in reviewing the performance of the revolving fund.
Chapter 2 analyses the performance of the CO on three main parameters of the review - governance
aspects, management of revolving funds and bookkeeping
Chapter 3 discusses the effectiveness of the POs in supporting the COs and
Chapter 4 highlights the key achievements of the RF programme, challenges faced by the COs and POs
that restricted their performance and the way forward.

We are thankful to the World Bank for providing us the opportunity to carry out this review. We are
grateful for the support provided by Mr. Nahakul KC (Executive Director) and Mr. Mohan GC
(Management Information System Officer) for conducting the on-field mission in various regions of
Nepal. We are also very thankful to the 57 community organisations and 36 partner organisations who
participated and provided their inputs during the field studies and workshops. Finally, our appreciation
to Ms Mio Takada for coordinating this study, Dr Alok Misra for guiding the evaluation team during
the initial phase of the assignment and Mr Sanjay Sinha (MD, M-CRIL) for reviewing and providing his
inputs for report finalisation.

M-CRIL Team
Team Leader: Swetan Sagar, COO M-CRIL
Evaluators: Tirupathaiah Namani, Shayandeep Chakraborty, Priyanshu Jaiswal and Rajesh Gupta

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Acronyms and Abbreviations

CO Community Organisation
DDC District Development Committee
IGA Income Generation Activity
IWPD Innovative Window Programme Districts
HO Head Office
LDF Local Development Fund
LRP Local Resource Person
M-CRIL Micro-Credit Ratings International Limited
MoFALD Ministry of Federal Affairs and Local Development
MIS Management Information Systems
NGO Non-Government Organisation
PAF Poverty Alleviation Fund
PC Programme Coordinator
PM Program Manager
PO Partner Organisation
PSO Private Sector Organizations
RF Revolving Fund
SA Supervisor and Accountant
SM Social Mobiliser
TOR Terms of Reference
VDC Village Development Committee
WB World Bank

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Glossary

Average loan Gross portfolio divided by the number of borrowers with


outstanding per outstanding loans
member

Average loan size Total loan amount disbursed in the period / number of disbursed
loans

CO members Total enrolled/registered members in community organisations

Current repayment Ratio of principal recovered (net of pre-payments) to the


rate principal due for the last one year

Economic Ka : 'Hardcore - Poor' with food sufficiency of less than 3 months,


categorization Kha: 'Medium-Poor' with food sufficiency of 3 to 6 months,
Ga : 'Poor' with food sufficiency of 6 to 12 months,
Gha: 'Non-Poor' with food sufficiency of more than a year

Portfolio at risk (PAR The principal balance outstanding on all loans with overdue
(>30days) greater than or equal to 30 days /total loans outstanding on a
given date

Women-centric COs This represents those COs where the proportion of women
members is at least 80% or above

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Executive Summary

M-CRIL was engaged by the World Bank to review the performance of the RF programme of PAF with
an objective to assess the financial soundness of the community organisations (COs) who are the
recipients of the RF and other technical support through partner organisations (POs) under this
programme. As per data reported by PAF (December 2015), the current outreach of PAF extends to
26,497 COs through ~400 POs in 52 districts of Nepal.

Considering the vast coverage of PAF across the five regions of Nepal and the limited time and budget
available for the review, it was decided in consultation with the World Bank that the M-CRIL evaluation
team would study 50 COs in a way that it covers various programme regions and also COs of different
experience levels (in terms of their age). Since the quality of COs promoted directly reflects upon the
performance of the RF under PAF, the study of the COs was aimed at gaining an impressionistic
understanding of the performance of the COs on three aspects (i) governance, (ii) management of
revolving fund and (iii) bookkeeping. In addition, the scope of review also included interactions with
the POs since they form an integral part of the overall RF programme. The main purpose of these
interactions was to understand their role in the promotion of COs, their perspective on the RF
programme and their opinion on areas to focus on during the remaining tenure of the programme for
improving its effectiveness.

M-CRIL adopted a mixed methods approach for covering the sample of COs and POs under the PAF
programme. This included workshops at regional level with representatives of COs and POs and field
visits to some selected COs. Overall, 57 COs (47 through 12 workshops and 10 through independent
visits) and 36 POs were covered by the study across 11 districts in 5 regions. The key achievements of
the PAF programme has been its

Widespread outreach: presence in 55 out of 75 districts in Nepal


High poverty focus: RF programme designed to focus on addressing issues related to rural poverty
and social exclusion.
Direct transfer of RF funds to bank accounts: of COs without the involvement of intermediaries is
likely to have reduced transaction costs and limited the chances of misappropriation, though
access to banking facilities and continued use of bank accounts remains an issue.
Promotion of IGAs: The RF was meant for promoting income generating activities among the
members and the programme has been successful to a certain extent.
Community ownership: requirement of community contribution to the RF was meant to promote
ownership among the members, though mixed results were achieved across different phases of
the programme
Engagement of POs: POs are the extended arms of PAF for promoting COs, providing technical
support to them and in monitoring their activities. In the absence of a direct monitoring and
supervision structure at PAF, the engagement of POs was appropriate and required for the
implementation of the programme.
Revitalising the livelihoods of CO members in earthquake-hit areas: PAF has been actively
supporting the government of Nepal for rehabilitating certain areas of the Central and Western
regions which were greatly affected by the earthquakes in April and May 2015.

Main observations related to strengths and weaknesses/areas of improvement of the COs on


governance, management of RF and bookkeeping and the effectiveness of POs in providing
handholding support and supervision of CO activities are summarised below.

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1 Performance of COs

The impressionistic findings of the evaluation team on the performance of the COs are mainly based
on detailed discussions with the representatives of COs to understand (i) how they are governed, (ii)
how the revolving fund is managed and (iii) the quality of their book-keeping.

The observations on governance cover the establishment process of the CO, selection of the
members and office bearers, and their involvement in the day to day management of CO activities.
The management of revolving funds covers the process of loan application and approval, loan
products developed and the utilisation of these for IGAs, repayment performance of borrowers,
handling of arrears and defaults, and the savings mobilisation process.
The observations on bookkeeping highlight the types of record books maintained by the COs,
timeliness and quality of record updates & level of dependence on POs for the maintenance of
records.

Governance

Strengths & achievements Weaknesses & areas for improvement


The composition of COs indicates high In most COs (56%), none of the sub-
poverty focus with preference to poor, committees are functional and in some COs
backward castes and women. (31%) just one or two committees are active.
The involvement of members has been good Rotation of office bearers is not practiced in
in selection of office bearers. majority of COs
Regular meetings (in 80% of COs) and good
attendance, particularly of the office
bearers (~95%).

Management of RF

Strengths & achievements Weaknesses & areas for improvement


Good involvement of members in deciding Similar features for various loan products
the loan products and setting terms. offered to the members - cash flow
Most members of the COs have got their characteristics of some activities like
share of loans from the RF. In around 63% of agriculture and animal rearing has not been
the COs, more than 75% of members had considered which have resulted in
outstanding loans repayment issues.
Loan processing system (application, Major problems in mobilising the 10%
approval and disbursement) is structured at contribution from the members.
most COs. Majority (67%) of the COs have not been
The COs (as a group) seem to be able to rotate the RF well and many COs
understanding and flexible in case of (25%) are facing erosion of the RF due to
genuine repayment issues of the members. portfolio overdues/defaults.
The introduction of a system of penalties for There is a tendency of the COs to equally
delayed repayments at many COs was a divide the RF among the members as most
positive step. of them need loans and the RF is not
Around 33% of the COs had portfolio sufficient to meet their credit requirements.
outstanding higher than the initial RF which In the current FY, the average loan size has
indicated that they were able to rotate the increased at about 40% of the COs while for
funds well. 33% there was a decrease and about 26%
COs are yet to make any disbursements. This
points towards the limited ability of the COs

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Strengths & achievements Weaknesses & areas for improvement
to cater to the increased credit needs of the
members over time.
Mixed performance on portfolio quality of
the COs - About 40% of the COs had no
overdue loans while 5% had a reasonable
quality of portfolio with PAR <10% but at the
same time 55% of the COs were facing major
portfolio quality issues, and about a quarter
of the total had their entire portfolio at risk.
The CO members, from non-remote
locations, continue to borrow from other
sources including local moneylenders as the
CO is unable to fulfil their credit needs.
No withdrawal option for savings. Interest
on savings is provided by only a few COs. As
a result, members are not very regular in
depositing monthly savings and the
contribution of savings to the overall CO
funds has been meagre.

Bookkeeping

Strengths & achievements Weaknesses & areas for improvement


All COs were maintaining minutes registers, The bookkeeping system is not standardised
savings ledgers and loan ledgers for RF and across COs in different regions despite PAF
around 90% also maintained member providing formats. The understanding of the
passbooks (for loans and savings). CO members as well as the SMs on accounts
Most of the COs have preserved their old is limited.
records and documents like meeting The overall quality of bookkeeping by the CO
minutes, loan ledgers, savings ledgers, measured by timeliness of updates and
business plan, agreements and bank accuracy of records is average. The ledgers
statements. for RF (which is the most important source
Involvement of LRPs in some of the districts of fund for the COs) was up to date at 67%
in supporting the COs in record keeping a of the COs.
welcome innovation. COs are highly dependent on the POs for
bookkeeping; in just 9% of COs bookkeeping
is being done without the POs assistance.
External audits of accounts have been done
for two-thirds of the sample COs. However,
it is not a regular annual practice and the
latest audit reports (of the completed
Financial Year 2014-15) were found only
with a few COs.

2 Effectiveness of POs and PAF in supporting COs

The POs that are basically Non-Governmental Organizations (NGOs) are an essential part of the
strategy of PAF for social mobilization, technical assistance and capacity building of COs. The activities
of POs are spread across the pre- and post-establishment phase of the COs. In the pre-establishment
phase their main responsibilities include mobilizing poor households into groups, supporting them to

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develop a business plan for RF assistance under PAF and then encourage them to conduct regular
meetings and undertake savings. After the establishment of COs and the linkage under PAF the main
responsibilities of the PO include enhancing the capacity of the office bearers and members on
bookkeeping and other management aspects and conducting monitoring and supervision of CO
activities through the Social Mobilisers (SMs).

Apart from its role in providing revolving and infrastructure funds to the COs and grants to POs for
extending support to the COs, the most important role of PAF is in supervising the progress of the
overall programme. In the initial phase of programme implementation, the PAF level activities were
centralised but more recently PAF has established district offices headed by a Portfolio Manager (PM)
to ensure timely reporting of data from POs, data consolidation at the district level and sharing it with
the PAF Head Office. The following are the main observations of the evaluation team

Strengths & achievements Weaknesses & areas for improvement


Most of the sample POs engaged under the SMs seemed to be overloaded with work.
PAF programme have good, relevant Analysis of PO data indicates that SMs work
experience of more than 15 years. with 7-39 COs with an average of 18
The PAF programme is of high importance to COs/SM. A workload of 10-12 COs/PO would
the POs nearly a quarter of the POs total have been practical. Almost 75% of the
staff are engaged under this programme sample POs have a high average COs per
and PAF grants forms a significant 15% of SMs which has affected their productivity.
their total revenues. Each CO is covered around 4 times a year
which is far below the required 12 visits per
annum. Therefore, the SMs are not able to
spend adequate time with the COs for
handholding.
Limited involvement of PM in field
monitoring of CO activities and validation of
data provided by POs.
Considering the high reliance of COs on POs
for bookkeeping & other aspects, with PAFs
decision to engage with lesser number of
POs, continued support and monitoring of
CO activities would be a challenge in the
remaining period of the programme.

3 The way forward

In view of the weaknesses and areas of improvements highlighted above and considering that another
2 to 3 years are left for the completion of the programme, the main focus of PAF has to be on

Consolidation of the vast structure of more than 26,000 COs (and growing) all across Nepal
Ensuring that the support and flow of funds to COs continues beyond the programme period to
enable their sustainability
Developing systems for efficient supervision of the progress made by the COs and the support
provided by the POs
Capacity building of COs, PAF staff and PO staff.

In order to achieve these, PAF needs to have a multipronged strategy for different levels of the
programme (overall programme, CO level and PO level) as suggested below.

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Overall Programme Level CO and PO Level
Portfolio audit of COs for their categorization Strengthening capacity of moderate and weak
into better performing, average/weak and preforming COs on RF management
defunct COs for targeted support and action bookkeeping, product refinement, tracking of
overdues. This would require development of
Consolidation of better performing COs for training modules.
ensuring supply of funds for their growth and
meeting the credit needs of members. Engage members in bookkeeping from
Federation/cooperatives of COs linked to beginning instead of SMs doing it on their
banks (in areas where presence of MFIs is behalf
limited)
COs linked to MFIs (mainly in sub-urban Training of members has to be embedded with
pockets where MFIs are more active) monitoring activities and regular to have an
Direct bank linkage of COs to harness the impact - with lesser workload of the SMs (by
deprived sector lending targets of the ensuring CO/SM ratio of around 15) and
banks and provide not only an additional automated MIS this may be possible
source of funds for COs but also a business
case for banks. Reinfusion of funds for disaster affected COs
after a thorough audit.
However, bank linkages would be viable mainly
for COs that are located in places with relatively Phasing out of defunct and non-performing
easy access to bank branches. In this context, COs in which the RF has been fully eroded
the continuation of the bank accounts of COs because of operational reasons.
should be subject to success of the bank linkage
by PAF and closing of dormant accounts may be Market development initiatives to bolster the
considered if this initiative does not work out. IGAs of the CO members

Policy support would be needed to enable use


of deprived sector facility for which PAF will Capacity building of PO staff bookkeeping,
have to connect with the Nepal Rashtriya Bank portfolio management etc. Through the
and policy makers to showcase the RF number of POs would reduce, the support to
programme. COs would continue to be the responsibility of
the POs and it is important that their staff have
Strengthening of MIS at all levels the requisite skills and capacity to carry out
standardization of bookkeeping, analysis & their responsibilities efficiently.
reporting; introduction of automated systems
It seems possible to continue the support to
Reviewing policies related to functioning of COs average/weak COs with a lesser number of POs
10% contribution, staggered disbursements & after linkage of good COs & phasing out of
savings terms & conditions (learnings from SHG defunct ones the number of remaining COs
Bank linkage programme of India) and that need capacity building support would
promotion of transactions with bank accounts reduce.
to stimulate banks interest.
Introduction of automated systems at POs for
Capacity building of PAF staff on business data collection & reporting
planning, financial management, group
management and bookkeeping to guide and
supervise the POs and COs, as well as to use the
MIS. With reduction in the number of POs
involved, capacity building of PMs is even more
important.

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The overall impression of the M-CRIL evaluation team is that PAF RF programmes has been a relevant
initiative for financial inclusion of the very poor households in various regions of Nepal. The
performance has been mixed in terms of management of the revolving funds by the COs and
effectiveness of the support from POs. The impact at the member household level would take a while
to become evident but success stories are already emerging indicating the positive role of the
programme in providing access to finance and enhancing the source of livelihood for the CO members.
PAF needs to consolidate on widespread outreach and the positives gained through this project
programme to have a long lasting impact on the target population.

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Chapter 1

Introduction to the review

1.1 About the programme


[Includes excerpts from Annual Report 2015, PAF]

The Poverty Alleviation Fund (PAF) was established by the Government of Nepal in 2003 to reduce
extreme poverty in Nepal and to build an equitable and sustainable society. It is financed by the
Government through a succession of IDA grants from the World Bank. In 2003, PAF started as a special
and targeted programme to bring the excluded communities to the mainstream of development, by
involving the poor and disadvantaged groups as the drivers of development efforts. PAFs
development objective is to seek improved living conditions, livelihoods and empowerment among
the rural poor, with particular attention to groups that have traditionally been excluded by reasons of
gender, ethnicity, caste and location. Initially established by an ordinance in 2003, PAF is governed by
an act since 2006. Thus PAF is now an autonomous and professional organization governed by a
separate law.

To realize this development objective, PAF has four major programmes social mobilization, capacity
building, income generating activities (IGAs) and infrastructure building at community level. The
Revolving Fund (RF) is part of the IGA programme. For income generating activities, PAF provides a
grant to Community Organisations (COs) to launch activities exclusively for the target groups. The
groups or CO members borrow money from the CO's Revolving Fund to launch IGAs.

As per data reported by PAF (December 2015), the outreach of PAF extends to 26,497 COs through
~400 POs in 52 districts of Nepal. Currently PAF is active in 55 districts across Nepal. The focus on
poverty outreach is ensured through the selection of intervention districts/areas based on the
disadvantage ranking done in the District Periodic Plan. The poverty focus is further ingrained through
the selection criteria of CO members; the PAF guidelines stipulate that PAF clients should belong to
the household category having less than one year of food sufficiency.

PAF is also providing an innovative window in a few additional districts (also known as innovative
window programme districts, IWPDs) with the purpose of promoting innovative ideas in selected
pockets of poverty. While the investment in IWPDs was smaller in comparison to programme districts
a similar approach was used by establishing COs. The different (ongoing) sub-projects that are being
implemented in these districts include.

Promoting vegetable farming on lease land for the landless in Chitwan


Creating and enabling environment to the Dalit Community--"Mukta Kamayia" in Kanchanpur
Area Development in 11 VDCs: Integrating livelihood improvement of trival communities
(Chepang and Tamang) through agro forestry, plastic water harvesting construction and link road
construction, in Makawanpur
Bankariya and Praja/Chepang improvement by livestock, agriculture, education and other income
generating Programme support by locally available resources, in Makwanpur
IG activities for poverty reduction--Livestock development, vegetable farming, etc. in Morang
IG Programme for poverty reduction--Making women starting business on agriculture trough
Organic Farming in Morang

1
Review of RF Programme of PAF
July 2016

Programme cost sharing

The total cost sharing for the sub-projects


among PAF, community, Village & District Figure 1.1: Cost sharing of sub-projects
Development Committees (VDC/DDC) and
other development partners as shown in
Figure 1.1 alongside. The 16% share of the Community
, 16%
community includes 6% cash contribution
and 10% in kind. In IG sub projects,
community is sharing 9% in cash and 2% in PAF, 78% VDC/DDC
kind. About 87% of the PAF investment in & other
income generating sub-projects are partners,
6%
established as revolving fund at community
level, which is managed by COs.

Revolving Fund for Income Generation

In its initial years (2003 to 2008) during the conflict, PAF operated more as an emergency and direct
grant funding organization with limited or no monitoring of CO operations after the disbursement of
funds. As a result, in the pilot districts, the RF were given as grants without clear instruction that the
funds need to be repaid by the members to the COs and should be rotated. However, after 2008, the
thinking has evolved and PAF is treated more as a RF facility which is reflected in the framing of the
RF manual in 2008 and the introduction of a detailed monitoring format in 2012. The RF manual is
currently being revised by a consultant (who earlier worked with PAF and has also recently drafted a
performance evaluation framework for Cos).

The RF amount from PAF is credited directly into the bank account of COs while POs are provided an
annual assistance based on the number of COs under them to carry out monitoring activities. The RF
assistance is provided once to each CO but staggered in two tranches and the members are expected
to rotate the fund and grow it through inter-lending. Typically, RF amount is around NPR 300,000 to
400,000 (USD 2,800 to 3,700) in the current phase but was higher at around NPR 500,000 (USD 4,700)
in the initial phase of implementation.

Income generating sub-projects consist of a large range of activities including animal husbandry,
agriculture comprising various crops, land improvement, fisheries and bee-keeping, microenterprises,
trading and services. Livestock has been by far the most significant sector (73% of total loans), while
the agriculture sector has a lower share (7%). Trading (15%) mostly consists of small retail shops while
service sector (4%) mostly include agro veterinary services.

Implementation mechanism

PAF mobilizes communities, form COs and provides block grants for the revolving fund through the
intermediation of Partner Organisations (POs), which are typically local Non-Government
Organisations (NGOs). Based on the eligibility criteria set by PAF, qualified and eligible POs are
selected from among local NGOs, Private Sector Organizations (PSOs), and Local Government
Organization (DDCs/VDCs) for social mobilization, technical assistance, and capacity building
programmes. These POs catalyse the COs, help them prepare an RF assistance plan, train them on
basic bookkeeping as also monitor their operations after disbursement of funds from PAF.

The POs typically have three staff levels for the PAF project. A Social Mobiliser is the main field person
in touch with COs and the Programme Coordinator supervises its activities. In case the PO covers

Micro-Credit Ratings International Limited 2


Review of RF Programme of PAF
July 2016

more than five VDCs, there is also a post of Supervisor between the Social Mobiliser and the
Programme Coordinator.

The flow of reporting from the field, as shown in Figure 1.2, goes from CO to PAF portfolio manager
and onward to PAF HO. The reporting is four monthly and two challenges exist in the data reported
by PAF, i) the data sent by POs is hardly verified and ii) COs formed before 2008 have very limited
records.

Figure 1.2: Flow of information/data from the field to PAF

PAF

Four monthly district level data for


consolidation at HO level

PAF District Portfolio Manager

Four monthly data on COs covered

Role of POs
Preparation phase: support COs for loan
Social mobilisation fund Partner Organisations applications
Capacity development fund Overall 400+ POs Implementation phase: monitoring of CO
business plans & submitting monitoring
reports to portfolio manger

Role of COs
Lending to group members for IGAs
Infrastructure fund & COs Progress report to PAF via POs after
Revolving fund for IGAs Max 30 members, overall utilisation of 1st tranche of revolving fund
Completion report after utilisation of 2nd
26,497 COs
tranche (end of the year).

1.2 Objectives and scope of review

The objective of this evaluation, as outlined in the Terms of Reference (ToR) is

To review the performance of a selected number of revolving funds in COs in the selected
districts, assessing their financial soundness and to make recommendations to address
potential issues observed and to improve the monitoring of the revolving funds in the future.

Considering the vast coverage of PAF across the five regions of Nepal and the limited time and budget
available for the review, it was decided in consultation with the World Bank that the M-CRIL evaluation
team would study 50 COs in a way that it covers various programme regions and also COs of different
experience levels (in terms of their age). Since the quality of COs promoted directly reflects upon the
performance of the RF under PAF, the study of the COs was aimed at gaining an impressionistic
understanding of the performance of the COs on the following aspects

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Review of RF Programme of PAF
July 2016

Governance: Establishment process of the COs, selection of the members and office bearers and
their involvement in day to day management, timeliness of meetings and member attendance

Management of revolving funds: Process of loan application and approval, types of loan products,
setting of loan terms & conditions including interest rate and penalties, loan utilisation for IGAs,
repayment performance of borrowers, handling of arrears and defaults, savings mobilisation
process and regularity of savings

Bookkeeping: Types of record books maintained by the COs (PAF agreement and business plan,
meetings register, cash book, loan ledger, member pass books, CO bank account pass book etc.),
availability of books and timeliness of record updates, level of dependence on POs for
maintenance of records.

Monitoring and capacity building support by POs and PAF: Frequency of monitoring visits by POs,
types of training organised and participation by COs, facilitation of external audit (if any), and
reporting of COs progress to PAF.

In addition to the study of COs, the scope of review also included interactions with the POs since they
form an integral part of the overall RF programme. The main purpose of these interactions was to
understand their role in the promotion of COs, their perspective on the RF programme and their
opinion on areas to focus on during the remaining tenure of the programme for improving its
effectiveness.

1.3 Methodology

M-CRIL adopted a mixed methods approach for covering the sample of COs and POs under the PAF
programme. The various methodological phases of this assignment is shown in Figure 1.3 below.

Figure 1.3: Approach to the RF review

Preparations Pilot On-site mission Reporting


Briefing & desk Interaction with PAF Interviews with Data compilation and
review management to understand the representatives & analysis
programme & visit to 4 selected members of sample COs
COs to test the evaluation design using data collection
& sharing of initial impressions toolkits, across various
with the World Bank regions of Nepal

Evaluation design Finalising of data collection Interactions with Preparation of draft


including toolkit & finalisation of work plan representatives of POs report with
development of across various regions of recommendations and
data collection Nepal roadmap for resolving
toolkit, sampling & issues at the PAF, PO
field visit planning and CO levels

Briefing to Research Analysts on Report finalisation after


data collection requirements incorporating comments
from PAF & WB

Debriefing to PAF & WB

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Review of RF Programme of PAF
July 2016

Based on the understanding obtained from the details provided in the TOR, followed by a virtual
interaction/briefing with World Bank and PAF officials, the evaluation team developed the research
tools best suited (considering the available time frame & budget) to review the RF programme. The
approach to the evaluation and subsequent development of tools involved
(a) Review of programme documents
(b) Sampling of COs and
(c) Choosing research tools for data/information collection.
1.3.1 Data review, development of data collection toolkit & pilot
A literature review was undertaken at the start of the evaluation process to equip the evaluation team
with a comprehensive understanding of the project components, objectives and contextual factors.
The evaluation team reviewed the
Performance Management Framework for RF Management,
Review of Performance of CO Revolving Funds and Recommendations for Revolving Fund
Management prepared for the IFAD Nepal Office and
Revolving Fund Management Manual for Income Generating Groups 2065.
Apart from this PAF shared data on COs based on a template developed by the M-CRIL evaluation
team which provided CO-wise details on their formation & agreement dates, location (district &
region), RF amount, PAF contribution to RF and the dates and amounts of disbursements of RF. The
date was pulled out by PAF from the MIS maintained at the HO and provided the basis for the sampling
of COs for the on-site mission.

Based on the understanding developed on the functioning of COs & POs from the document review,
the data collection toolkit was developed on the 4 areas of performance review (i) governance, (ii)
management of RF, (iii) bookkeeping and (iv) monitoring and capacity building support by POs. The
toolkit was tested with four selected COs in Dhading district during the pilot exercise undertaken by
the Lead Evaluators during 12-15 January 2016. The pilot visit was also used to discuss with PAF
officials to understand their perspective on the programme. The debrief session with the World Bank
at the end of pilot visit was used to understand their expectations from the assessment.
1.3.2 Sampling of COs

Outreach of PAF

According to the data provided by PAF, the 26,497 COs are spread across 52 districts in 5 regions. The
concentration of the COs is the highest in the central region which accounts for 35% of the COs
followed by the mid-western region with 24% COs. The proportion of COs in the eastern and far-
western regions is around 18-19%. The western region with 4% of the COs is the least covered region
probably because most of the twenty top ranked districts (which were not considered for support
under PAF) are in this region. Table 1.1 below shows the geographical spread of the COs.

Table 1.1: Geographical spread of COs

Regions # of Cos Av. COs/


Districts No. % District
East 11 4,647 18 422
Central 14 9,351 35 668
West 3 1,154 4 385
Mid-West 15 6,310 24 421
Far West 9 5,035 19 559
Total 52 26,497 510
Source: PAF database

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The age of the COs (as on 31 December 2015, from the date of signing of agreement), was divided into
three groups for analysis zero to four years (young COs), four to eight years (middle aged COs) and
greater than eight years (old COs). It is evident that most of the COs have been established during the
last eight years of the programme accounting for nearly 80% of all the COs. Overall, more than 47%
of COs are middle aged and 33% are young while just 20% are old. A similar pattern is seen across
regions as well except for the western region where more than 41% of COs are old and in east where
more than 47% of COs are young as shown by Table 1.2.

Table 1.2: Distribution of COs by age

0 to 4 4 to 8 >8
# of % of # of % of # of % of
COs region COs region COs region
East 2,204 47.4 1,863 40.1 580 12.5
Central 2,989 32.0 4,729 50.6 1,633 17.5
West 275 23.8 402 34.8 477 41.3
Mid West 1,926 30.5 3,018 47.8 1,366 21.6
Far West 1,207 24.0 2,540 50.4 1,288 25.6
8,601 12,552 5,344
% of total 32.5 47.4 20.2
Source: PAF database

Sample selection of COs

The main criteria used for the sampling of 50 COs as agreed with the World Bank team were

(i) Geographical location: five regions east, central, west, mid-west and far west
(ii) Age of COs: three categories young, middle aged and old
(iii) Programme and Innovative Window

For the selection of COs on the above criteria, their proportional distribution (geographical and age
distributions analysed in Tables 1.1 & 1.2) were the guiding factors. For example, the central region
COs had a higher representation in the overall sample and within the eastern region young COs had a
higher representation. The sample also included random selection of programme and innovative
districts. Table 1.3 shows the sample plan for selection of COs. The final selection was done in close
consultation with PAF. The list of COs and POs covered is presented in Annex 1.

Table 1.3: Sample plan of COs

CO age (years) Young Middle Old Total


Region 0 to 4 >4 to 8 >8 sample
East 4 3 1 8
Central 6 9 3 18
West 1 1 2 4
Mid-west 4 6 2 12
Far West 1 5 2 8
Total 16 24 10 50

While the sample plan was to cover 50 COs, during the on-field mission the evaluation team was able
to study 57 COs across the five regions. The COs covered by the study had a total membership of 1943

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persons including 1,621 women and 322 men. The COs were spread proportionately across the five
development regions of Nepal covering 11 districts as per the sample plan.

Morang and Saptari from the Eastern region


Rautahat, Bara and Parsa, Central region
Kapilbastu, Western region
Banke, Bardiya and Dailekh, Mid-Western region
Doti and Kanchanpur, Far Western region

In the overall sample 10 COs covered were from the innovative districts while the rest were from the
programme districts as shown in Table 1.4.

Table 1.4: Actual coverage

CO age (years) Programme Innovative Total %


Region Districts window
East 5 5 10 17.5
Central 18 18 31.6
West 5 5 8.8
Mid-west 14 14 24.6
Far West 5 5 10 17.5
Total 47 10 57

1.3.3 Choosing research tools for data/information collection

In order to cover the proposed 50 COs, M-CRIL adopted the mix methods approach
(a) CO workshops at the regional level, and
(b) Field visits to COs.

Each CO workshop was a day-long activity with participation from at the most 4 COs. The workshops
were organised by PAF/PO officials at locations where representatives of the participating COs could
reach conveniently. Therefore, multiple workshops were organised in regions where the number of
COs to be covered were more than four.

The representatives of COs participating in the workshop were requested to bring along all their
record books for review by M-CRIL analysts. The information from the COs were collected based on
the template developed by M-CRIL to obtain impressions on the aspects of the review. This included
the development of verifiable indicators for each aspect to ensure an appropriate impression of the
performance of the COs. The toolkit for COs is presented in Annex 2.

In addition to workshops, at least one CO in each region was covered by field visits. During the field
visit the M-CRIL team interacted with the entire group using the template to capture information on
various aspects related to governance, management of RF, bookkeeping and monitoring by POs. Apart
from member interactions, a key purpose of the field visit was to identify success stories (or failures)
from the use of loans that impacted the livelihoods of members.

In addition to workshops with COs and field visits, PO workshops were organised at the district level
(one in each region) to understand the perspective of the PO representatives (programme
supervisors/coordinators and social mobilisers) on the performance of the revolving funds under PAF
and challenges faced by them. Table 1.5 illustrates the actual coverage of COs as well as POs through
different methods. The evaluation team interacted with representatives from 36 POs across the five
regions. The toolkit used for collecting information from POs is presented in Annex 3.

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Table 1.5: Coverage of COs through mixed methods

Region # of CO Field visit # of PO


workshops to COs Workshops
East 2 2 1
Central 4 3 1
West 1 1 1
Mid West 3 2 1
Far West 2 2 1
Total 12 10 5
Note: 12 CO workshops covered 47 COs while 10 COs were covered by field visits

1.3.4 Resources employed

A team of six analysts was involved during the different phases of the review process. The preparation
phase & the pilot was undertaken by a team of two lead evaluators while the on-field mission and
report writing was carried out by the Lead Evaluators and a team of four evaluators (two senior and
two junior). Each region was visited by a team of two evaluators (one senior and one junior) to conduct
the CO & PO workshops and independent on-site visits to selected COs.

Three visits were organised to cover the proposed sample. In the first visit, the eastern region was
covered, in the second, the far west and mid-west regions, and in the third, the western and central
regions. The second and third visits happened simultaneously. All the visits were completed by 30
April 2016. PAF was responsible for providing logistics support to the evaluation team in organising
workshops and in arranging local transport and accommodation for the evaluators as well as CO/PO
representatives.

1.3.5 Segments of analysis

Apart for geographical spread across the five regions, while selecting the COs, their period of
association (as on 31 December 2015) with PAF was also taken into account. The purpose was to see
the variations in performance of COs across different age groups with the expectation that the
members of young COs would have 1-2 cycles of loan from the RF for income generating activities
while the medium and older COs members, after taking a few cycles of loans, would have expanded
their business activities. Nearly 28% of the sample COs were associated with PAF for less than 4 years
(young COs), 49% of COs between 4-8 years (middle age COs) and about 23% were associated for more
than 8 years (old COs). This broadly represents the overall age profile of the COs.

The study further classified the selected COs into two categories based on gender to analyse the
performance variations.
a) Women centric (more than 80% of members in the CO were women), and
b) Mixed (less than 80% of members in a CO were women).

Around 67% of the sample COs (38 out 57) were women centric. This included 17 fully women COs
which formed around 30% of the sample. The mixed COs constituted around 33% of the sample (there
were no COs in which 100% members were men). The analysis of the performance of COs on
governance, management of RF and bookkeeping in the following chapters is based on these three
broad segments. Specifically

i. Regions: five operational regions of Nepal where PAF is functioning


ii. Period of association: Young, middle aged and old COs
iii. Gender

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1.4 Profile of COs covered

The profile of the COs has been analysed in terms of their size, gender, level of poverty, caste, age of
CO members and distance from CO location to their bank branches.

A typical CO had a membership of 34 including 28 women and 6 men. Around 68% of the members
are hardcore poor, 24% are medium poor and 8% are poor while in terms of caste composition 31%
are Dalits, 45% belong to Janjati, 16% are Muslims and 8% belong to other castes. The majority (69%)
of the CO members are in the middle age group, 31-50 years followed by 16% in the age group above
50 years and 14% are 16-30 years. The distance from the bank branch of a typical CO from their
location is 25 kilometers. The profile of a typical CO (based on the average of the 57 COs studied) is
depicted in Figure 1.4 below and a more detailed description is presented in the following sub-
sections.

Figure 1.4: Composition of a typical CO

1.4.1 Size of CO

PAF supported the idea that poor communities can organize themselves and with facilitation support
can implement and manage programmes that are targeting them. In this context, there was flexibility
in the size of a CO at the time of formation, though a more manageable size is around 25-30 members
according to the evaluators based on experience of similar programmes in neighboring countries like
India and Bangladesh.

The total number of members in the sample COs varied from 17-84 members with an average
membership of 34. Around 37% of the COs have membership in each of the ranges 20-30 and 31-40
members, 17% have membership of >40 members and 9% have membership of <20. The size of the
CO mainly depends on the size of the community and the level of poverty within the community as
the programme targets poor households.

There is not much difference in the average size of COs between the Eastern, Central and Far-western
regions. However, the COs in the Western region had a smaller group size and the Mid-West has larger
group sizes than the average. All the sample COs in Dailekh district from the Mid-western region had
more than 50 members with an average of 61 members; it was mainly the old groups that had larger
memberships.

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The data presented here is on the current level of memberships of the COs which includes dropouts
of members due to migration, death, and those having difficulty in contributing 10% of the loan
amount. Further, there are cases wherein new members have replaced the older members of their
households. Figure 1.5 shows the average size of CO across various segments such as region, age of
association and gender.

Figure 1.5: Average size of sample COs


50
40
30
20
10
-
East Central West Mid Far Young Middle Old Women Mixed
West West Centric
Region Association Gender Overall

1.4.2 Gender of CO members

As per operational guidelines of the PAF, COs must have women as members with the requirement
that at least one of the key positions (President, Treasurer and Secretary) should have women. It is
well reflected in the gender composition of the members of COs. Around 83% of the members are
women, none of the sample COs have less than 50% women members and 17 COs had 100% women
members. Overall, only 7 out of 57 COs have less than two third women members and all COs have at
least one woman in the key position.

The proportion of women members is higher in the Eastern (95%) and Central (89%). Similarly, a
higher proportion of women members is evident in young COs (90%), as compared to middle age COs
(85%) and older ones (75%) as depicted in Figure 1.6.

Figure 1.6: Gender composion of COs Men


Women
50
40
30
20
10
-
East Central West Mid West Far West Young Middle Old
Region Association Overall

1.4.3 Poverty level

PAFs mandate is to work with poor households to address issues of rural poverty and social exclusion.
Participatory social assessment and community well-being rankings were used to identify the poor as
primary beneficiaries at the settlement level. Among the members in the sample COs, 68% are
classified as hardcore poor (food sufficiency less than 3 months), 24% under medium poor category

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(food sufficiency more than 3 months but less than 6 months), 8% under the poor category (food
sufficiency more than 6 months but less than a year) and none of them are in the marginal non-poor
category. The Central region has a high proportion of hardcore poor (79%) while the Western region
has the lowest (43%). However, there is not much difference in the poverty profile of CO members
across age of association and gender. Table 1.6 indicates the category-wise poverty profile of CO
membership across regions.

Table 1.6: Poverty profile of COs

Analysis segment Hardcore Medium Poor


Poor Poor
Region
East 64% 23% 13%
Central 79% 20% 2%
West 43% 44% 13%
Mid-West 64% 28% 9%
Far West 64% 17% 19%
Age of association
Young 67% 29% 4%
Middle 65% 26% 9%
Old 73% 18% 9%
Gender
Women Centric 69% 24% 7%
Mixed 65% 25% 10%
Overall 68% 24% 8%

1.4.4 Caste composition

Nepali society is characterized by its cultural pluralism with many caste (or ethnic or religious) and
linguistic groups. The 2011 population census reported 125 caste or ethnic groups speaking 123
languages/dialects1. There are several kinds of disadvantaged groups in the country including people
living with disabilities, Dalits, and disadvantages ethnic groups along with minorities. PAF is focusing
on socially excluded group such as Dalit and Janajati.

To understand the caste homogeneity of COs, all the sample COs were categorized into four
categories. The term homogeneity applies to same/ similar caste, economic status and business
activity.

(i) Dalit (low caste Hindus)


(ii) Janajati (indigenous people not part of the Hindu caste system)
(iii) Minorities/Muslim and
(iv) Others (includes Chatri, Brahmin, Newar, Takali, Bahun, etc).

Overall a typical sample CO is made up of member households that are 32% Dalit, 45% Janajati, 16%
Muslim and 8% other ethnicity. As shown in Table 1.7 below, it is clear that PAF is focusing on socially
excluded groups such as Dalit and Janajati (together constituting around 77% of the membership).
There are 5 COs with 100% Dalit and 11 COs with 100% Janajati in the sample. The majority of COs
are homogenous in nature with a mix of caste groups as members.

1
The Population and Socio Economic Atlas of Nepal, 2011

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Table 1.7: Caste composition of CO members

Analysis segment Dalit Janajati Muslim Others


Region
East 33% 21% 26% 21%
Central 24% 55% 14% 7%
West 30% 58% 10% 2%
Mid-West 36% 40% 0% 25%
Far West 35% 41% 18% 6%
Age of association
Young 26% 53% 11% 10%
Middle 40% 48% 7% 6%
Old 27% 35% 26% 12%
Gender
Women Centric 33% 47% 10% 10%
Mixed 26% 38% 34% 3%
Overall 32% 45% 16% 8%

1.4.5 Age of CO members

As per the guidelines, COs normally admit Figure 1.7: Age of CO members
members if age is more than 16 years. As shown
in Figure 1.7, a majority of the members (84%)
16% 14%
are in the age group of 16-50 years, it is
considered to be the most productive age-
group. A few CO members who have crossed
the age of 50 years were also members of the
groups. Not much variation was observed
across age of association of COs and across the
regions except in the Western region where 69%
38% of the CO members are more than 50 years
old.
16-30 Yrs 31-50 Yrs >50 Yrs

1.4.6 Distance from CO to Bank

As per the PF guidelines all COs were required to open bank accounts to which the revolving fund and
other grants could be transferred. The far distances of the COs from their bank branches indicate their
remoteness and also the chances of being excluded from formal financial services.

The distance of the sample COs from their bank branches ranged from 3 to 80 Km, with an average of
25 Km. Two-thirds of the COs have branches more than 10 Km away from their location. A majority
of sample COs in the Mid-Western and Far Western regions are located in the hills and mountains.
Hence, the average distance is higher in the Mid-Western (34 km) and Far Western (43Km) regions.
Some of the COs do not have road access due to which the SMs have to walk to conduct CO meetings.
The COs located in the mountains in Doti district from the Far-West conduct bi-monthly meetings due
to access issues. Middle and old age COs tend to be located further from bank branches as shown by
Figure 1.8.

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Figure 1.8: Average distance from CO to bank branch


50
40
30
20
10
-
East Central West Mid Far Young Middle Old Women Mixed
West West Centric
Region Association Gender Overall

1.5 Limitations and challenges faced


Location of COs: The main challenge faced by the evaluation team was the remote locations of the
COs in various regions of Nepal. Because of this it was difficult to visit each one of the selected sample
independently considering the time and budgetary limitations. It is for this reason that the approach
of inviting COs for a workshop at a central location within each region was conceptualised. While
more than 80% of the COs were covered through workshops, the evaluation team also visited some
COs independently to be able to meet other members of the group at their location to understand
their perspective on group functioning and the quality of capacity building support provided by the
POs under the PAF programme. This mixed methods approach circumvented the logistical challenge
of visiting the COs at their locations to a large extent.
Availability of CO documents: For the workshops the representatives of COs were expected to bring
along with them all the documents and records including agreement, ledgers, minutes & attendance
register, bank pass books, saving & loan passbooks issued to members etc. PAF was given the
responsibility of ensuring that this requirement was explained to the COs beforehand, through the
respective PMs and POs. The evaluation team also discussed and reminded the PAF and PO officials
of the importance of CO documents. Despite the best efforts of the evaluation team and earnest
follow-up by PAF officials a number of COs arrived at the workshops without a completed set of
documents. While the evaluation team collected the required information by interviewing the CO
representatives, in many cases, the information obtained verbally could not be verified from the
documents. One of the main reasons for this was the replacement of some of the selected sample COs
due to logistical reasons & also communication issues. Around 20% of COs were replaced (from the
original sample selected) and the evaluation team did not have prior information of the replacement.
Similarly, the representatives of POs were also expected to bring along with them latest monitoring
reports and copies of financial statements (to see the importance of PAF project in their overall
operations) for review by the evaluation team. However, financial statements were available in
relatively few cases and the evaluation team had to rely mainly on verbal interaction to obtain the
information.
Other issues: The evaluation team also interacted with the regional Project Managers of PAF to
understand their perspectives on the programme, field issues and future strategies/focus areas for
PAF. Most of the PMs had not completed one year of service with PAF and therefore had a limited
understanding of these aspects.
Apart from these challenges, the evaluation team encountered logistic issues in some of the districts
where the location of COs was not known to the officials and the additional time needed to identify
their whereabouts could have been avoided. In some locations, it was also a challenge to keep up the
interest of the COs during workshops due to the hot weather combined with poor power supply which
tested their patience. However, overall the evaluation team was able to manage the various
limitations and complete the on-field mission reasonably successfully.

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Chapter 2

Impressionistic findings on the performance of COs

This chapter presents the impressionistic findings of the evaluation team on the performance of the
COs mainly based on detailed discussions with the representatives of COs (rather than on detailed
records) to understand (i) how they are governed, (ii) how the revolving fund is managed and (iii) the
quality of their book-keeping.

The observations on governance cover the


establishment process of the CO,
selection of the members and office bearers, and
their involvement in the day to day management of CO activities.

The management of revolving funds covers


the process of loan application and approval,
loan products developed and the utilisation of these for IGAs,
repayment performance of borrowers,
handling of arrears and defaults, and
the savings mobilisation process.

The observations on bookkeeping highlight


the types of record books maintained by the COs,
timeliness and quality of record updates &
level of dependence on POs for the maintenance of records.

2.1 Governance

Governance refers to the set of policies, regulations, processes, procedures and responsibilities that
define the establishment, management and control of the programme. The governance of a program
provides the required internal guidance and controls, while externally, it reassures stakeholders that
the money being spent is justified.

PAF believes that CO members should be empowered to implement and manage the revolving fund
programme. COs are driven by the main objective of improving the livelihoods of their members and
helping them to come out of poverty. The objective of the program is to create awareness among the
poor, and help to organize and empower them for decision-making so that they can identify and
prioritize their needs. Through creating ownership of the community organisations PAF tries to bring
efficiency and transparency of the work carried out by the COs.

This sub-section of the report explores various aspects of governance including formation process on
the basis of caste and economic status, selection of office bearers, sub-committee formation, group
norms, regularity and timeliness of meetings and member attendance.

Formation process

The process of CO formation initiates when the District Development Committee (DDC) office selects
the VDCs as per the Disadvantage Group Mapping (DAG Mapping). Parameters such as caste,
economic status, remoteness are considered for ranking, and the VDCs with the lowest rankings are
selected.

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Identification of VDCs and target households

Once the list of selected VDCs is received by POs, the process of selecting and establishing a CO starts.
A VDC level meeting is conducted to create awareness about the program in the village by the
Programme Coordinator (PC) and Social Mobiliser (SM) along with two Board members of PO. A
presentation is given about the PAF programme and PO to the participants of this meeting. The
participants are the VDC heads, local influential people and people with a political background.
Thereafter, the Well-being Ranking is conducted and the information received on the basis of this
meeting helps in Ward selection. The next step is to visit the respective ward and again conduct Well-
Being Ranking to determine the economic classification of the households. This is followed by Basti
Mapping or House marking to identify the target households. This identification is done on the basis
of the economic status of a household with strong preference to the poorest household across all the
regions and categories. The poverty status of members is presented in Section 1.4.3.

Selection of members and office bearers and their involvement in day to day management

While selecting an area for CO formation, a caste wise analysis is conducted to identify backward class
members. For selecting members, three major norms are followed a) preference to the poorest, b)
preference to backward castes, c) more than 50% women members. All the 57 sample COs followed
these norms and had more than 50% women members.

In the meeting with the target households the SM and PC (of the PO), inform the members about the
benefits, rules and regulations of the PAF program. The SM then facilitates the selection of the CO
leader from amongst the members through a democratic process. All the sample COs had selected
3-5 office bearers. Around 93% of the COs covered had 3 office bearers: President, Secretary and
Treasurer while those with 5 office bearers included additional positions like Vice President and
Assistant Secretary. The same office bearers have been in place since inception in 96% of the COs,
though in some cases only one of the office bearers has been replaced. With regard to group norms

About 93% of the COs have norms for the selection of members
91% have norms for selecting office bearers, mostly through a democratic process and also
keeping in mind the members who can devote time on day to day operations
However, only 12% have norms for the rotation of group leaders. In the majority of cases no
re-election or rotation is taking place.

For governance of the key activities of the COs, sub-committees such as Khareed upsamiti (Purchase
sub-committee), Anugaman upsamiti (Monitoring), Lekha upsamiti (Book keeping), Ghumti Kosh
upsamiti (Revolving Fund) are formed under the supervision of the SM and this is recorded in the
meeting register of the CO. Each sub-committee has 2-3 members and the selection of these
committees is done by the group members. Each sub-committee has specific operational tasks
designed to increase the involvement of members and their sense of ownership of CO while reducing
their dependence on POs. Though these sub committees were formed in most of the COs at the
beginning, only a few are still active and most COs continue to be dependent on POs for governance
and operational aspects.

Figure 2.1 below presents the information on the active and non-active sub-committees across
regions and categories. The analysis shows only 7% of the COs have all the four sub-committees
active. At regional level the Mid-west (64%) and Far-west (80%) have most COs with at least one or
more sub-committee active. In the Central region none of the sub-committees was found to be active.
This could be due to the political unrest for several months in 2015 which hampered the functioning
of COs. Women centric COs (47%) have more active committees in comparison with Mixed COs (37%).

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Figure 2.1: Active sub-committees


100%

80%

60%

40%

20%

0%
East Central West Mid-West Far-West Young Middle Old Women Others
Centric
Region Age of association Gender Overall
None active Only 1 active 2 active 3 active 4 active

Initiation of savings & preparation of business plans

The amount of the compulsory savings is also pledged by the CO members in the initial meeting. Once
the group formation is complete, the CO is registered. The following activities are undertaken after
registration

The PC and the SM prepare a business plan based on the skills of members, market demand for
IGA products/services, and the amount of loan required by members for the proposed IGA.
A proposal is made on the basis of this information and is submitted to the PAF.
The PAF team of consultants conducts an appraisal to determine the level of awareness of the CO
members pertaining to the budget.
The process of approval takes a few months after the appraisal and, finally
The agreement is signed for release of the revolving fund to the CO account opened in the nearest
bank branch with the help of the PO.

Timeliness of meetings and member attendance

During the CO formation process, a day is fixed by the members for their monthly meetings. However,
if there is a special announcement or activity to be held, unscheduled meetings are called by the office
bearers.

On average, each meeting lasts for 2-3 hours. Activities like demand collection for loans, collection of
repayment, updating of record books and review of norms are conducted during the monthly
meetings. The COs are required to be regular with the meetings and the members are supposed to be
present during the meetings. The evaluation team collected data on meetings organised by the COs
and member attendance over the past twelve months. Overall it can be inferred that COs regularly
organise meetings though these may not always happen on the scheduled dates.

It is also evident from Figure 2.2 that the older COs are comparatively less regular in conducting
meetings than the younger COs. The main reason for this could be that the younger COs need more
support and repeated visits from the PO which also explains the number of unscheduled meetings of
the young COs. As the Central region was most affected by political unrest last year, the COs in this
region had irregular and fewer meetings during the period.

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Figure 2.2: Average no. of meetings held Past 12 months


On scheduled dates
15
12
9
6
3
0
East Central West Mid-West Far-West Young Middle Old Women Mixed
Centric
Region Age of association Gender Overall

All the members including office bearers are supposed to be present during the monthly meetings, or
any other unscheduled meeting unless there is a genuine reason for absence (like illness, travel).
Figure 2.3 analyses the average attendance at CO meetings. The average attendance for young COs is
86% whereas for middle and old COs it decreases to 82% and 70% respectively. It is clear that as the
COs grow older the attendance of members reduces but no specific reason can be attributed for this
except that members become familiar with the group processes and tend to ignore activities which
they feel are not urgent.

Figure 2.3: Average attendance (last 12 months)

100%

75%

50%

25%

0%
East Central West Mid-West Far-West Young Middle Old Women Mixed
Centric
Region Age of association Gender Overall

The overall attendance of office bearers across regions was 95%. Office bearers skipped meetings only
in case of personal emergencies.

2.2 Management of revolving fund

Access to financial services is crucial for community development projects because the poor must have
permanent and continuous access to stable and viable financing options. However, grants for income-
generating activities alone would be insufficient to create a sustainable mechanism for the economic
development of the community. Therefore, proper management of revolving funds is important for
the sustainable continuation of CO activities, and in particular after the PAF support ceases in 2-3
years.

This sub-section analyses the loan products developed, their terms and conditions, processes of loan
application, approval and repayment as well as the structure of the COs portfolios and savings.

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2.2.1 Loan products and terms

a) Design of loan products very similar across COs

The primary purpose of loans


obtained by the CO members is for Figure 2.4: No. of loan products offered by COs
income generation activities including Three Four
agriculture & related activities like 5% 2%
purchase of cows, buffaloes, pigs,
fishery, goat rearing and business Two
purposes such as for general stores, 23%
vegetable stores. The COs were
expected to develop loan products
which cater to the needs of their
members. Figure 2.4 shows that the
One
majority of COs were offering only one 70%
IGA loan product. The survey results
show that the younger COs usually start with 1 main loan product and gradually more products are
added.

The evaluation team analysed the terms and condition of the COs that offered multiple loan products
and came to the conclusion that in most cases the loan product was the same in terms of design with
the main difference being the nomenclature (like buffalo loan, vegetable loan, grocery shop loan) and
some variation in terms of loan amount and tenure. The following are the key features of the loan
products

Interest rates are the same across products offered by a CO and are in the range 5-15% per annum.
Interest is calculated on a reducing balance basis in all COs. Most of the COs (more than 65%)
charge interest at 12% per annum but since interest rate setting is the prerogative of the
members, some COs decided to charge just 5-6%.
Most COs (around 60%) also charge a penalty of NPR 10-100 per month for delayed repayments.
Some of the more progressive COs introduced more stringent norms to discourage late
repayments (like charging 50% of the instalment interest within the loan tenure and 100% of
instalment interest after maturity for delayed payments or 2% additional interest per month).
Some COs (21%) also charge a processing fee of 1-3% of the loan amount (most such COs being in
the Central region). One old CO in the Eastern region was found to charge an insurance fee of 4%.
The repayment frequency across products is similar mostly monthly for both principal and
interest but, in a few cases, the principal repayment is more relaxed at quarterly or six monthly
intervals; very few have the option of bullet repayments.
The loan tenure fixed at one year by most of the COs (61%), but some have adopted a more
liberal tenure of 18 (16%), 24 (16%) and 36 (7%) months. Older COs, particularly those offering
higher loan sizes, allow a longer tenure for repayment in comparison with the younger COs.
Younger COs offer a maximum tenure of 2 years while around 11% of the old COs have loans with
tenure more than 2 years.

It is obvious that the products developed have not considered the cash flow characteristics of some
activities like agriculture and animal rearing and for these activities the members often face problems
in making loan repayments. In such situations the members generally pay the penalty and, in some
cases, borrow from local moneylenders/acquaintances to repay the CO.

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b) CO contribution a challenging issue

One of the important elements that has been embedded in the design of the revolving funds is the
contribution (of 10% of RF) by the CO members. While preparing the business plans and loan demand
for the CO members at the time of its establishment the POs factor-in the contribution of members.
For example, if the loan demand is of NPR 20,000, 90% of it is expected to come from the PAF RF and
10% has to be contributed by the member. As per the guidelines the 10% member-contribution to the
RF has to be collected upfront and only then can the loan be disbursed but the actual practice varies.
Overall, the collection of the CO contribution is one of the issues that the programme is grappling
with. A specific case of this type is presented in Box 2.1.

Box 2.1: Issues in CO contribution an experience with Saraswati community organisation

Saraswati Community Organisation, located at Bathanaha (Ward No. 2), Saptari district was formed
on 30 April 2010 (17th Baishakh 2067) with 30 members and started saving NPR 25 per month per
member. After CO formation, Suryanarayna Mandal, the Social Mobiliser collected demand for
loans from 30 members which ranged from NPR 10,000-25,000. The total loan demand was NPR
477,000. After a few months, the PAF Consultant along with the PO Programme Coordinator visited
the CO for evaluation and requested the members to contribute 10% of the loan demand as CO
contribution. Since the members were unable to pay their 10% contribution the CO stopped
conducting meetings and returned the member savings. After several follow up meetings by the
SM, 24 CO members (six of them had dropped out) came together after 7 months and reorganized
the CO. However, the members were still unable to pay the contribution amount. The SM had been
continuously motivating the members to pay the CO contribution. After several motivational
meetings, 7 members contributed NPR 10,200 on 30 September 2011 (13 Ashwin 2068) and a few
months later, four more members contributed NPR 10,000 though a few of them had to borrow
from a local moneylender to make their contribution.

Finally, the CO received the 1st installment amount of NPR 237,876 from PAF on 18 March 2012 (5
Chaitra 2068) after two years of CO formation. The CO decided to on-lend the amount to 9 members
as per their loan demand. The other two members (Ms Asha Devi Sardar and Ms Sachita Devi
Sardar) took back their contributions. The rest of the CO members received the loan after the 2nd
installment from PAF but without any contributions.

Despite the issues in the member contributions, the CO has revolved the fund 3 times with
cumulative loan disbursed of NPR 11,97,000. Members have good credit discipline and all have been
paying their installments on time for the last two years.

The following are some of the observations of the evaluation team with respect to the CO
contribution

At the CO level the development of a business plan is based on the demand for a particular loan
amount by the members for a particular activity. The requirement of loan differs from one
member to another and so does the contribution amount as it is linked to the loan. Therefore,
members who have asked for bigger loans have to contribute a higher amount to the overall CO
contribution to the RF. This is not acceptable to the members and therefore, in practice, members
tend to divide the PAF RF among themselves so that their contribution is also equal.

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Upfront collection of 10% of the contribution by the members is a major challenge though the POs
emphasize it at various stages of the CO establishment process. Since the RF is received by the
COs in two tranches the loan disbursement to members & also collection of contributions (in some
COs) happens in a staggered manner. According to the SMs, the collection of contribution of
members who get loans after the second tranche of RF from PAF is even more challenging.

In some cases, COs did not collect the 10% contribution upfront but deducted it from the loan
amount at the time of disbursement. In other cases, the 10% contribution was collected but was
refunded to the members immediately after the loan disbursement. In both the situations the
practice adopted by the COs defeated the purpose of member contribution which is to build
ownership.

2.2.2 Involvement of members in setting the loan terms with some support from POs

The involvement of members in deciding the terms and conditions of loan products is depicted in
Figure 2.5. The following are the main observations.

In the majority of COs, group members have independently taken decisions not only on selecting
products but also setting loan terms. It ranged from members involvement of 60% of COs for
product development to 80% of COs for deciding penalties for delayed payments. Variations were
observed across regions, age and gender centricity of COs but did not significantly sway from the
overall trend.
Many COs also required facilitation by the POs in making such decisions. In such cases the POs
guided the members on different products that the group can opt for and the options for setting
terms based on their experience with other COs, but the decision was made by the members.
Decision making solely by the office bearers of the COs was less, but in such cases it points towards
the likelihood that such office bearers are dominant in group functioning, which is not ideal for
community based organisations.
Similarly, cases of decision making by the PO were less and it was mostly for the setting of interest
rates and determining the maximum loan amount and, in a few cases, for the deciding loan
product and repayment frequency.

Figure 2.5: Involvement of CO members in deciding loan terms


100%

75%

50%

25%

0%
Development of loan Max loan amount Repayment Interest rate Late payment
product frequency penalty

Independent decision by CO members Facilitated by PO Decision by office bearers Decision by PO

The overall impression is that the role of the office bearers as well as the PO staff has evolved over the
years and members of recently established COs appear to be more engaged in taking decisions related
to group functioning and setting norms. Box 2.2 presents a case of how a CO evolved its group norms for
improving group discipline and the overall performance of the group.

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Box 2.2: Evolution of group norms for improved performance of the COs

Saraswati CO (see Box 2.1 above) evolved the following group norms for better management of the
revolving fund
To ensure regular attendance and discipline at meetings the CO imposes a penalty of NPR
10 for late arrival to a meeting and NPR 20 for un-informed absence
To create the regular habit of saving among members, the CO collects a fine of NPR 5 per
month in case of delay in deposit of the saving amount
To ensure credit discipline among members, the CO charges a penalty of NPR 50 per month
for each overdue installment and no further loans are issued to members with overdues
To increase interaction with members, the CO changed from bi-monthly meetings to
monthly meetings in March 2016. To increase the velocity of internal lending, the CO
started monthly recovery of loans and reduced the loan tenure from 24 months to 12.
Earlier there was no ceiling on the loan size and the CO used to issue loans up to NPR
60,000. To reduce the risk of higher loan amounts and ensure availability funds for lending
to other members, the maximum loan size was fixed at NPR 30,000.
The RF sub-committee follows up immediately in case of an overdue and ensures recovery.

The governing committee ensures adherence to these norms. As a result, the CO has been able to
achieve good attendance (95%) during meetings and has 100% on time repayment rate from
members resulting in 0% PAR.

2.2.3 Loan processing relatively smooth and structured but weak follow up

A well-structured and streamlined loan application and approval process is essential for the effective
functioning of the COs. The practices observed at the sample COs are summarized below.

Application Approval Disbursement Repayment


About 63% of the COs Loan approval for 79% In 93% of the COs, Repayments are
have a formal of the COs is jointly loans are disbursed collected during the
structure for decided by the group within 10 days of monthly group
submitting loan members including approval. meetings.
applications to the office bearers
officer bearers. Disbursement is In case of a delay, the
For the remaining 21% recorded mostly the office bearers should
For the remaining of COs, it is decided by loan ledger and follow up which may
COs, requests for the office bearers meeting register. also include a visit to
loans are recorded only. the home of the
informally in the The mode of absent clients. Around
meeting register. disbursement is mostly 86% of the COs
cash (72%); cheques indicated having this
are issued to members norm.
in other cases.
19% COs had penalty
clauses for late
payments.

The variations in the practices across regions, age and gender centricity of the CO are highlighted
below

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Loan application: The process of formal application was highest among the COs in the Central region
(89%) followed by the Eastern and Western region (each at 60%). A large proportion of women centric
COs (71%) was found to practice a formal structure as compared to mixed COs (47%). Similarly,
formalised processes were observed to be higher in young (87%) and middle COs (68%) as compared
to the older COs (23%). It was evident that the younger COs have benefitted from the increased
experience of the POs through introduction of formalized processes of loan application. However, the
introduction of such practices largely depends on the efforts and initiative of the POs.

Loan approval: Among 60% of COs in the Far-western region, the loan approvals are done by the office
bearers. This goes against the principle of group equity and may lead to dominance by a few group
members.

Loan disbursement: A majority (85%) of older COs are able to disburse loans faster in 3-5 days after
approvals. This can be because older COs have relatively more funds which allows the group members
to disburse the loan more quickly than in the young COs. Cash is the preferred mode of disbursement
due to the usual problems in accessing banking services. It was reported by PMs/POs that in cases
where COs issue cheques to members for disbursement the member has to incur Rs200-300 per trip
to withdraw money; group leaders also have to be present as there have been cases where the
signatures did not match. The bank managers are also reluctant to process many cheques and ask the
COs to issue just one cheque for withdrawal and then distribute the amount amongst themselves.

Loan repayment: Whilst the majority of COs have the norm of immediate follow-up by office bearers
in case of missed payments, its practice was not so evident during the field visits. However, follow-ups
among the younger COs seemed better in comparison to the older ones. This can be mainly attributed
to the evolution in practices and norms propagated by PAF and facilitation by the POs.

2.2.4 Portfolio analysis of COs

a) Current portfolio outstanding an average of NPR 0.5 million per CO

Portfolio analysis of the sample COs


indicates that the current portfolio Figure 2.6: Current portfolio outstanding
outstanding (data as of April 2016) ranges (NPR) of sample COs
from less than NPR 0.3 million (~USD
2,800) to more than NPR 0.8 million (USD
7,450) as shown in Figure 2.6.
>800,000 <300,000
19% 28%
A majority of the COs (60%) in the Eastern
region had portfolio outstanding of less
than NPR 0.3 million, while 56% of Central
region COs had high portfolio outstanding
of NPR 0.5-0.8 million. It is also natural
that older COs had larger portfolio 500,000 - 300,000 -
outstanding as compared to younger COs 800,000 500,000
as they revolve the funds more times and 34% 19%
build up the accumulated surplus which
provides them with additional funds for
on-lending.

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b) Portfolio outstanding in comparison with PAF RF received indicates erosion of RF due to portfolio
losses

A higher portfolio outstanding of the COs in comparison with PAF RF received indicates that the funds
have been rotated well. Table 2.1 analyses the portfolio of COs vis--vis revolving funds that have been
received by the COs.

Table 2.1: Portfolio outstanding of COs vis--vis RF funds released by PAF

Portfolio O/s Regions Age of association Gender Overall


to PAF funds East Central West Mid Far Young Middle Old Women Mixed
ratio West West centric
<50% 10% 17% 40% 14% 19% 11% 15% 18% 5% 14%
50 to <100% 80% 50% 60% 43% 40% 63% 54% 38% 58% 42% 53%
>=100% 10% 33% 43% 60% 19% 36% 46% 24% 53% 33%
Note: table represents percentage of COs across different segments of analysis

It is clear from the above table that overall 33% of COs had portfolio outstanding higher than the initial
RF and were able to rotate funds well. The trends across regions, age of association or gender shows a
mixed picture on performance of COs on rotation of funds. Many COs have lost money due to overdues
resulting from members treating the loan money as a government grant which they feel they should not
have to repay, failure of IGAs of the borrowers, and external factors like the earthquake and the political
unrest of during 2015.

c) Members with outstanding loans funds tend to be distributed equally if sub-optimally

The evaluation team analysed whether the COs were able to support the credit needs of their members.
The proportion of group members with outstanding loans from a CO was used as an indicator to
understand this as shown in Table 2.2.

Table 2.2: Proportion of members having existing loans across various categories of COs

% of members Regions Age of association Gender Overall


with outstanding East Central West Mid Far Young Middle Old Women Mixed
loans West West Centric
<50% 20% 0% 0% 21% 0% 19% 7% 0% 11% 5% 9%
50 to 75% 50% 17% 0% 29% 30% 25% 32% 15% 26% 26% 28%
>75% 30% 78% 100% 50% 70% 56% 57% 85% 61% 68% 63%
Note: table represents percentage of COs across different segments of analysis

Overall, in 63% of the COs, more than 3/4th of the members had outstanding loans. Few COs had less than
50% of the members with outstanding loans. Field observations suggests that the COs try to cater to the
credit needs of all their members and as a result tend to distribute the available funds among them. In
many cases the loan amount was sub-optimal relative to the needs of the member.

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Figure 2.7 shows the distribution of


members of COs who have taken loans Figure 2.7: Distribution of members with
from the CO, single or multiple times number of loans from the CO
and also members who have not taken
4 or more
loans as yet. Overall, around 11% of the loans
Zero
members had never taken loans; most 11%
13%
of them from younger COs. It was
apparent during the mission that in
new/younger COs the members get Three loans
loans in a staggered manner (like the 16%
first half get loans after the first Single
tranche of RF is received from PAF and 31%
the second half gets a loan after the
second tranche is received) so it is Two loans
possible that this is the main reason for 29%
members not having outstanding loans
from the COs. About 31% of the members had one loan and 56% had multiple loans (two, three, four
or more number of times) and the trend is correlated to the age of the COs.

d) Analysis of loans disbursed by the COs and average loan size insufficient funds to meet members
needs

In the current financial year (from 15 July


2015 to the field mission in April 2016), Figure 2.8: Loan amount disbursed (NPR)
nearly two thirds (65%) of the sample COs in FY 2015-16
disbursed loans of total value less than
NPR 0.3 million (~USD 2,800). Only 16% of >500,000
16%
the sample COs disbursed amounts over
NPR 0.5 million (~USD 4,670) since July
2015. The distribution of the loan amount
disbursed across all the COs is shown in 300,000 -
Figure 2.8. Regionally, a very high 500,000
proportion of COs in the Central region 19%
(80%) disbursed total loans of value less <300,000
than NPR 0.3 million. Even in the case of 65%
old COs, nearly 92% disbursed loans less
than NPR 0.3 million in FY 2015-16.

The average size of loans disbursed by the COs during the current FY 2015-16 was NPR 25,950 (~USD
243) per borrower as shown in Table 2.3. Around 40% of the COs disbursed loans larger than the
average loan size and 33% of loan size less than the average while 26% of the COs did not make any
disbursement during the FY. The average loan size of old COs of NPR 16,412 (~USD 153) was
significantly less than the overall average indicating that with new members joining the group size has
increased and therefore the share per member is much less in comparison to younger COs. It is evident
that the older COs are less able to cater to the members credit needs to finance the expansion or
establishment of sustainable IGAs.

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Table 2.3: Analysis of average loan size across various categories of COs

Regions Age of association Gender Overall


East Central West Mid Far Young Middle Old Women Mixed
West West centric
Loan size (NPR) 21,486 35,274 29,235 19,423 28,418 26,315 28,204 16,412 25,633 26,607 25,950
< average 30% 28% 20% 50% 30% 50% 36% 15% 42% 37% 40%
> average 60% 39% 20% 29% 50% 44% 39% 31% 32% 37% 33%
No loans 10% 33% 60% 21% 20% 6% 25% 54% 26% 26% 26%
Note: table represents percentage of COs across different segments of analysis

The average size of the cumulative loans disbursed by the sample COs since inception is NPR 22,631
(~USD 212). In this context, the loans sizes have increased by about 15% in the current FY. However,
among the sample COs, 40% witnessed an increase in loan size in the current FY in comparison to the
cumulative loan size while for 33% there was a decrease and about 26% COs are yet to make any
disbursements in the current FY. A comparative analysis across regions indicates the current loan sizes
have increased significantly mainly in Mid West and Far West regions as shown in Table 2.4. The
change in loan size in terms of age of COs and gender is similar to the overall average. This again points
towards the limited ability of the COs to cater to the increased credit needs of the members over
time.

Table 2.4: Changes in average loan size current FY in comparison to cumulative

Average Regions Age of association Gender Overall


loan size East Central West Mid Far Young Middle Old Women Mixed
(NPR) West West Centric
Current FY 21,486 35,274 29,235 19,423 28,418 26,315 28,204 16,412 25,633 26,607 25,950
Cumulative 19,361 34,027 26,636 14,002 21,232 27,246 25,569 14,431 22,010 23,585 22,631
% change 11% 4% 10% 39% 34% -3% 10% 14% 16% 13% 15%

e) Quality of COs portfolio highly variable performance but serious issues amongst the older COs

In order to understand the portfolio quality of the COs, the evaluation team collected information on
their overdue loans to calculate portfolio at risk (PAR)>0 days (the proportion of loans which are
overdue as on the scheduled date of its repayment). PAR>30 days was also analysed to see if there
are any changes in the quality, particularly if the CO office bearers follow-up on the overdue loans for
recovery. Overall no significant change was observed in the PAR ratios >0 days and >30 days. The
analysis presented in Table 2.5 shows mixed performance of COs in terms of maintaining good quality
of portfolio. About 40% of the COs had no overdue loans while 5% had a reasonable quality of
portfolio with PAR <10% but at the same time 55% of the COs were facing major portfolio quality
issues, and about a quarter of the total had their entire portfolio at risk.

Portfolio analysis across different categories of COs indicates that


COs in the Eastern region have comparatively better portfolio quality while the COs in the Central
and Western regions are facing major portfolio quality issues.
Younger COs have better portfolio quality in comparison with older COs. While it is normal in
microfinance programmes that portfolio quality issues arise as organisations get older, in the case
of PAF the portfolio quality of older COs is a matter of grave concern as more than half have 100%
PAR and 72% have PAR exceeding 10%.
Women centric COs have better portfolio quality in comparison with Mixed COs reaffirming the
fact that women are better borrowers (as is recognized internationally).

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Table 2.5: PAR analysis

Regions Age of association Gender Overall


East Central West Mid Far Young Middle Old Women Mixed
West West Centric
PAR >0
0% 70% 22% 0% 43% 60% 56% 39% 23% 45% 32% 40%
>0%, <10% 0% 0% 0% 0% 30% 0% 7% 8% 3% 11% 5%
10 to 50% 30% 6% 20% 29% 10% 19% 21% 8% 21% 11% 18%
>50 to 99% 0% 28% 20% 7% 0% 6% 18% 8% 13% 11% 12%
100% 0% 44% 60% 21% 0% 19% 14% 54% 18% 37% 25%
PAR >30
0% 80% 22% 0% 43% 60% 63% 39% 23% 47% 32% 42%
>0%, <10% 0% 0% 0% 7% 40% 6% 7% 15% 5% 16% 9%
10 to 50% 20% 6% 20% 21% 0% 6% 21% 0% 16% 5% 12%
>50 to 99% 0% 28% 20% 7% 0% 6% 18% 8% 13% 11% 12%
100% 0% 44% 60% 21% 0% 19% 14% 54% 18% 37% 25%
Note: table represents percentage of COs across different segments of analysis

The main reasons which have impacted the quality of portfolio of the COs, particularly the older ones
are that

(i) During the initial phase of the PAF programme the COs misunderstood the revolving fund as a
grant from the government and assumed that it is not to be repaid. This understanding has
improved over time due to better communication and more concerted involvement of the POs
and is reflected in the better portfolio quality of the younger COs.
(ii) The political environ-
ment in Nepal also has Box 2.3: Impact of political issues on COs portfolio
a role in impacting
portfolio quality. In the Milan CO in the Eastern region was formed in February 2006. Since then
most recent unrest in it has faced a lot of challenges to stay operational. During 2010-13
2015, there was a Nepal was faced with Maoist problem when members were asked not
severe shortage of fuel to repay PAF loans since as it is government money. In 2014 the
which affected government of Nepal waived bank loans up to Rs30,000 and the CO had
transport and day to to face major repayment issues as the members argued that their loans
day activities in several should also be waived.
areas so members were
not able to attend The President of the CO, Jaivind Yadav and other office bearers decided
meetings and make to stop collection for a while and let the matter settle down. Later they
regular repayments. again organised meetings in order to convince members of the need to
The experience of one make repayments since it is their own money and for their own benefit.
CO in this regard is Gradually the members started paying but the impact of the two events
presented in Box 2.3. was so large that many members are yet to pay off their loans. Overall,
(iii) Loans waivers by the there are 24 members out of a total of 54 who have overdues of more
government of Nepal than 2 years.
have also impacted
repayments in the past as the members feel that the RF is a government programme so their loans
should also be waived.
(iv) Lack of capacity of the CO to track and closely follow-up on overdue loans as many COs believe
that penalties imposed on late payments are a sufficient deterrent to ensure repayments. The

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members are also heavily dependent on the PO for bookkeeping and there are capacity issues
with the PO staff as well.
(v) The average loan size of around NPR 25,000 is too small to have a significant impact on the earning
capacity of a household. While there have been many cases where the use of a loan has improved
the incomes/livelihoods of members (compiled in Annex 4), unproductive use of the loan and
business failures have impacted the cash flows of member households and their repayment
capacity.

2.2.5 CO members obtaining loans from other sources significant in areas where MFIs are active
since COs are unable to fulfil members credit needs

As is well known in microfinance, low income households obtain loans from a number of sources
including local moneylenders so despite their association with the CO under the PAF programme
members are likely to have loans from elsewhere. It is clear from the analysis that the small loan sizes
and also the long waiting time for their turn to get loans from the COs, is not an ideal solution to
reduce members dependence on other sources of credit. At the same time, in remote locations,
where it is not feasible for the Nepali MFIs to reach, the impact of the CO in increasing access to
finance is greater in comparison to locations where MFIs are also operational. As shown in Table 2.6,
members of around 44% of the sample COs indicated that they had existing loans from other sources
while members of 56% of COs had not obtained loans externally.

Table 2.6: CO members with loans from other sources

% of Regions Age of association Gender Overall


members East Central West Mid Far Young Middle Old Women Mixed
with loans West West Centric
0% 50% 83% 40% 57% 20% 50% 57% 62% 61% 47% 56%
>0% to 25% 20% 6% 0% 14% 40% 19% 18% 8% 13% 21% 16%
>25% to 50% 30% 6% 40% 29% 20% 31% 14% 23% 18% 26% 21%
>50% 0% 6% 20% 0% 20% 0% 11% 8% 8% 5% 7%
Note: table represents percentage of COs across different segments of analysis

Segment wise analysis indicates that among the sample COs, in 7% more than 50% of the members had
loans from other sources while in 21% of the COs 25-50% of the members had sourced loans externally.
Such instances were noted in all regions except Central while no significant variation was observed across
the age of the CO and the gender centricity of the membership.

On the basis of the observations and this analysis, it is fair to conclude that the COs are providing
access to finance for very poor households in Nepal but have not been able to fulfill the credit needs
of the members due to the limited size of the revolving funds and lack of capacity of the COs to
revolve and build up the size of the funds available to them.

2.3 Savings mobilisation

Member savings and its regularity is an important indicator of the wellbeing of a CO. As per design the
CO members are supposed to save a pre-decided amount at regular intervals fixed by mutual consent
at the time of group formation. The current practice in most of the COs is monthly savings ranging
from NPR 5-100 per member. It is compulsory for all members to save and withdrawals are generally
allowed only when a member drops out of the group.

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a) Regularity of savings and terms an issue in the older COs

The evaluation teams field mission shows that the regularity of savings by members varies across
different categories of CO illustrated in Figure 2.9 below.

Figure 2.9: Regularity of savings (% of CO)


100%

75%

50%

25%

0%
East Central West Mid West Far West Young Middle Old Women Mixed
Centric
Region Age of association Gender Overall

All members regular Around 3/4th members regular


Around half of members regular Less than half of members regular

Overall, in 37% of the sample COs all members were regular with their savings while in 25% of COs
about 75% of the members were regular. The incidence of irregularity was the highest in the Western
& Central regions and among the older COs.

Frequency of savings is monthly across all the COs. The decision of fixing the savings amount per
member was taken by members across all the COs. For almost all the COs (87.3%), members can
withdraw their savings only at the time of exit. In 3 COs in the Mid-west region (that are women
centric), the members can withdraw at the end of the yearly savings cycle. Less than 1% of the
members have withdrawn their savings in the last financial year. The average amount withdrawn was
NPR 228. Cumulatively, only 31 members have withdrawn their savings till date with the average
withdrawal of NPR 572.

No interest is paid on the savings balance across 87% of the COs. In the remaining COs (mostly women
centric), the interest rate on member savings varied in the range 6-12% annually.

b) Savings mobilized by COs around 10% of the average PAF RF provided over the years, should
have been higher considering the initial contribution requirements

Table 2.7 shows that the average cumulative savings mobilized per CO is NPR 65,544 (~USD 608) and
the average saving balance per member is NPR 2,289 (~USD 21). The saving balances per member
varied across the groups depending on their capacity to save and age of the CO. There is also a direct
relationship between age of CO and the volume of savings mobilized due to the gradual increase in
the amount over time. Comparatively, the average monthly saving is high in the Western region (NPR
78 per member per month) and low in the Central region (NPR 34). Similarly, the average monthly
saving is very low (NPR 28) in old COs because old CO members started with a low monthly saving
amount with a small and gradual increase over the years.

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Table 2.7: Savings mobilized by the COs vis--vis PAF contribution to RF (in NPR)

Analysis segment Av. monthly Avg. cumulative Av. savings Av. PAF
savings savings per CO balance contribution
per member to RF
Region
East 49 65,211 2,090 453,551
Central 34 53,430 1,661 875,138
West 78 177,374 6,468 825,415
Mid-West 50 41,716 1,223 539,975
Far West 66 78,997 3,595 580,711
Age of association
Young 59 40,553 1,276 641,416
Middle 55 65,720 2,492 629,129
Old 28 101,461 3,284 761,812
Gender
Women Centric 44 63,688 2,224 617,164
Mixed 65 68,962 2,415 754,189
Overall 50 65,544 2,289 662,839

Members savings mobilised as a source of funds formed around 10% of the average PAF RF
contribution to the COs of NPR 662,839 CO (~USD 6,200). This trend was similar across various
segments of analysis except that for COs in the West savings mobilized to the PAF RF ratio was
comparatively high at around 18%. This ratio was just 8% for the Mid Western region and 6% for the
Central region. Younger COs were able to mobilise a lower proportion in comparison to medium and
old age COs (which is expected) while there was no significant difference based on gender composition
of the COs. This is depicted in Figure 2.10.

Figure 2.10: Contribution of member savings to CO funds Member savings


PAF RF
100%

80%

60%

40%

20%

0%
East Central West Mid West Far West Young Middle Old Women Mixed
Centric
Region Age of association Gender Overall

However, the factor of concern with respect to savings mobilization is that the COs were required to
contribute 10% of the PAF RF as per the guidelines and even after many years of programme
implementation, the savings as a proportion of RF remains at the same level. This indicates that
members are either not contributing the initial 10% of the RF or they are taking it back once the
process of lending is complete. This reiterates the observation made in the earlier Section 3.2.1 (b) on
the issues arising from the CO contribution.

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c) Inter-lending using members savings a minor activity with limited implications

Member savings form a critical & regular source of funds for a community organisation for meeting
credit needs of the members particularly for household and personal needs. The field survey indicates
that around 61% of the COs use savings for inter-lending to members for emergencies (accident,
hospitalisation) and other non-income generation purposes such as wedding, educational expenses
for children.

The terms and conditions for lending from member savings are similar to those of the RF-based loan
products. Nearly 70% of the COs charge the same rates of interest (12% p.a. on a reducing balance
basis). However, around 30% of the COs indicated that they charge a much higher rate of interest at
24% p.a. to provide an opportunity to the CO to earn more from member savings and contribute to
the accumulated surplus for fulfilling the ever-increasing credit needs of their members. However, in
the absence of provision of interest on savings deposits, the additional interest charged on inter-group
loans using savings by some COs seems inappropriate.

The maximum loan amount given to the members from member savings was found to be less than
NPR 10,000 in 97% of the COs. This small amount is also a reflection of the limited amount of
accumulated member savings.

2.4 Bookkeeping

Bookkeeping is another critical activity of the COs and the quality of bookkeeping is a key indicator to
measure their performance. The quality of records underlies the robustness of financial systems and
indicates transparency in operations. It can be measured by the accuracy of the records and the
timeliness of the updates. As part of this study, all available records and books of the sample COs
were reviewed and entries were cross-checked for completeness, accuracy and consistency. The
evaluation team also analysed the level of dependence of the COs on the POs for bookkeeping.

2.4.1 Set of books maintained by COs significant variations in bookkeeping systems

PAF provided a set of formats for bookkeeping of COs which included meetings minutes, loan ledgers,
cash books and member pass books for recording transactio ns related to lending from RF/member
savings, savings mobilized from members and other expenses for group functioning.

PO/district wise variations were observed in the bookkeeping system

While some of the COs have a single book for all sub-ledgers, other COs maintain separate sub-
ledgers for savings, RF loan, loan from savings, cash book and general ledger in addition to
attendance registers and meeting minutes.
The review of books shows that COs maintain minutes registers, savings ledgers and loan ledgers
for RF and around 90% also maintain member passbooks (for loans and savings). However, about
56% of the sample COs maintain a ledger for loans from member savings but just 28% of them
have cash books for recording receipts and payments.
Across regions the East-based COs and, to some extent, Central region COs were found to be
better-off in terms of maintaining loan ledgers (savings) and cash books. None of the COs in the
Western region maintain cash books.
The availability of books was better among the younger COs in comparison with older COs (of
whom only 23% had loan ledgers for savings and just 8% had cash books).
About 16% of sample COs were also found to maintain other documents like receipt & payment
vouchers and loan agreement/contracts (Thamsuk).

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As the CO matures, the number of


Box 2.4: Preservation of old records books also increases as new books
have to be made and old books to
A few groups assigned serial numbers to old volumes for easy
be archived. The observations of
verification. A few middle/old age groups have records which the evaluation team on the
have more than one volume. For example, the minutes
preservation of old records and
book, loan ledger and savings ledger have 2-3 old volumes;
books by the COs is highlighted in
to collect loan details of sample individual members of
Box 2.4.
Kailesh CO, Jhalari, Kanchapur district & Radha Krishan CO,
Dhanpur, Morang district, the study team verified 2-3 Some of the POs who were
volumes of loan ledgers and 2-3 minutes books. responsible for developing the
COs capacity on bookkeeping have
Most of the COs have preserved their records and
innovated to introduce new
documents like meeting minutes, loan ledgers, savings
bookkeeping systems. One such
ledgers, business plan, agreements and bank statements. experience in presented in Box 2.5.

Box 2.5: Introduction of a new bookkeeping system by a PO

Dilip Kafle, Program Coordinator from Mahila Samudaya Krishi Samooh (MBKS) and his team went
for an exposure visit to a Microfinance Institution (MFI) and observed their bookkeeping and formal
loan processing systems. He was impressed by the way bookkeeping was done at the MFI and
decided to introduce similar systems at the COs that were being supported by MBKS as a PAF PO.

He developed new record keeping systems which included a loan ledger for the RF and savings (with
details of loan disbursements, dates of disbursement, rates of interest, principal, interest and
outstanding balance), savings ledger, cash book, receipt and payment vouchers, loan application
forms and loan agreements with loan terms and conditions. He also formalized the loan application
system at the COs and the members now have to submit the loan request/application to the office
bearers during the monthly meetings. The office bearers discuss a members loan application and
verify it with the support of other group members. The office bearers approve the loans based on
fund availability and they also check the applicants previous credit history before approving a loan.
Each member/spouse obtaining a loan has to sign a loan agreement before disbursement. The new
bookkeeping system is transparent and can be used to generate financial performance reports.

[based on the visit to RadhaKrishna CO, Dhanpura, Morang district]

2.4.2 Timeliness of record updates high dependence on POs for maintaining updated records

The records maintained by the COs have to be updated during monthly meetings either by the
members or by SMs. Timely record updates ensure that accounting procedures are followed, are in
compliance with the rules of the CO and also make records more accurate. The estimated time for
bookkeeping ranges from 1-2 hours every month per CO depending on the volume of the transaction
and also the ability of the person updating the records (CO member or SM).

The physical verification of the books maintained by sample COs revealed the following

Overall, meetings minutes and the savings ledger were found up to date at most of the COs (97%
and 93% of COs respectively). Younger COs appeared more regular with updates in comparison
with the older COs.

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The loan ledgers for RF were


Box 2.6: Remoteness of CO affecting update of books
found to be up to date at only 67%
of the COs. This is a matter of
Record books, except meeting minutes, have not been
concern as without proper
updated for 5-6 years in 3 COs in Dailekh district
updates of loan ledgers it is very
(Badrekhali CO, Paribartansil CO and Chuntakura CO) and
difficult to track overdue loans
one CO in Doti (Laligurans CO, Tikhatter-4). These COs are
and to analyse the quality of
located in the high mountain region with no road
portfolio. A similar problem was
accessibility. The SMs responsible for managing these COs
observed among COs who were
were also changed several times over the last 5 years due
maintaining loan ledgers (savings)
to the difficult working conditions. The COs stopped
and the records were found
lending several years ago and all loans are overdue for
updated for only 78% of the COs.
more than 5 years. The members are also not interested
Similarly, updated cashbooks and
in attending meetings. The present SMs conduct monthly
member passbooks were found in
meetings and only update the meeting register.
about just 75% and 71% COs
Sometimes, the SMs have to conduct door to door visits
respectively.
to member households to mobilise them for meetings.
The dependency of the COs on the POs
for bookkeeping was high (discussed in Section 2.4.4 below) and there were practical issues that the
POs were facing in reaching the COs due to their remoteness and also the workload of the SMs
(discussed in Chapter 3) as shown in the brief case in Box 2.6.

2.4.3 Quality of book keeping 70% of COs maintain their books with reasonable accuracy but
books are not standard & understanding of accounts is limited amongst SMs as well as COs

The evaluation team conducted sample checks on the accuracy of the data recorded in various books
to assess the quality of bookkeeping at the COs. The absence of a strong book keeping system could
lead to members losing confidence in the CO management and result in defaults. Table 2.8 presents
the observations.

Table 2.8: Quality of bookkeeping (% of COs)

Analysis segment Accuracy of recording of financial transactions related to


Loan Principal Interest Group Member Member
disbursement repayment repayment savings wise loan wise savings
outstanding balance
Region
East 100% 90% 100% 70% 80% 80%
Central 100% 94% 94% 89% 94% 78%
West 100% 80% 80% 60% 80% 60%
Mid-West 71% 43% 36% 64% 36% 71%
Far West 90% 50% 60% 60% 70% 80%
Age of association
Young 100% 81% 88% 75% 81% 88%
Middle 89% 79% 79% 75% 79% 82%
Old 85% 46% 46% 62% 46% 46%
Gender
Women Centric 92% 82% 82% 79% 76% 79%
Others 90% 53% 58% 68% 63% 74%
Overall 91% 72% 74% 72% 72% 75%

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It is evident from the above analysis that around 70% of the COs have maintained various record books
with reasonable accuracy. There are 30% of COs that have weak bookkeeping with data entry errors,
overwriting and mismatch of information. Weak bookkeeping at these COs may have unfavourable
implications for financial accountability to members as well as PAF.

Across regions it can be seen that most COs record loan disbursements accurately but falter in
recording the principal and interest repayments. The COs in the Mid-West and Far West appear more
prone to such issues. Similarly, the older COs face this problem though women centric COs seem to
be better than the Mixed COs in terms of quality of bookkeeping. The issues observed by the
evaluation team on bookkeeping are

The bookkeeping system is not standardised across COs in different regions despite PAF providing
formats. The heads of account (or chart of accounts) is not in sequential order. The practice of
bookkeeping is largely dependent on the systems introduced by the POs.
Lack of capacity of CO members as well as PO staff and their understanding of accounting concepts
leads to errors and inaccuracy of data. Many of the SMs with whom the evaluation team
interacted were not able to differentiate between a capital account and revenue account. In many
cases collections were adjusted towards only principal while interest should have been accounted
for first. Errors were also noted in the calculation of interest on outstanding amounts and penalty
on overdues in the case of some COs. Double entries or overwriting were observed in most of
sample COs. Many SMs also did not know how to carry forward the outstanding balances from
the old sub-ledger to new records and inaccuracies related to this were noted in several COs
particularly the older ones.
None of sample COs followed the concept of financial year and maintained books accordingly.
A significant number of COs maintained loans disbursed from members savings in a rough note
book/dairy and a proper ledger was not maintained for this purpose.
Many groups did not maintain a cash book, hence entries for expenses and other income
transactions as well as opening and closing balances of cash in hand and cash at bank were not
recorded.
Reconciliation of bank transaction with cashbook entries was not practised in any of the COs and
was only undertaken for COs which had an external audit.
Other issues included unavailability of old records, individual passbooks and missing signatures of
members (which was quite common) in the meetings register.

2.4.4 Level of dependence on SM for bookkeeping high emphasising the need for innovation

Bookkeeping is a difficult task for CO members as most of them are not well educated and therefore
have limited capacity to understand bookkeeping and accounting. Keeping this in mind the design of
the PAF programme included the component of support from the POs on bookkeeping as well as
handholding of some selected members to enable them eventually to do these activities on their own.
The study of practices at the sample COs indicates that 60% of them are completely dependent on
SMs for bookkeeping and, in the case of younger COs, more than 80%. Across regions the level of
dependency on SMs is high in the Central region (83%) followed by the Western (60%) and Mid-
Western regions (57%). Figure 2.11 illustrates the dependence of COs on the SMs for bookkeeping.

Around 9% of COs (5 out of 57) were bookkeeping on their own. In such COs there was generally a
literate member or educated relative who took the bookkeeping responsibility of the group members.
These COs conduct group meeting on their own, maintain the minutes, calculate and collect amounts
to be recovered from their members, and make entries in savings and loan pass books. The SMs only
review the entries to ensure quality. In about one-fourth of COs bookkeeping is jointly managed by
the group leader/group member with the support of SMs and this practice was found to be high in the

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Eastern and Far-western regions. However, in most such cases, the group leader/member maintains
the meeting minutes and savings ledger and the other books of account they need the support of SM.

Figure 2.12: Level of dependence of COs on SMs for bookeeping


100%

75%

50%

25%

0%
East Central West Mid Far West Young Middle Old Women Mixed
West Centric
Region Age of association Gender Overall

SM Office bearers/CO member Jointly (SM & CO members) LRP

At four COs in Bardiya district, the books are maintained by the Local Resource Persons (LRPs). The
LRPs are locally recruited and trained by the POs and monitored by SMs. Each LRP charges NPR 200-
250 per month per CO for bookkeeping. The system of LRPs is explained in Box 2.7.

Box 2.7: The LRP system

As part of the strategy for future sustenance of CO activities, some of the POs have started
identifying Local Resource Persons (LRPs) for bookkeeping, strengthening and supporting the COs.

The POs in Bardiya district identified LRPs with the support of COs and Cooperatives. These included
individuals from within COs or outsiders who are educated and interested in working with the poor.
LRPs are mostly local women, youth or village elders from the community. Some of the most
successful LRPs are women members of the COs as it is relatively easier for them to get involved in
the institutional building process of COs due to their familiarity with the programme. The LRPs are
identified within the village or in a radius of 1-5 km as they can be easily accessed by the CO for any
support. It is also convenient for the LRPs to move from one village to another in comparison with
the SMs who are usually located in district centers.

All selected LRPs receive training from the respective POs and are briefed about their roles and
expected duties. Mentoring of the LRPs is done by the SMs to ensure the quality of bookkeeping.
Each LRP manages 5-15 COs and charges NPR 200-250 per month per CO for their services. The
roles and responsibilities of LRPs include

Facilitating monthly meeting of COs and maintenance of records


Supporting CO members in loan applications, loan processing and approval
Helping the group members and leaders in loan appraisal, recovery and CO management
Social mobilization, formation and strengthening of the COs within their area of operation
Assisting in problem solving
Preparing reports and submitting these to the SM/PO.

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2.4.5 Audit of COs account books not an annual practice

Proper reporting and analysis of financial information is important for accurately representing the
performance of COs. Financial statements of COs are the primary source of information on income,
expenses, assets and liabilities. Financial reports indicate the profitability and financial position of the
COs and can be used by PAF and banks/other financial institutions to assess their credit-worthiness
and ability to sustain their activities in future.

As mentioned above, at present the COs are not preparing financial statements and have limited
ability to do so. However, by the guidelines, COs have to undergo an external audit by certified
auditors at the VDC/district level after receiving and utilizing of second installment of RF and with
facilitation by the POs. The cost of the audit has to be borne by the CO which should follow up and
rectify deficiencies pointed out by the auditor and ensure that lapses do not recur. Table 2.9 analyses
the external audit done for the sample COs.

Table 2.9: External audit details of COs

Analysis segment No. of COs completed audit No. of times audited Average
COs No. % Once Twice >Twice audit fee
Region
East 10 5 50% 3 2 - 2,800
Central 18 14 78% 13 1 - 2,857
West 5 1 20% 1 - - 3,000
Mid-West 14 9 64% 4 3 2 2,210
Far West 10 9 90% 3 4 2 2,650
Age of association
Young 16 7 44% 5 2 2,643
Middle 28 22 79% 13 6 3 2,750
Old 13 9 69% 6 2 1 2,617
Gender
Women Centric 38 25 66% 17 6 2 2,711
Others 19 13 68% 7 4 2 2,675
Overall 57 38 67% 24 10 4 2,698

This study indicates that accounts of two-thirds of the sample of COs have been audited. However,
the review of the evaluation team shows that

Audited reports are not certified by authorized persons of the COs.


This is probably the only time when the CO accounts are scrutinized by a third party. The audit
reports indicate the mistakes committed by the record keeper (SM or group member) in tracking
of PAF and CO contributions, repayments by members and recording of income and expenses.
14 out 38 audited COs have been audited more than once 10 of them twice, 2 COs three times
and 2 COs four times. However, it is not an annual practice and the latest audit reports (of previous
completed Financial Year 2014-15) were found only with a few COs.
Most of the sample COs in the Far Western region (90%) are audited followed by the Central region
(78%), Mid-Western (64%) and Eastern (50%) regions. The external audit practice is not common
in the Western region.
All young COs that have received their 2nd installment amount have been audited at least once but
around 31% of old COs and 21% of middle aged COs have not been audited.
The audit fee paid by the COs ranges from NPR 1,500 to 3,500 (USD 14 to 32).

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2.5 Summary and Conclusion

On the basis of the interaction with the CO representatives and the study of the available records the
following are the main observations of the evaluation team on the performance of COs on three broad
areas governance, management of RF and bookkeeping. The study also tried to analyse the
performance of different categories of COs (regional location, age of association and gender) but no
clear trend is emerging, probably due to a small sample size and the predominantly qualitative method
of collection of information (through workshops).

Governance

Process

The process of formation of CO is done under close guidance from the POs and under the PAF
guidelines of targeting the poor, backward case and women. The selection of the office bearers
is also mostly done in a democratic manner.
For the key activities (like purchase, monitoring, bookkeeping and RF) of COs, sub-committees
are formed
The COs organise monthly meetings for various activities like demand collection for loans,
collection of repayments and updating of record books. Most COs are regular in organising
meetings. The average attendance of members in these meetings is good at 80% and the
attendance of the office bearers is even better at 95%.

Strengths & achievements Weaknesses & areas for improvement

The composition of COs indicates high In most COs (56%), none of the sub-
poverty focus with preference to poor, committees are functional and in some COs
backward castes and women. (31%) just one or two committees are active.
The involvement of members has been good Rotation of office bearers is not practiced in
in selection of office bearers. majority of COs
Regular meetings (in 80% of COs) and good
attendance, particularly of the office
bearers (~95%).

Management of revolving fund

Process

CO members obtain loans primarily for income generating activities. The members decide on
the types of the loan products that can be offered to the members and the terms (loan size,
repayment tenure, interest rates etc.) with guidance from the SMs.
In order to obtain the PAF revolving fund the COs have to contribute 10% of the amount.
The RF is received in the bank accounts of the CO in two tranches. After the receipt of first
tranche the RF is disbursed to a few selected members and the other members have to wait for
their turn after the second tranche.
The loan has to utilised in an IGA and for the purpose as specified in the RF agreement.
The members have to repay the loan as per agreed terms on a monthly basis and CO is expected
use this for rotating the RF to members who do not have loans and need it.
With regular repayments & rotation, interest earnings and members savings, the funds
available at the COs are expected to grow to meet the increased credit needs of the members.

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Strengths & achievements Weaknesses & areas for improvement


Good involvement of members in deciding Similar features for various loan products
the loan products and setting terms. offered to the members - cash flow
Most members of the COs have got their characteristics of some activities like
share of loans from the RF. In around 63% of agriculture and animal rearing has not been
the COs, more than 75% of members had considered which have resulted in
outstanding loans repayment issues.
Loan processing system (application, Major problems in mobilising the 10%
approval and disbursement) is structured at contribution from the members.
most COs. Majority (67%) of the COs have not been
The COs (as a group) seem to be able to rotate the RF well and many COs
understanding and flexible in case of (25%) are facing erosion of the RF due to
genuine repayment issues of the members. portfolio overdues/defaults.
The introduction of a system of penalties for There is a tendency of the COs to equally
delayed repayments at many COs was a divide the RF among the members as most
positive step. of them need loans and the RF is not
Around 33% of the COs had portfolio sufficient to meet their credit requirements.
outstanding higher than the initial RF which In the current FY, the average loan size has
indicated that they were able to rotate the increased at about 40% of the COs while for
funds well. 33% there was a decrease and about 26%
COs are yet to make any disbursements. This
points towards the limited ability of the COs
to cater to the increased credit needs of the
members over time.
Mixed performance on portfolio quality of
the COs - About 40% of the COs had no
overdue loans while 5% had a reasonable
quality of portfolio with PAR <10% but at the
same time 55% of the COs were facing major
portfolio quality issues, and about a quarter
of the total had their entire portfolio at risk.
The CO members, from non-remote
locations, continue to borrow from other
sources including local moneylenders as the
CO is unable to fulfil their credit needs.
No withdrawal option for savings. Interest
on savings is provided by only a few COs. As
a result, members are not very regular in
depositing monthly savings and the
contribution of savings to the overall CO
funds has been meagre.

Bookkeeping

Process
PAF provided a set of formats for bookkeeping of COs which included meetings minutes, loan
ledgers, cash books and member pass books for recording transactions related to lending from
RF/member savings, savings mobilized from members and other expenses for group
functioning.
The POs have the responsibility of developing the capacity of the CO members in bookkeeping
and also provide assistance in updating and maintaining the records.

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Strengths & achievements Weaknesses & areas for improvement

All COs were maintaining minutes registers, The bookkeeping system is not standardised
savings ledgers and loan ledgers for RF and across COs in different regions despite PAF
around 90% also maintained member providing formats. The understanding of the
passbooks (for loans and savings). CO members as well as the SMs on accounts
Most of the COs have preserved their old is limited.
records and documents like meeting The overall quality of bookkeeping by the CO
minutes, loan ledgers, savings ledgers, measured by timeliness of updates and
business plan, agreements and bank accuracy of records is average. The ledgers
statements. for RF (which is the most important source
Involvement of LRPs in some of the districts of fund for the COs) was up to date at 67%
in supporting the COs in record keeping a of the COs.
welcome innovation. COs are highly dependent on the POs for
bookkeeping; in just 9% of COs bookkeeping
is being done without the POs assistance.
External audits of accounts have been done
for two-thirds of the sample COs. However,
it is not a regular annual practice and the
latest audit reports (of the completed
Financial Year 2014-15) were found only
with a few COs.

On the basis of the above observations, it is apparent that the performance of the COs is reasonable
on governance aspects, mixed in the management of the revolving funds (on some aspects good and
in others inadequate) and requires improvement in bookkeeping. The next Chapter discusses the
role and effectiveness of the partner organisations (POs) in supporting the COs.

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Chapter 3

How effective are the POs & PAF in supporting COs?

In addition to creating and supporting community organizations (COs), PAF seeks to build
partnerships with various organizations working in its areas of operation at the village, district and
national level in order to ensure a holistic development intervention. This helps to strengthen the
programme both facilitating poverty reduction and strengthening its ability to scale up. The Partner
Organisations (POs) are an essential part of the strategy of PAF for social mobilization, technical
assistance and capacity building of COs. The POs are basically Non-Governmental Organizations
(NGOs), Private Sector Organizations (PSOs), and Local Government Organizations that have been
engaged by PAF.

The activities of POs are spread across the pre- and post-establishment phase of the COs. In the pre-
establishment phase their main responsibilities include
mobilizing poor households in the selected VDCs into COs,
help them develop business plans and proposals for support under the PAF RF programme
and then
encourage them to conduct regular meetings and undertake savings.

After the establishment of COs and the linkage under PAF the main responsibilities of the PO include
enhancing the capacity of the office bearers and members on bookkeeping and other management
aspects and conducting monitoring and supervision of CO activities. Besides these activities, POs are
involved in their own thematic areas like health, education and environment along with the IGAs
under RF management. The POs are also responsible for the smooth implementation and monitoring
of community sub-projects.

The evaluation team interacted with representatives of 36 POs across the five regions of Nepal
through workshops organized at the regional level. This Chapter synthesizes the information
collected from the POs and their opinion on various aspects of the PAF RF programme.

3.1 Profile of POs

3.1.1 Legal status mostly private NGOs

Table 3.1 shows the legal status of the POs that participated in the 5 regional workshops across
Nepal. Around 86% of POs (31 out of 36 POs) were registered as Societies with the District
Administration/Development Office, one PO in the Eastern region was registered as a Cooperative
with the District Cooperative Office, and four POs were from the Local Development Fund (LDF) of
the Government, part of the District Development Committee (DDC).

Table 3.1: Legal status of the POs that participated in the workshops

Region No. of Legal status


POs Society Cooperative LDF
East 8 7 1
Central 9 8 1
West 6 5 1
Mid West 8 6 2
Far West 5 5
Overall 36 31 1 4

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3.1.2 Experience of POs & their association under PAF substantial experience in the field

The overall experience of the POs (that participated in the workshops) ranged from 9 to 36 years. As
indicated in Table 3.2, a majority of the POs (44%) have experience of 15-20 years followed by 36%
of POs with experience between 20-25 years. The length of association of the POs under the PAF
programme ranged from 1 to 12 years including POs that have recently been engaged as well as
POs who have been associated with the programme from its inception in 2004. Nearly 62% of POs
were associated with PAF for 5-10 years.

Table 3.2: Experience of POs & association under PAF

Number of POs Overall


Experience East Central West Mid Far No. %
(in years) West West
Less than 15 2 0 0 2 0 4 11%
15 to 20 4 7 1 2 2 16 44%
>20 to 25 2 1 4 3 3 13 36%
More than 25 0 1 1 1 0 3 8%
Association with
PAF (years)
Less than 5 2 2 3 7 19%
5 to 10 4 9 2 5 2 22 62%
More than 10 2 2 3 7 19%

3.1.3 Operational coverage of POs many support large numbers of COs

The operational area of a PO is within a district and generally PAF has assigned 3-15 VDCs for each
PO based on the size of POs, experience in community mobilisation and availability of eligible
organisations in the district. For the sample POs, the number of VDCs assigned to them ranged from
3 to 14 with an average of 7 VDCs/PO. The average number of VDCs covered by POs in Far West (12)
is higher than the other regions. Table 3.3 shows the region wise coverage of VDCs and COs by POs.

Table 3.3: Coverage of VDCs and COs by POs

Region No of Coverage of VDCs Number of COs established & supported by POs


PO (incl. municipalities)
No. of VDCs/PO New Old Total COs/PO
VDCs (<=1 Year) (>1 Year)
East 8 41 5 212 229 441 55
Central 9 54 6 39 1,127 1,166 130
West 6 41 7 23 638 661 110
Mid-West 8 51 6 422 384 806 101
Far West 5 59 12 504 398 902 180
Overall 36 246 7 1,200 2,776 3,976 110

Establishing new COs and then providing technical assistance to them is one of the key activities of
the POs. The total number of COs (new COs formed within the last one year and the old COs that
have been operational for more than a year) supported by each PO ranged from 20 to 388 with an
average of 110. On average the mix of new and old COs supported by the POs is in the ratio 3:7.
Across regions, the sample POs in the Far West were supporting a higher number of 180 COs while in
the East the average was relatively low at 55 COs/PO. Most of COs in the Central and Western

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regions are old COs, while a majority of the COs in the Mid-West and Far West are newly formed.
This is because PAF has expanded to new districts in the Mid-West and Far West only in the last one
year.

3.1.4 Staff strength of POs nearly 25% of PO staff engaged in the programme

As mentioned in Chapter 1, the POs typically have staff at three levels for the PAF project. The
Programme Coordinator (PC) heads the PAF team and supervises various activities under the PAF
programme. The Social Mobiliser (SM) is responsible for field activities and is involved in the
establishment, technical support and monitoring of CO activities. In case, the PO covers more than
five VDCs, there is also a post of Supervisor between the SM and the PC. Apart from these positions,
PAF has provided staff support for a few additional positions (Junior Technical Assistants for animal
husbandry and agriculture) to a few POs. As discussed in the previous chapter, POs in Bardiya district
have also involved Local Resource Persons for managing CO activities. Table 3.4 compares the
number of staff involved under the PAF programme vis--vis the overall staff strength of the POs.

Table 3.4: Size of POs - Total staff vis--vis PAF programme staff

Region No. of PO staff under PAF Total PO staff % of PO staff


POs PCs Super- SMs Avg./ No. Avg./PO engaged
visors PO under PAF
East 8 8 4 26 5 76 10 50%
Central 9 9 12 70 10 295 33 31%
West 6 6 8 32 8 286 48 16%
Mid-West 8 8 7 44 7 365 46 16%
Far West 5 5 8 49 12 248 50 25%
Overall 36 36 39 221 8 1,270 35 23%

It is evident from the table that nearly a quarter of the PO staff are engaged in the PAF programme,
underlining the importance of this programme for the POs. POs in the Eastern region are
comparatively smaller than the other POs and hence nearly half of their staff are engaged under the
PAF programme.

At the field level it is mainly the SMs that have to visit the COs on a monthly basis for providing them
technical assistance and supervision. As indicated by the PO representatives during the workshop,
ideally the number of COs per SM should be in the range of 10 to 12 as the COs generally are located
in remote areas and it takes time to reach them. So practically, at best one CO can be covered in a
day and ideally 2 COs in three days to allow for travel time and a cushion to meet the any need to
spend more time at a CO. Table 3.5 analyses the workload per CO.

Table 3.5: Workload per PO across regions

No. of East Central West Mid Far Total Proportion


COs managed West West of POs
Up to 10 1 1 0 1 0 3 8%
>10 to 15 3 3 1 1 1 9 25%
16 to 20 1 4 1 1 4 11 31%
>20 3 1 4 5 0 13 36%
Total POs 8 9 6 8 5 36 100%
Average CO/SM 17 17 21 21 21 18

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The number of COs handled by each SM ranges between 7-39 with an overall average of 18 COs/SM.
It is evident from the table that the average workload of SMs at 18 COs is far more than the practical
level of 10-12 COs. Almost 75% of the sample POs have a high number of COs handled by their SMs.
The productivity of the SMs and the quality support to COs would be affected for those having high a
workload (discussed further in Section 3.2).

3.1.5 Size of POs by assets and revenue PAF accounts for 15% of PO income

Clearly in terms of the proportion of staff of POs engaged under PAF the programme is important to
the POs. Analysis of its importance in financial terms in Table 3.6 is based on information for the
completed FY 2014-15 (Nepalese FY2071-72), provided on total assets by about half of the sample
POs, on total revenue by 75% of the POs and on the PAF grant received by 86% of POs.

Table 3.6: Size of POs by Assets and Revenue (in NPR million)

Region Average total Average total Average PAF % of PAF grants


assets per PO revenue per PO grant per PO to total revenue
East 25.1 1.4 0.8 55%
Central 61.1 4.6 1.5 32%
West 15.4 18.3 1.8 10%
Mid-West 21.2 13.8 1.8 13%
Far West 45.1 34.1 3.3 10%
Overall 36.5 11.5 1.8 15%

The total asset size of a typical PO was NPR 36.5 million (~USD 340,000). About 10 out 19 POs (that
reported this data) had assets size within NPR 10 million and two had assets greater than NPR 100
million. Similarly, the average revenue per PO was NPR 11.5 million (~USD 107,000) and PAF grant
income was NPR 1.8 million (USD 16,500) which was around 15% of the total revenue of a typical PO.
This means that PAF income is a significant if not substantial part of the revenue of the POs and
emphasizes the importance of the PAF project to them. However, the sample POs in the West, Mid
West and Far West were found to be less dependent on revenues from PAF.

3.2 Monitoring and reporting of CO activities

3.21 Frequency of monitoring visits well below the levels necessary

The visits to the COs are mainly conducted by SMs who are supposed to cover each CO on a monthly
basis, at least 12 times a year. Thus the visits to the CO should range from 7-39/month (for the
sample POs). The visits to the COs have to continue on a regular basis till they mature (as per
guidelines the graduation
time of a CO was reduced Figure 3.1: Average No. of visits per CO in a year by the SMs
to three years from the 6.1
earlier 5 years). Figure 3.1
shows that, on average, 3.9 3.7
3.4
each CO is covered around
2.3
4 times a year by the SMs
1.3
which is well below the
required number of visits.
The average of four visits East Central West Mid West Far West Total
per CO per year is however
as expected since it is physically not possible for the COs meet the requirement of 12 visits per CO

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per year. In order to manage their time better, the SMs try to focus more on the new COs (that need
more support) than the older ones.

Across regions the frequency of the monitoring visits to COs is better in the Central region and low in
the Mid West and Far West region which corresponds with the higher work load of the COs in these
regions. Thus it is evident that the workload on the COs has a direct bearing the quantum of support
available to the Cos. In absence of regular visits, the bookkeeping of the COs is affected and updates
are delayed, since most of the COs are dependent on the SMs.

The supervisors (Programme Coordinator and/or the supervisor) are able to undertake visits to Cos
only on a quarterly basis (in 90% of cases) and since the Board members of the POs are also required
to visit the Cos, they randomly cover 10-30 COs through 2-4 visits during the year.

3.2.2 Time spent by SMs during monitoring visits very limited

On an average, the SMs spend 0.5-3 hours while visiting each CO and nearly 50% of the time is
utilised in bookkeeping. The time spent on other activities includes 25-40% on training the CO
members on operational aspects (a higher proportion of time is spent with new COs) and 10-20% on
the preparation of visit reports. Training on CO operations is not conducted during every visit by the
SM since it is usually provided during the early operations of a CO and once the members become
familiar with the processes, the SM gradually reduces the time spent on it.

3.2.3 Reports prepared by the POs mostly timely

POs and the Portfolio Managers have the responsibility for finalizing and sharing the following
reports with PAF:

a) Utilisation report: After the 1st tranche of funding by PAF to the COs, the utilisation report is
prepared by the POs. It is on the basis of this report that the 2nd tranche of funds is released.
b) Completion report: When the funds received for the 2nd tranche have been completely utilised
by the COs, a completion report is prepared.
c) CO monitoring report: The CO monitoring report is prepared by the POs on a 4-monthly basis
and submitted to the PM.
d) District level consolidation report: Once the PM receives the 4-monthly reports from the POs,
the reports at the district level are consolidated and sent to PAF HO.
e) Annual report: This report contains the last quarter report along with the consolidated activities
and performance for the year.

In 90% of the POs, the 4-monthly and annual reports are submitted on a timely basis. In the
remaining POs, due to political unrest the annual report was delayed by 6 months. In addition to the
above reports, the POs also have to facilitate the external audits of the COs after completion of one
year of operations. Overall, half of the established COs have been audited so far by certified local
auditors.

3.3 Capacity Building of COs

One of the most critical components of the programme is the capacity building of COs, which is
essential for their efficient functioning and long-term sustainability. It is imperative that a CO has the
capacity to execute operational activities and processes on their own, as PAF support is available
only for a limited period. Each PO is responsible for the capacity building of the COs covered by
them. This support starts from the formation of a CO as the members need capacity building on

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various aspects like leadership, account keeping, business planning, management of RF and
operations. This section analyses the support provided by the POs during regular visits, handholding
of the CO members and facilitation of vocational training programmes.

3.3.1 Level of involvement of CO members high in decision making but low in technical inputs

One of the main aspects of the capacity building support by the SMs during the visits to the CO is to
involve the members in various operational activities. This provides on-the-job experience to the
members and is a tried and tested method of developing capacity. The analysis of the involvement
of CO members (in perception of the PO representatives) on key activities like business planning,
deciding and allocating operational responsibilities and bookkeeping is presented below in Figure
3.2.

Figure 3.2: Involvement of CO members in key activities High


Medium
Low
100%

80%

60%

40%

20%

0%
Deciding Deciding Deciding RF Selection & Drafting COs Frequency of
savings amount products & requirement rotation of operational group meetings
terms from PAF office bearers manual
Development of business plan Deciding operational responsibilities Bookkeeping

Clearly there has been medium to high involvement of the CO members in the pre-sanction phase of
the PAF RF. The involvement has been particularly high in deciding the savings amount but medium
in deciding loan products & setting terms & condition as well as in calculating the RF requirements.
Similarly, member involvement was high where their presence & opinion was required like in the
selection and rotation of office bearers and deciding the frequency of group meetings. However,
areas with technical inputs like the drafting of the operational manual were mostly left to the POs. In
bookkeeping also the
involvement of members Figure 3.3: % of COs doing bookkeeping independently
was low due to members
lack of relevant skills.

The effectiveness of PO
24%
support has been assessed 20%
by the evaluation team by 17%
12% 12% 11%
analyzing the proportion of 6%
COs that have started to 0.3%
undertake bookkeeping East Central West Mid-West Far-West Overall >1 year <1 year
independently with limited
support from the SMs. Figure 3.3 shows that overall just 12% of COs are undertaking bookkeeping

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independently; a comparatively large proportion of these are younger COs that were established
within the last one year. This points towards the increased effectiveness (in comparison with the
previous phase of the programme) of the POs in developing capacity of the COs in bookkeeping. The
COs in the Central followed by Western regions seem to be most dependent on the POs for
bookkeeping.

However, in the opinion of the evaluators, the capacity building of PO functionaries is also necessary
to enable them to become more effective in developing the skills of the CO members. The
promotion of the LRPs has been a good initiative on part of some POs to develop a local resource
pool that can provide bookkeeping services for a fee. But, for this to be successful, there has to be a
sufficient number of active COs around the location of the LRP to enable the latter to generate a
reasonable income.

3.3.2 Training imparted to COs limited by low budgets and lack of follow up

While on-the-job training happens during the SMs visits to the COs, the POs also organize formal
training programmes for the CO office bearers and members. For this the SM communicates the
requirement to the PC and then a district level officer or a local entrepreneur is sourced to provide
training to the CO members. Such trainings are usually given to groups of 2-3 COs at a central
location. Bookkeeping training is organized for the 3 key office bearers of the COs at the VDC level.
Figure 3.4 shows the proportion of office bearers and members of COs who have undergone training
on bookkeeping and specific vocational training. Some of the common vocations covered by the
training were animal husbandry, vermi-composting, agriculture (seasonal vegetables and cash
crops), embroidery, electrical repairs and motor winding.

Figure 3.4: Training given to COs Bookeeping


Vocational
100%
80%
60%
40%
20%
0%
East Central West Mid-West Far-West Young Middle Old Women Others
Centric
Region Age of association Gender Overall

Overall, the POs have been able to facilitate the training of the CO office bearers in more than 90%
of the COs. However, it is clear that these training programmes have not been as effective as
expected as just 12% of the COs are keeping their record books and accounts independently.

In the case of vocational training, in the opinion of the CO members as well as PO representatives a
broader issue arises in meeting the cost of organising these programmes. The data available shows
that around 75% of the sample COs had budgets allocated to capacity building. The average budget
was around NPR 23,800 (~USD 222) which was minuscule considering that experts had to be hired
and refreshments arranged for these training programmes which ranged from 2-3 days. In order to
be economical, the POs combine the budget available with 2-3 nearby COs. Even so these
programmes tend to be one-time affairs and, without refresher programmes, the retention level of
the CO members decreases over time and the effectiveness of the training is limited.

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3.4 Role of PAF in supervising and supporting COs

Apart from its role in providing revolving and infrastructure funds to the COs and grants to POs for
extending support to the COs, the most important role of PAF is in supervising the progress of the
overall programme. The Monitoring and Evaluation (M&E) division of PAF has developed five
different databases for supply of information on the working of CO, POs and the sub-projects being
implemented. These include (i) PO database, (ii) CO database, (iii) community agreements database,
(iv) sub-projects database and (v) RF database.

In the initial phase of programme implementation, the PAF level activities were centralised and the
POs were like an extended arm for monitoring and supporting CO activities. To strengthen its
reporting system and structure, a major policy decision was taken by PAF to decentralise the
programme at district level by establishing contract office in each programme district. Two MoUs
were signed in June 2007 and October 2010 to establish coordination between PAF and DDC for a
strategic alliance to alleviate poverty through synergic efforts between the two institutions. More
recently in August 2015, the MOU between PAF and Ministry of Federal Affairs and Local
Development (MoFALD) to establish an office within the DDC offices in the respective districts
provide the needed impetuous to decentralisation.

Each of these PAF district offices are headed by a Portfolio Manager whose main responsibility is to
ensure timely reporting of data from POs, data consolidation at the district level and sharing it with
the PAF Head Office. The PMs also need to supervise the activities of POs on a periodic basis and
participate in various VDC and DDC level meetings. During the in-field mission the evaluation team
interacted with seven PMs to understand their perspective about the programme. However, it
should be noted that five PMs had less than 6 months of experience in their respective districts and
the other two were associated with PAF for 3 and 6 years. The below observations of the evaluation
team should be taken in this context.

a) Field monitoring of CO activities:

While POs have the primary responsibility to visit COs on a period basis for handholding of members
for various activities, the PMs are also required to monitor the activities of both POs and the COs.
The representatives of local bodies (DDC, VDC and other line agencies) are also expected to carry out
the monitoring visits in the PAF working areas of the districts. However, the engagement of PMs and
other district level officials in field level monitoring was found limited. Since POs have to organise
such visits, they indicated the small budget available to facilitate such visits as the main reason for
limited involvement of PMs & other officials.

b) Timeliness of reporting and validation of data:

It was also pointed out by some PMs that the reports submitted by the POs are not as per the
standard format across all regions. This leads to extra work during collation. In some districts (Banke,
Bardiya and Kailali districts) the PMs reported delays by the POs in report submission.

The PMs are diligent in following-up with the POs for timely reporting and sending the consolidated
district level data to the HO. However, there is lack of a system of validation or analysis of data at
the district level for identification of issues and immediate follow-ups.

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c) Capacity building:

All the PMs indicated that they had received a five-day orientation training on the PAF model,
approach towards formation of new COs and monitoring and reporting system. However, since the
initial training none of the PMs have received any additional or refresher trainings. The PMs
indicated that training on business planning, financial management, group management and
analyzing reports would be useful in carrying out their responsibilities more effectively. Refresher
courses would be helpful in reinforcing the concepts and also in communicating policy changes and
strategic direction of PAF.

3.5 Summary and conclusions

Process

The POs are primarily responsible to supporting the COs across both pre and post establishment
phase. In the pre-establishment phase their main responsibilities include mobilisation of poor
households into group, developing business plan for RF support from PAF and guiding them for
regular meetings and savings. After establishment and receipt of RF, the POs support the COs
mainly in designing loan products, bookkeeping and collecting data and reporting to PAF through
periodic visits.
The POs are also responsible for the smooth implementation and monitoring of community sub-
projects.
The PMs are responsible for supervising the activities of POs and COs and participating in various
VDC and DDC level meetings. They also have to ensure timely reporting from POs and share the
consolidated district level data with PAF HO.

Strengths & achievements Weaknesses & areas for improvement

Most of the sample POs engaged under the SMs seemed to be overloaded with work.
PAF programme have good, relevant Analysis of PO data indicates that SMs work
experience of more than 15 years. with 7-39 COs with an average of 18
The PAF programme is of high importance to COs/SM. A workload of 10-12 COs/PO would
the POs nearly a quarter of the POs total have been practical. Almost 75% of the
staff are engaged under this programme and sample POs have a high average COs per SMs
PAF grants forms a significant 15% of their which has affected their productivity.
total revenues. Each CO is covered around 4 times a year
which is far below the required 12 visits per
annum. Therefore, the SMs are not able to
spend adequate time with the COs for
handholding.
Limited involvement of PMs in field
monitoring of CO activities and validation of
data provided by POs.
Considering the high reliance of COs on POs
for bookkeeping & other aspects, with PAFs
decision to engage with lesser number of
POs, continued support and monitoring of
CO activities would be a challenge in the
remaining period of the programme.

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Chapter 4

Supporting very poor families in remote areas conclusions & suggestions

This chapter presents the key achievements of the PAF programme as well as the issues and challenges
faced by the COs and POs in performing their roles effectively. Based on its understanding of the
programme, the evaluation team presents its recommendations for the scaling up of financing
opportunities at the CO level and the capacity building of POs and COs for maximising impact and
enabling continuity after the completion of the programme.

4.1 Key achievements

a) Widespread outreach: Since its inception in 2003, PAF has been promoting COs and has been able
to expand its outreach to all the regions of Nepal, through its income generation and
infrastructure related schemes. Out of the total 75 districts in Nepal, PAFs RF programme is
functional in 55 districts across five regions with 26,497 COs established. Considering an average
membership size of 34 the programme has reached around 9 million households.

b) High poverty focus: The RF programme was designed to focus on addressing issues related to rural
poverty and social exclusion. Participatory social assessment and community well-being ranking
were used to identify poor households as the main targets for the programme. This was evident
from the very remote locations of the COs with difficult access, lack of infrastructure facilities and
the conditions of members houses. The study indicates that 68% of the members of sample COs
are hardcore poor (food sufficiency less than 3 months), 24% are medium poor (food sufficiency
more than 3 months but less than 6 months) and 8% are poor (food sufficiency more than 6
months but less than a year); none of the members are in the marginal non-poor category.

The caste composition of the member households validates the focus of the programme on
engaging with socially marginalised households. Overall, the Dalits and Janajati constitute more
than 75% of the CO members across all regions.

c) Bank linkage of COs: All COs have opened accounts at nearby bank branches where PAF can
transfer the revolving fund. While there are issues with physical access to the bank branches and
therefore actual use of the account due to their distances from CO locations, this process was
intended to provide an opportunity to the excluded population in remote regions of Nepal to gain
some access to formal financial services including the facility of safe deposit for member savings
along with interest earnings if used by the members regularly.

The direct transfer of funds to the bank accounts of COs without the involvement of intermediaries
is likely to have reduced transaction costs and limited the chances of misappropriation a
welcome feature of the programme. However, at present the CO bank accounts have mainly
served the purpose of transfer of money and subsequent withdrawals by the members and
beyond that there has been very limited transactions (due to access). The members would have
benefited more if the business relationship between the banks and the COs had materialised.

d) Promotion of IGAs: The RF was meant for promoting income generating activities among the
members and the programme has been successful to a certain extent. While the small size of loans
(of around USD 250 ~ NPR 27,500) available through PAF funds is not sufficient to fulfil the credit
needs of all members, it does provide an impetus to households that are entrepreneurial to
expand their income levels. Some of the success stories are presented in Annex 4.

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e) Community ownership: The main reason for the direct transfer of RFs was to build a sense of
ownership among members. The requirement of community contributions of 10% and regular
savings from the members was meant to further strengthen this ownership. The results have been
mixed across different phases of the programme and the role of POs is crucial. In the initial phase
there were communication issues due to which the RF was misunderstood as grant funding.
However, as the programme progressed the POs ensured that the message of the RF became clear
and engaged the members in decision making related to various group formation processes which
enhanced their sense of ownership of the CO.

f) Engagement of POs: POs are the extended arms of PAF for promoting COs, providing technical
support to them and in monitoring their activities. In the absence of a direct monitoring and
supervision structure at PAF, the engagement of POs was appropriate and required for the
implementation of the programme. It also provided opportunities to people from the local
community who were employed by the POs in the role of social mobilisers, supervisors and also
as local resource persons for supporting the COs. Over 400 POs were involved in implementation
and this study indicates that the PAF programme was an important project for them with nearly a
quarter of their staff involved under this programme with the grants contributing to around 15%
of their overall revenues. However, in the remaining period of the programme, PAF intends to
engage with the better performing POs and phase out the weaker ones.

g) Revitalising the livelihoods of CO members in earthquake-hit areas: PAF has been actively
supporting the government of Nepal for rehabilitating certain areas (about 1,500 COs in 14 most
affected districts) of the Central and Western regions which were greatly affected by the
earthquakes in April and May 2015. Steps taken by PAF involved the recapitalisation of the RFs of
the affected COs, reconstruction and rehabilitation of damaged infrastructure.

4.2 Challenges and potential areas for improvement

The challenges faced by the COs in managing various activities and by the POs and the PAF staff in
effectively fulfilling their roles and responsibilities are highlighted at CO, PO and PAF level

4.2.1 CO level

a) Capacity building of members & high reliance on POs for bookkeeping: Developing the capacity of
the CO members so that they can carry out various operational activities, in particular
bookkeeping, and enabling them to utilize the credit productively through vocational training. The
low awareness and education levels of the members has made the task of developing their
capacities difficult. The current capacity building efforts are at two levels handholding of the
members by the SMs during group meetings and classroom programmes organized at a central
location for groups of 2-3 COs. Building capacities requires regular and concerted efforts and in
both these methods continuity and regularity of support is a key issue. The SMs are not able to
visit the COs as regularly as they should due to their high work load and similarly the training
programmes by experts have been one-off activities due to budget limitations. Lack of refresher
trainings has caused a break in the momentum of these programmes and compounded the
challenge of overcoming the CO members low awareness and literacy levels. This is evident from
the fact that just 12% of the sample COs are able to undertake bookkeeping either independently
or even with limited support from the POs.

b) Limited scaling-up capacity for funds: The COs are largely dependent on the RF from PAF for
fulfilling members credit needs. The programme design includes contribution to the RF by
members and savings by members but these are small in comparison with the fund size; it requires

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a long time to build up. Further, portfolio quality issues at a large number of COs mean that rather
than growing the funds through the accumulation of interest many COs have declining funds on
account of unpaid loans. However, in some locations, the POs mobilized the local COs in the
district to form cooperatives and cater to the larger credit needs of their members. One such
experience is presented in Box 4.1.

Box 4.1: Formation of cooperatives at VDC level to cater to the larger credit needs of COs

Nepal National Social Welfare Association (NNSWA), is an NGO established in 1990, registered as a
Society with the District Administration Office, Kanchanpur in 1994 and affiliated to the Social
Welfare Council, Kathmandu. NNSWA has grown over the years, implementing various integrated
community based development programs in the Far Western region. It partnered with the PAF in
September 2005 and is currently supporting 137 COs across 7 VDCs and one Municipality covering
around 3,250 households; most of them former bonded labour households.

Instructed by PAF to form a networking organisation with COs, NNSWA facilitated the formation of
Cooperatives during Nepali Year 2066-69. The PO formed 11 Cooperatives (4 in Krishanapur VDC, 3
in Daige, 2 in Jalari, 1 in Dodhara and 1 in Bhimdatta municipality) in its operational area and 133
out 137 COs are members of these cooperatives. Most of the COs members have taken shares in
the cooperatives. The objectives of the cooperatives are to

strengthen COs by providing a forum for regular interaction


disseminate information among the COs
enable better utilization of funds by the COs

Before forming the cooperative, the PO facilitated a discussion among interested CO members
about the concept, need, functioning and benefits of the organisation. Later, the PO organised a
workshop on cooperative management with the CO members. Each cooperative was formed with
50-200 shareholders that were members of 5-10 COs from nearby villages. Each shareholder took
1-5 shares at NPR 100 per share. However, most of the CO members had to borrow to invest in the
cooperative. The shareholders constituted the general body of the cooperative which then elected
an 11-member Board of Directors with representation from all member COs.

The cooperatives were registered with the divisional cooperative officer with support of the PO.
Basic rules and regulations for governance were formulated and accepted by the general body. The
member COs have a savings account with the cooperatives and have to deposit a fixed amount of
saving every month. The cooperative also raises grants from various departments of Village/District
Development Committees and utilises COs deposits for on-lending. The cooperative pays interest
@6% p.a. on CO deposits.

The cooperative on-lends directly to individual members of COs in the range of NPR 20,000-30,000.
The Board appraises and approves loan applications based on the recommendations of the office
bearers and charges interest @12% p.a. on a declining balance basis. The maximum loan tenure is
12 months with monthly repayments. Each cooperative has a separate set of books of accounts
which are maintained by the Board members/SM; the books are audited annually by an external
auditor.

c) Rotation of RF: As discussed above, the ability of the COs to rotate the RF is limited. Comparison
of the portfolio outstanding with the RF received from PAF indicates that, overall, 33% of the

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sample COs had portfolio outstanding exceeding the RF received which means that they were able
to rotate the funds to some extent. However, for the majority of COs (53%) the portfolio
outstanding is around 50 to 100% of the RF received from PAF and for a smaller proportion (14%)
of COs the portfolio outstanding is less than 50% of the PAF contribution. Apparently, the COs with
portfolio outstanding less than the PAF contribution, have not only failed to rotate funds but have
lost money due to poor portfolio performance.

d) Limited capacity to meet members credit needs: The limited fund mobilisation capacity of the
COs also limited their ability to meet the credit needs of their members. Though the PAF guidelines
state that COs business plans should take into account that it is a demand-based programme and
they can, therefore, put forward their credit needs for financing members business activities, the
budget available was generally less than members requirements. The study of the sample COs
indicates that the average loan size for the current financial year (2015-16) was around NPR
25,950 (~USD 243), a relatively small sum for financing any significant income generating option
of the members. This problem is accentuated by the members tendency to share the PF funds
equally, regardless of the investment needs of individual members.

e) Access to finance and reducing dependence on external sources: The COs provide access to
finance for very poor households in various regions of Nepal. In the very remote locations where
there are no MFIs the RF does play an important role in providing access to finance. However, in
less remote areas where MFIs and local moneylenders are active, the small size of CO loans does
not have a major impact in reducing dependence on other sources. In those areas the study found
that CO members borrow from local moneylenders at higher rates of interest. Members of around
44% of the sample COs indicated that they had current loans from other sources.

f) Difficulty in obtaining member contributions and the management of contributions: Procuring the
required 10% contribution from individual CO members is a difficult task as most belong to the
very poor category. Some of the members have had to borrow the contribution amount from
moneylenders in order to obtain CO loans. The guidelines state that the contribution to the RF has
to be collected upfront and only then can the loan be disbursed to members; in practice, in some
cases, the contribution has been collected but returned to the borrowers after loan disbursement
and in other cases it was deducted from the loan amount. Another issue is the calculation of the
contribution based on the loan amount since members with higher loan demands are not willing
to contribute a larger amount than other members. This has accentuated the tendency for the
same loan amount (and therefore contribution amount) to be allocated to all members of a CO
though the credit needs of the members may be different.

g) Low contribution of member savings to the CO funds: Member savings, which over a period of
time, should build the funds available with the COs, are around 10% of the average PAF RF
contribution to the COs. The concern here is that the COs are required to contribute 10% of the
PAF RF upfront but even after many years of programme implementation the savings as a
proportion of RF remains at the same level. Indeed, it varies between regions and in some regions
is well below 10%. It is apparent that members are either not truly contributing the initial 10% of
the RF (in some places) and also that savings are irregular. It is apparent that the current practice
of the COs of not providing withdrawal facility or interest on savings does not
encourage/incentivize the members to save larger amounts. There are also concerns related to
the capacity of the CO members to be able to manage member deposits, calculate interest rates
etc. which is why savings have remained a perfunctory activity rather than becoming an important
source of funds for the COs.

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h) Portfolio quality: The COs have mixed performance in terms portfolio quality. About 42% had no
overdue loans at the time of the survey while 9% had PAR >30 days of less than 10%, but a high
49% of COs faced major portfolio quality issues with PAR 30 >10%; as much as a quarter of COs
had PAR30 of 100%. The weak repayment performance of members has affected the growth and
rotation of funds of the COs. The main reasons for this weak performance is the misinterpretation
of the RF as a grant (particularly during the initial phases of the programme), an unstable political
environment (particularly in some regions), loan waivers by the government and central bank
which members thought were applicable to CO loans and the lack of capacity/willingness of COs
to track and follow-up on overdue loans.

i) Dormant accounts resulting from limited access to banks: The distance of the sample COs from
their bank branches is from 3 km to 80 km, with an average of 25 km. Two-third of the COs have
banks more than 10 km away from their location. The far distance of the branches limits the use
of bank facilities as the members have to spend both productive time as well as money for
undertaking transactions. The CO members are also in-convenienced as cheques issued to
members for loan disbursement often have problems such as a mismatch of signatures. The banks
also prefer to limit their small value transactions and ask the COs to withdraw all the disbursement
money by one cheque and distribute the funds among themselves.

As a result, the COs hardly used their bank accounts once the revolving fund transferred is
withdrawn and distributed among the members. Moreover, the savings collected by the members
is negligible and usually gets exhausted after inter-lending amongst members and it does not
make economic sense for the COs to spend much more in travel costs to deposit a small sum of
savings in the bank account. While bank linkage of COs was a positive step towards mainstreaming
them, involvement of bank as stakeholder in this process may have ensured better use of the
accounts. However, in very remote areas the physical access to bank branch by the COs would be
a major challenge to overcome.

j) Inactive sub-committees: Sub-committees, which are part of every CO, are not adequately trained,
empowered or monitored. Therefore, most of the committees are not active and thus the
responsibility is shifted towards the PO staff adding to their work load.

k) Dependence on POs and uncertainty beyond 2018: Most COs are dependent on POs for various
activities and in particular bookkeeping. With phasing out of the POs and therefore reduction of
the pool of POs engaged under PAF programme, the support to the COs will diminish significantly.
There are some good COs that have matured and will be able to carry out activities on their own.
Similarly, in some areas where innovative POs have introduced the system of LRPs or have
established cooperatives of COs the routine activities would be managed. However, majority of
the COs will find it difficult to sustain without a support system.

4.2.2 PO level

a) Excessive workload of SMs: Establishing new COs and then providing technical assistance to them
is the key activity of POs. On average, a PO supports 110 COs and the mix of new and old COs
supported by the POs is in the ratio 3:7. The number of COs per SM ranged from 7 to 39 with an
overall average of 18. In the POs perspective, the number of COs per SM should be in the range
of 10-12 as the COs generally are located in remote areas and it takes time to reach them.
However, almost 3/4th of the sample POs have a larger than average number of COs per SM.

b) Low frequency of visits to the COs: The SMs are supposed to visit each CO at least once a month
during the graduation period (of three years, reduced from 5 years followed earlier). The effect of

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the workload is evident from the number of visits the SMs are able to undertake. On average each
CO is covered around 4 times a year by the SMs, which is far below the required number of 12
visits per annum. The POs try to focus more on the new COs (as they need more support) than the
older ones to manage their time better. It is obvious that the productivity of the SMs and the
quality support to COs would be affected for those having a high workload.

c) Dependence of the POs on PAF grants for managing operations: The PAF programme is significant
for several of the 400 POs engaged in implementation. After the completion of the PF project it
will be very difficult for the POs to continue supporting the COs. At present, around a quarter of
staff (for some even half or more) of these POs are involved under PAF and POs would face
difficulties keeping them gainfully employed. Some POs, are trying to find a solution and have
taken the initiative of identifying LRPs for supporting basic CO activities like bookkeeping.

d) Staff attrition: Most of the POs face the problem of staff attrition particularly at the SM level. It is
a challenge for the PO to fill vacant positions and train the new recruits, leading to long gaps in
the monitoring of CO activities. As indicated by the PO representatives, the budget for staff
salaries (NPR 14,000 per month for SMs and NPR 25,000 per month for the Project Coordinator)
is a challenge for retaining good staff. Also, since the POs are dependent on grants, sometimes
salaries are delayed by 3-6 months, which results in staff demotivation and consequent drop outs.

e) Lack of capacity building programmes for PO staff: The POs feel that the SM and PC require
capacity building for formulating business plans, financial management, group management and
completing report formats. However, there are few such opportunities under the PAF project and
POs do not have the resources to facilitate such training programmes on their own.

f) Uncertainty beyond 2018 and PAFs decision on the reduction of POs: With PAFs decision to
engage with a few selected POs in the remaining period of the programme there in uncertainty
on how the support to the COs would continue, particularly when the existing pool of more than
400 POs are finding it difficult to provide quality and timely support to the COs. While PAF has
indicated that though number of POs would decrease, the SM to CO ratio would be maintained so
that there is continuity of support to the COs. However, considering the high staff attrition of staff
at PO level it will be a challenge for them to recruit higher number of SMs and also build their
capacities to be able to provide quality support and supervision of CO activities.

4.2.3 PAF level

a) Limited engagement in field monitoring by PAF representatives and other stakeholders: The lean
structure of PAF limits the teams participation in the monitoring of COs as well as PO activities.
PAF guidelines require regular monitoring by officials from the DDC, Agriculture Office and District
Mahila Vikas to the COs, but there is a very small budget for the POs to facilitate such visits.

b) Reporting format has not been uniformly operationalised: Though PAF has prescribed a reporting
format for sharing of CO level details at the district/regional level it was not followed by the sample
POs uniformly. Some POs said that they had been using a 47 indicator format over the past 6 years
and mentioned that the current format had been introduced in the current financial year; others
were not even aware of the current reporting format. There is also a need for having standardised
reports at the CO level (which covering various COs activities like RF disbursement, collection of
repayments, and savings) so that information can be easily compiled by the SMs for reporting to
PAF and then consolidated at district, regional and PAF level for analysis of trends and ratios.
Similarly, a standard format/method for bookkeeping for the COs is needed. This would help in
development of standardised materials for training the CO members and would be easier to
replicate across regions.

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c) Lack of validation of reported data by POs and data analysis at PM level: The data reported by the
POs through quarterly reports are generally consolidated by the PMs and sent to the Head Office.
There is the lack of a system of data validation through visits to sample COs by the PMs. There is
also no analysis of the consolidated data to analyse the trends across different quarters for
identification of problems for quick follow-ups with PO/CO for addressing it. Such analysis would
add value to the monthly meeting of POs with PMs and would allow them to monitor the
programme in a more efficient manner.

d) MIS: A related aspect to the issue of non-uniform reporting formats and the lack of data analysis
at PM level is the manual MIS which is prone to errors. An automated MIS at the PM level linked
with the HO MIS would not only lessen the time required for data updates and limit errors but
also enable the PM to gain access to customised performance reports which will help them in
focussing their energies with weak performing POs and COs.

e) Capacity building of PMs: Most of the PMs met during the on-field mission had experience of less
than six months working with PAF. They had received an induction training for orientation on the
PAF model, approach towards formation of new COs and the monitoring and reporting system.
However, in order to enhance their ability to supervise the activities of POs and the COs they need
refresher courses and also training on technical aspects like business planning, financial
management, group management and bookkeeping as they also have the responsibility of initial
verification of the CO proposals and making recommendations to the Technical Appraisal Group
(TAG) at PAF Head Office.

4.3 The way forward

With 2-3 years left for the completion of the programme, the main focus of PAF has to be on

Consolidation of the vast structure of more than 26,000 COs (and growing) all across Nepal
Ensuring that the support and flow of funds to COs continues beyond the programme period to
enable their sustainability
Developing systems for efficient supervision of the progress made by the COs and the support
provided by the POs
Capacity building of COs, PAF staff and PO staff.

In order to achieve these, PAF needs to have a multipronged strategy for different levels of the
programme (overall programme, CO level and PO level). The detailed recommendations of the
evaluation team are

4.3.1 Overall programme (PAF) level

The review exercise has highlighted the challenges that PAF is facing in overall management and
supervision of the programme. For addressing these issues, an overhauling of the method by which
data is collected, reported and analysed is needed and the some of the policies that have not worked
very well also need to be reviewed and reframed.

a) Consolidation of COs for supply of funds

The is evident from the review that COs have been unable to fulfil the credit needs of the members as
originally envisaged. The RF provided to the COs is small in comparison with their needs and the
savings collected by the members are meagre. However, some of the more innovative COs have

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scaled-up by forming cooperatives (with the help of POs) and have been able to manage their
requirements better.

PAF should consider conducting portfolio audits of the COs in order to identify the good, average and
defunct COs that are facing total erosion of the RF and those that have become non-functional. The
performance indicators should include portfolio quality (measured by PAR > 30 days) indicating
repayment performance and credit discipline, regularity of meetings (proportion of members
attending meetings) indicating members involvement in routine activities of the CO and in decision
making, regularity of savings which indicates ownership of members, timeliness and accuracy of
bookkeeping etc. The strategy of continuing the support to COs would depend on their performance
categories. The better performing COs should be consolidated for scaling-up while for average COs
further capacity building may be required and defunct COs should be phased out. The support that
would be needed for average/weak COs to graduate into better performing ones is detailed in Section
4.3.2.

The consolidation of the better performing COs can happen in multiple ways to ensure the supply of
funds for their growth and meeting the credit needs of members.

(i) Forming federations/cooperatives of COs


(ii) Linking them with MFIs
(iii) Facilitating access to finance from banks

Federations of COs linked to banks: It was apparent during the evaluation that the formation of
cooperatives of COs has worked well not only in meeting the larger credit needs of their members but
also in providing a facility for parking of and earning interest on savings. The bank accounts of the COs
also provide similar savings facility but due to their distant location the COs are hardly able to use
these. Organizing cluster of COs into federations/cooperatives would work best at remote locations
where MFIs or banks are not available. In the long term, for strengthening these federations, PAF can
consider establishing district and regional federations and an apex institution to manage the entire
structure.

COs linked to MFIs: It was also evident that members of COs were obtaining loans from other sources
including MFIs. The spread of MFIs is substantial in urban and semi-urban pockets in various districts
of Nepal and PAF should consider formalizing this linkage. In areas where MFIs are active, the COs can
be linked to them for the supply of credit, savings and other services. However, care needs to be taken
in formulating the terms of such linkages to ensure that the ownership of the members with respect
to the RF and accumulated surplus of the COs continues.

Direct bank linkage of COs: The opening of bank accounts of the COs for transfer of RF was a good
initiative of PAF but the programme has been unable to leverage it. As noted, the CO accounts are
mostly dormant after the RF is withdrawn and distributed among the members. All banks in Nepal
have deprived sector lending targets and which can be tapped for on-lending to the COs. The COs
can benefit from this facility if the banks see a business case and are made a stakeholder in the PAF
programme. The Bank-SHG linkage programme in India is a good example of how banks can play a role
in inculcating the savings habit among members, enabling the households to expand their IGAs by
fulfilling their credit needs.

However, in the case of the PAF programme, the bank linkages would be viable mainly for COs that
are located in places with relatively easy access to bank branches. In this context, the continuation of
the bank accounts of COs should be subject to success of the bank linkage by PAF and closing of
dormant accounts may be considered if this initiative does not work out.

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b) Influencing policy makers

The establishment of the federation structure and the linkage of the federations with banks would
require policy support from the central bank (to enable the use of the deprived sector facility) and
with other government departments to facilitate the registration and smooth functioning of the
structure. PAF will need to develop a blue print for this programme and share it with the relevant
institutions. With policy support, deprived sector lending from the banks can be provided either to
the COs or their federations.

c) Strengthening the MIS

The MIS needs to be strengthened at all levels of operations. This requires the development of
standardized bookkeeping and reporting templates at the CO level followed by consolidation of CO
data at district level with analysis of various indicators to track performance (on governance,
management of RF and bookkeeping) for focussed support and follow-up. Similarly, consolidation and
analysis should happen at the overall programme level to ascertain which regions/districts are lagging
behind and need more support to optimise the use of the available resources (both financial and
human).

At present the MIS is manual, which is time consuming and error prone. PAF should try to make use
of technology for accurate and real time reporting and analysis of CO data and performance. Collection
of data at the CO level using tablets/smart phones can be introduced. The POs who are involved in the
collection of CO data should have the facility to send the digitally compiled data (CO wise and member
wise) to the PMs, which can be uploaded to a district level computer system for automated analysis
and reporting. Similarly, the PMs can send the digitally compiled data to a central MIS at the Head
Office for more in-depth analysis of data (district wise, region wise and for various categories of COs)
to inform the senior management for taking strategic and well-informed decision.

d) Reviewing policies related to the functioning of COs

PAF needs review the policies related to 10% member contributions, savings terms and conditions and
the staggered disbursement of RF in two tranches.

The member contribution of 10% of the of RF amount has caused various types of operational issues
and members in general have found ways to get their contributions back thereby defeating the
purpose of building members equity. The staggered disbursements meant that only a few members
would get loans initially and others would have to wait for their turn and get loans after the 2nd
tranche. This not only increased the waiting time for some members making them impatient but also
made them reluctant to contribute upfront. Similarly, with no withdrawal facility or interest being
provided on savings there was limited encouragement for the members to save and build the funds
available with the CO for lending.

Again, taking the example of the SHG-Bank linkage programme in India, the members equity was built
through regular savings and loan eligibility was linked to the accrued savings of the group. The SHGs
were given a timeframe of 6 months to build their savings, gain experience of intra-group lending
using the accumulated savings to strengthen their capacities in bookkeeping, group governance and
management.

In this context, PAF should consider linking the CO members contributions to the savings that have
been mobilized rather than as an upfront payment to obtain the RF. Similarly, member loans need to
be linked to the amount of savings that a member has been able to accumulate. If members are

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required to have accumulated savings that amount to 7% or 10% of the requested loan amount they
would know how much they have to save in order to be eligible for a loan.

This requirement would also promote regular transactions in the CO bank account, providing a
business opportunity to the banks, stimulating their interest in the PAF programme. The COs that
become eligible for loans should be reviewed based on verifiable indicators of performance (related
to regularity of savings, quality and accuracy of bookkeeping, member attendance, repayment
performance of internal loans from savings) and the good performing COs should be provided the RF
in a single tranche to limit the waiting period for members.

e) Capacity building of PAF staff

With the decision of PAF to engage a smaller number of POs in the remaining programme period, the
effectiveness of Portfolio Managers of PAF in carrying out their roles and responsibilities will become
critical. While strengthening the MIS would provide them with reports and tools for better supervision,
the PMs have to be trained to be analyse reports, identify issues and prioritize their efforts to focus
on COs/POs that are not performing up to the mark. Apart from the initial induction training about
the PAF model and approach towards promoting and supporting COs, they would need refresher
courses to inform them about policy changes and strategic direction of PAF. In addition, the PMs also
have to trained on business planning, financial management, group management and bookkeeping to
guide and supervise the POs and COs, as well as to use the MIS software (whenever introduced) for
inputting data for automated analysis and reporting.

4.3.2 CO level

a) Strengthening CO capacity for RF management

As discussed above, the portfolio audit of the COs will be able to identify the moderately performing
COs that, with support, can be graduated into better performing ones. The strengthening of capacity
on RF management should be targeted towards this category of COs.

Such COs need training particularly on bookkeeping, development of products (both loan as well as
savings), and tracking of overdue loans from members to improve the management of RF. The M-
CRIL review team has found that loan products used by the COs are standard in nature and do not
take into account the cash flow of activities like agriculture and animal rearing that have longer
gestation periods. This leads to repayment problems. Some modification and refining of loan products
is needed; for this, the COs will require guidance. In addition, there is the need for awareness building
on the importance of savings, ill effects of over-indebtedness and the use of savings for productive
purposes so that it can provide the cash flow for the repayment of loans and for meeting household
expenses.

At present, the PO staff are the interface between the PAF programme and the COs and have the
responsibility for developing the capacities of members. In most areas, the COs are highly dependent
on the POs for bookkeeping. Attempts should be made to engage CO members in bookkeeping from
the beginning and SMs should play a facilitating role instead of doing it themselves. The SM should do
bookkeeping only in cases where none of the CO members is educated and the CO needs direct
support. In this context, the LRP concept, initiated by some of the POs, seems appropriate. The
possibility of introducing this facility more widely needs to be explored by PAF. LRPs that are part of
a CO and familiar with the processes can work in clusters of 10-15 COs (where physically feasible),
facilitating the work of the COs while earning a reasonable income.

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Training on other aspects also need to be embedded as part of the monthly visits made by the SMs. It
will be useful for PAF to engage an external consultant to design a training curriculum that covers
various topics suggested. Training should be delivered within a time frame of say, 2 hours per visit,
every 4-6 months. After this, hand holding and supervision of the members in carrying out RF
management activities has to be an ongoing process for at least one year for them to become adept
at it. The regularity of handholding for members is most crucial for ensuring that the concepts are
reinforced for better absorption. At present, the work load of the POs limits regular visits to the COs
and would continue to be a challenge for the remaining period of the programme, particularly since
the number of POs is being reduced. With regular support, once the performance of these COs
improves they can also be federated or linked to MFIs and Banks.

b) Reinfusion of funds for COs

The review team found that 50% of the COs have very poor portfolio quality (including 25% whose
PAR30 is 100%) and face erosion of their revolving funds. In some of these COs capital erosion has
happened due to natural calamities; PAF should consider reinfusion of funds to such COs after a
thorough audit.

c) Phasing out of defunct and non-performing COs:

The COs in which the RF has been fully eroded because of operational reasons and weak practices
should be phased out. The portfolio audit suggested should be able to identify COs that are beyond
redemption.

d) Market development initiatives to bolster the IGAs of the CO members

Loans from COs are meant to promote income generating activities of members. However, these IGA
are reliant on the local market, limiting the scope for expansion and scaling-up. Market development
initiatives like value chain linkages with suppliers and downstream traders would go a long way in
bolstering the IGAs of the CO members. At present such initiatives do not come directly under the
ambit of PAF RF programme but collaborations with other government and donor programmes for
promoting value chains should be explored for this purpose.

4.3.3 PO level

a) Capacity building of POs and reviewing their roles & responsibilities

Capacity building of PO staff is required on bookkeeping, portfolio management and other related
topics to enable them to transfer skills to the CO members. The development of standardized MIS
templates and reporting systems (including technology based processes, if introduced) can be used
for the development of training modules that can be replicated cost effectively.

The roles and responsibilities of the PO staff also need review considering their high work load. PAF
as well as POs should try to limit the number of COs per SM to 15 for ensuring the quality &
effectiveness of support as well as for better programme monitoring. It would be useful to develop
key performance indicators (KPIs) for the PO staff including field support components.

b) Possible to continue support to average/weak COs with a smaller number of POs

PAFs decision to engage a smaller number of POs for continuing the support to COs seems
challenging. However, with the segregation of COs into good performing, average/weak and defunct,

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as recommended above, the POs could be engaged in providing support to average/weak COs. The
better performing COs should be able to take care of their own needs through the federations or via
a direct linkage with MFIs/banks. If defunct COs are phased out, the overall number of COs to be
supported by the POs will be reduced. Moreover, with an automated MIS the efficiency of data
collection and reporting would improve, providing more time for PO staff to spend on handholding
the COs.

c) Introduction of automated systems at POs for data collection and reporting

At the PO level tablet/smart phone based systems should be introduced to increase their overall
efficiency by speeding up data collection and reporting and minimizing the chances of error. As
discussed above, the consolidation of this information at the PO level via an automated system at PAF
will enable real time updates. With these improvements, POs would be able to spend more time on
the handholding of CO members for bookkeeping, refining loan products and guiding them in tracking
and following-up of overdue loans during monthly visits.

The overall impression of the M-CRIL evaluation team is that the PAF RF programme has been a
relevant initiative for financial inclusion of very poor households in Nepal. The performance has
been mixed in terms of the management of the revolving funds by COs and the effectiveness of
support by POs. The impact at member household level will take a while to become evident but
success stories are emerging showing the positive role of the programme in providing access to
finance and enhancing the livelihoods for significant numbers of CO members. PAF needs to
consolidate its widespread outreach and build upon the achievements of many of the COs to
enhance and sustain the programmes impact on the target population.

Micro-Credit Ratings International Limited 59


Annex 1a: List of COs covered

Name of the CO Age District # Region Covered by CO Code Total PAF contribution (NPR) CO
(Years) 1st installment 2nd installment Total Contribution
1 Milan 10 Morang East Workshop 29.24.062.63 554,437 456,988 1,011,425 95,800
2 Hatemalo 6 Morang East Workshop 29.066.067.46 172,020 114,680 286,700 30,100
3 Rahmaniya 1 Morang East Workshop 29.071.072.13 349,650 349,650
4 Janata 10 Morang East Workshop 29.33.062.63 225,990 150,660 376,650 35,400
5 Radhakrishna 5 Morang East Visit 29-66-67-9.1 221,640 147,760 369,400 39,200
6 Bhagwati 1 Saptari East Workshop 46.070.071.446 391,160 391,160 43,350
7 Saraswati 5 Saptari East Workshop 46.067.068.292 237,876 158,584 396,460 20,200
8 Tri Shakti 5 Saptari East Visit 46.067.068.246 136,690 91,126 227,816 24,580
9 Bishnu 5 Saptari East Workshop 46.067.068.267 372,393 372,393
10 Godabari 4 Saptari East Workshop 46.068.069.315 753,858 753,858 56,124
11 Laligurans 9 Doti Far West Workshop 63.86.063.064 835,632 208,908 1,044,540 86,346
12 Shivalaya 5 Doti Far West Workshop 63.066.067.380 409,716 273,144 682,860 59,700
13 Naulobihani 5 Doti Far West Workshop 63.066.067.417 335,841 223,894 559,735 51,900
14 Janakalyana 4 Doti Far West Workshop 63.067.068.476 337,036 84,259 421,295
15 Jeevan Jyothi 7 Doti Far West Visit 63.307.065.066 463,180 317,740 780,920 41,825
16 Roshani 9 Kanchanpur Far West Workshop 18.063.64.57 556,660 16,200 572,860 94,802
17 Mausam 5 Kanchanpur Far West Workshop 18.067.068.131 331,440 220,960 552,400 75,186
18 Sangam 5 Kanchanpur Far West Workshop 18.067.068.138 196,200 256,000 452,200 47,500
19 Anar 5 Kanchanpur Far West Workshop 18.067.068.124 276,600 184,400 461,000 49,700
20 Kailesh 9 Kanchanpur Far West Visit 18.063.64.69 167,580 111,720 279,300 11,820
21 Pragatishil 5 Bardiya Mid-West Workshop 38.067.068.08 117,563 41,444 159,007 16,779
22 Junatara 4 Bardiya Mid-West Workshop 38.067.068.55 250,186 167,228 417,414 46,000
23 Bhumi 2 Bardiya Mid-West Workshop 38.069.070.368 623,500 156,400 779,900 85,500
24 Shuvakamana 5 Bardiya Mid-West Workshop 38.067.068.20 343,536 85,884 429,420 42,250
25 Sital 4 Bardiya Mid-West Visit 38.068.069.274 217,650 142,700 360,350 40,000
26 Badrekhali 9 Dailekh Mid-West Workshop 67.063.064.131 537,765 358,510 896,275 82,020
27 Sirjana 9 Dailekh Mid-West Workshop 67.063.064.110 495,465 330,310 825,775 88,050
28 Paribartansil 9 Dailekh Mid-West Workshop 67.063.064.94 510,330 340,220 850,550 92,100
29 Chuntakura 7 Dailekh Mid-West Workshop 67.065.066.220 572,076 381,384 953,460 101,203

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Name of the CO Age District # Region Covered by CO Code Total PAF contribution (NPR) CO
(Years) 1 installment 2nd installment
st
Total Contribution
30 Laligurans 7 Dailekh Mid-West Workshop 67.065.066.243 535,248 356,832 892,080 95,000
31 Nabajiwana 1 Banke Mid-West Workshop 24.071.072.25 263,250 263,250 30,000
32 Rojiroti 1 Banke Mid-West Workshop 24.071.072.10 274,445 274,445 15,000
33 Samajkalyan 0.5 Banke Mid-West Workshop 24.071.072.22 262,250 262,250 30,500
34 Sirjansil 1 Banke Mid-West Visit 24.071.072.01 195,470 195,470 15,000
35 Ekata Shreejansheel 9 Rautahat Central Workshop 53.063.064.226 530,430 353,620 884,050 88,310
36 Lokapriya Mahila 5 Rautahat Central Workshop 53.066.067.1333 791,010 527,650 1,318,660 216,000
Anusandhan
37 Samaj Kalyan 9 Rautahat Central Workshop 53.063.064.224 475,884 317,256 793,140 77,600
38 Shiva Shankar Pran 3 Rautahat Central Workshop 53.069.070.2186 704,520 469,680 1,174,200 85,400
39 Fulmat Mai Pran 3 Rautahat Central Visit 53.069.070.2184 706,140 470,760 1,176,900 84,750
40 Ram Janaki 5 Rautahat Central Workshop 53.066.067.1467 816,300 544,200 1,360,500 309,700
41 Ujayalo 5 Rautahat Central Workshop 53.066.067.1082 566,429 566,933 1,133,362 147,200
42 Jagdamba 8 Rautahat Central Workshop 53.063.064.264 506,892 337,928 844,820 39,500
43 Jaya Hanuman 3 Rautahat Central Workshop 53.069.070.2108 665,736 443,824 1,109,560 137,000
44 Lali Guras 5 Bara Central Workshop 49.067.068.52 450,112 112,528 562,640 51,500
45 Manokamana 5 Bara Central Workshop 49.067.068.104 436,704 109,176 545,880 62,936
46 Sahara 3 Bara Central Workshop 49.069.070.360 534,000 134,250 668,250 135,580
47 Upakar Bikas 1 Bara Central Visit 49.071.072.467 531,816 531,816 80,000
48 Jaya Hanuman 5 Parsa Central Workshop 39.066.067.71 380,370 256,580 636,950 67,500
49 Jaya Bishnu 5 Parsa Central Workshop 39.066.067.27 395,310 263,540 658,850 65,950
50 Chanki Mai 5 Parsa Central Workshop 39.066.067.75 413,400 278,600 692,000 68,800
51 Kamal 3 Parsa Central Workshop 39.069.070.280 499,710 333,140 832,850 84,880
52 Jay Ganesh 3 Parsa Central Visit 39.069.070.276 662,440 165,610 828,050 68,000
53 Jagaran 6 Kapilbastu West Workshop 55.066.067.028 703,689 301,581 1,005,270 84,440
54 Shree Ganapati 10 Kapilbastu West Workshop 55.062.063.74 317,543 317,543 55,576
55 Manmilan 3 Kapilbastu West Workshop 55.069.070.7 469,728 201,312 671,040 63,000
56 Laxmi 5 Kapilbastu West Workshop 55.067.068.28 648,620 277,980 926,600 76,000
57 Shree Gangotri 10 Kapilbastu West Visit 55.062.063.75 1,206,623 1,206,623 40,000
# Note: Morang and Kanchanpur are the Innovative Window Programme Districts.

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Annex 1b: List of POs covered

Name of PO Legal status District Region No. No. of COs established Staff
VDCs Old New Total Full Part- Total
(>1 Yr) (<=1 Yr) time time
1 Chetna Samaj Society Saptari East 3 34 15 49 4 8 12
2 Global Bahumuki Sahakari Cooperative Saptari East 5 20 20 21 21
Samastha (GBSS)
3 Ganesh Mansingh Samarak Society Saptari East 4 63 20 83 6 2 8
Foundation
4 Bal Adhikar tatha Vatavaran Society Saptari East 3 30 8 38 8 6 14
Samaj, Nepal (CRES)
5 Samudayik Vikas Prayas Society Morang East 6 44 44 5 5
6 Mahila Samudaya Krishi Samooh Society Morang East 6 54 30 84 5 5
(MBKS)
7 Nari Vikas Sangh Society Morang East 8 60 60 6 6
8 Bahudeshaya Vikas Vyasthapan Society Morang East 6 28 35 63 5 5
Sanstha (MDMS)
9 NNSWA Society Kanchanpur Far West 8 137 137 150 150
10 Federation of Community Society Doti Far West 13 16 186 202 17 17
Forestry Users Nepal (FECOFUN)
11 ISDS Society Doti Far West 13 15 161 176 24 24
12 Equality Development Center, Society Doti Far West 13 169 14 183 42 1 43
Nepal (EDC)
13 SSD (Samaj Sewa - Doti ) Society Doti Far West 12 198 6 204 13 1 14
14 Geruwa Rural Awareness Society Bardiya Mid-West 6 17 134 151 37 37
Association, Bardiya
15 Rural Self Reliance Development Society Bardiya Mid-West 5 15 111 126 54 54
Center (RSDC)
16 Local Development Fund (LDF), Govt. Bardiya Mid-West 3 16 84 100 8 8
Bardiya
17 Local Development Fund (LDF), Govt. Banke Mid-West 7 43 0 43 18 18
Banke

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Name of PO Legal status District Region No. No. of COs established Staff
VDCs Old New Total Full Part- Total
(>1 Yr) (<=1 Yr) time time
18 Samarpan, Nepal Society Banke Mid-West 7 90 0 90 20 20
19 Community Health & Environ. Society Dailekh Mid-West 6 28 20 48 17 1 18
Protection Forum (CHEPF)
20 Everest Club Society Dailekh Mid-West 9 100 38 138 172 3 175
21 Sustainable Dev. & Environ. Society Dailekh Mid-West 8 75 35 110 34 1 35
Conservation Center (SUDECC)
22 Grameen Utthan Abhiyan Society Bara Central 3 22 6 28 5 0 5
23 Navprabhat Yuva Club Society Bara Central 3 30 5 35 4 1 5
24 Suryodaya Yuva Club Society Parsa Central 4 49 4 53 34 12 46
25 Rural Society District Society Parsa Central 4 31 20 51 22 20 42
Development Centre
26 Annoydaya Youth Club Society Parsa Central 5 56 4 60 73 27 100
27 Research and Development Society Rautahat Central 13 338 0 338 23 2 25
Association
28 Local development Fund Govt. Rautahat Central 5 78 0 78 4 0 4
29 Prann, Nepal Society Rautahat Central 3 253 0 253 25 0 25
30 Innovative Forum for Rural Society Rautahat Central 14 270 0 270 43 0 43
Development
31 Rural Illiteracy Society Education Society Kapilbastu West 10 188 0 188 14 5 19
32 Mount Everest Social Dev. Org. Society Kapilbastu West 4 56 8 64 33 8 41
33 Janardarsh Social Centre (JSC) Society Kapilbastu West 4 71 6 77 14 3 17
34 Kalika Self-reliance Social Center Society Kapilbastu West 8 103 0 103 130 8 138
35 Institute for Integrated Society Kapilbastu West 10 160 0 160 45 15 60
Development Studies
36 Local Development Fund Govt. Kapilbastu West 5 60 9 69 11 0 11

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Annex 2: Data collection template for COs

Date of visit/workshop
Undertaken by (M-CRIL analyst)

1. General Information

1.1 Name of CO
1.2 Region
1.3 District
1.4a Village (1-2 wards)
1.4b VDC (combination of wards)
1.5 Formation date (Nepali Calendar)
1.6a Agreement date (Nepali Calendar)
1.6b CO Code

1.7 Total PAF contribution (NPR)


1.7a IGA/RF
1.7b Infrastructure
1.7c Capacity building
1.7d Maintenance
1.7e Others

1.8a 1st instalment amount (NPR)


1.8b 1st instalment date
1.9a 2nd instalment amount (NPR)
1.9b 2nd instalment date

1.10 CO contribution
1.10a IGA/RF
1.10b Infrastructure
1.10c Capacity building
1.10d Maintenance
1.10e Others

1.11 RF details
1.11a RF amount (NPR) from PAF
1.11b RF (for lending) allocated from PAF
1.11c RF (for lending) including CO contribution
1.11d RF meant for expenses related to capacity building &
others

1.12 Whether CO has bank account (Y/N)


1.13 Distance of bank branch from CO (Km)

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1.14a Whether CO has been audited (Y/N)
1.14b If Y, when? (Nepali Calendar)
1.14c Amount spent on audit (NPR)

1.15 Other financial institutions (banks/MFIs, Coops etc.)


active in the area? Name them

2. Governance

2.1 Size and composition of CO


2.11 Existing No. of members
2.12 No. of men
2.13 No. of women
2.14 No. of members at formation
2.15a Household economic categorisation
a Ka (food sufficiency of 3 months)
b Kha (food sufficiency of 6 months)
c Ga (food sufficiency of 9 months)
d Gha (non-poor)

2.15b Caste
a Dalit (very poor)
b Newar/Thakali (Business community)
c Bahun/Kshetri (Brahman, Kshatriya)
d Muslim
e Other (Baki Janjati)

2.16 No. of office bearers (like president, secretary,


treasurer)
2.17 Names & position of office bearers
a. President
b. Treasurer
c. Secretary
d. Vice-president
e. if any (specify)

2.18 How many sub-committee formed?


2.19 How many active sub-committee?
a. RF (Gumti koshi) sub-committee
b. Infra/purchase (Khareed) sub-committee
c. Monitoring (Anugaman) sub-committee
d. Book keeping (Lekha) sub-committee
e. if any (specify)

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2.2 Group cohesion (existing)
2.21 No. of members from the same village
2.22 No. of members from the same family
2.23 No. of members below 16
2.24 No. of members 16+ to 30
2.25 No. of members 30+ to 50
2.26 No. of members above 50

2.3 Are there group norms for (existing)?


2.31 Who can become a member (Y/N)?
2.32 How to elect group leader/s & office bearers (Y/N)?
2.33 Rotation of group leaders/s (Y/N)?
2.34 When was the existing group leader elected/selected?

2.4 Regularity & timeliness of meetings


2.41 Frequency of meetings (monthly, fortnightly, etc.)
2.42 Any scheduled days/dates for meetings? (local)
2.43 No. of meetings organised during last 12 months
2.44 No. of meetings held on scheduled days/dates
2.45 Average duration of meetings (in Hours)

2.5 Member attendance


2.51 Average no. of members who attended meetings in last
12 months
2.52 % attendance
2.52 Average attendance of office bearers per meeting

3. RF Management

3.1 Loan products


3.11 No. of loan products
3.12a Indicate key features for each loan product (Product 1)
a Loan purpose/s
b Loan size-range (NPR)
c Repayment frequency (weekly, monthly, semi-annual,
bullet)
d Rate of interest (% per annum)
e Interest type (flat or reducing)
f Penalty for delayed repayment
g Tenure (months)
h Other (like insurance fee etc., specify)

3.12b Indicate key features for each loan product (Product 2)


a Loan purpose/s
b Loan size-range (NPR)

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c Repayment frequency (weekly, monthly, semi-annual,
bullet)
d Rate of interest (% per annum)
e Interest type (flat or reducing)
f Penalty for delayed repayment
g Tenure
h Other (like insurance fee etc., specify)

3.12c Indicate key features for each loan product (Product 3)


a Loan purpose/s
b Loan size-range (NPR)
c Repayment frequency (weekly, monthly, semi-annual,
bullet)
d Rate of interest (% per annum)
e Interest type (flat or reducing)
f Penalty for delayed repayment
g Tenure
h Other (like insurance fee etc., specify)

3.2 Setting of loan terms & conditions


3.21 How were the loan products conceived & developed?
a Joint decision of all group members
b Decided by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.22 How was the max loan amount fixed?


a Joint decision of all group members
b Decided by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.23 How was the repayment frequency decided?


a Joint decision of all group members
b Decided by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.24 How was the type & rate of interest set?


a Joint decision of all group members
b Decided by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.25 How was the penalty for late repayment decided?

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a Joint decision of all group members
b Decided by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.3 Process of loan application and approval


3.31 Is there a formal process for loan application from
members?
a If Yes, application is submitted to whom (office bearers,
SM)?
b If No, how is the loan request recorded (minutes
register)?

3.32 How are loans approved?


a Joint decision of all group members including office
bearers
b Decided only by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.33 Upon approval, when is the loan disbursed?


3.34 Mode of disbursement (cash, cheque etc.)
3.35 How is the disbursement recorded?

3.4 Repayment system


3.41 How is the repayment collected?
a During group meetings
b Members home
c Any other (specify)

3.42 In case of delayed repayment what steps are followed?


a Immediate follow-up by office bearers to understand
reason for delay
b If member absent, house visit by office bearers for
collection
c Taking verbal/written commitment from member on
the possible payment date
d No follow-up required as the penalty rule is already
there
e Any other (specify)

3.5 CO portfolio analysis


3.51 Existing portfolio outstanding of CO (NPR)
3.52 No. of members with existing loans
3.53 Total loan amount disbursed in last FY (15 July 2015 to
date)

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3.54 Total no. of loans disbursed in last FY (15 July 2015 to
date)
3.55 Total loan amount disbursed since beginning to date
3.56 Total no. of loans disbursed since beginning to date

3.57a No. of members who never took a loan


3.57b No. of members who have taken one loan
3.57c No. of members who have taken two loans
3.57d No. of members who have taken three loans
3.57e No. of members who have taken four or more loans

3.58 Loans O/s >0 days overdue


3.59 Loans O/s >30 days overdue

3.6 No. of members with existing loans from other


financial institutions

3.7 Savings mobilisation


3.71 No. of members with savings accounts
3.72 No. of members with savings accounts, but not saving
regularly
3.73 Savings balance - current savings mobilised from the
members (15 July 2015 to date)
3.74 Savings balance - total savings mobilised from the
members (as on date)
3.75 Frequency of savings (weekly, monthly etc.)
3.76 Amount of savings per member

3.77 How was the savings amount per member fixed?


a Joint decision of all group members including office
bearers
b Decided only by the office bearers
c Decided by supporting PO
d Joint decision of all group members with PO support

3.78 When can a member withdraw savings?


a Only at the time of exit
b End of the yearly savings cycles
c Anytime
d Any other (specify)

3.79 What interest rate is provided on member savings (in %


p.a.)?

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3.8 Savings withdrawals
a How many members have withdrawn savings? (15 July
2015 to date)
b Amount withdrawn (NPR) (15 July 2015 to date)
c How many members have withdrawn savings? Since
inception
d Amount withdrawn (NPR) Since inception

3.9 For inter-lending using members savings what are the


norms related to
a Loan purpose
b Max loan amount
c Rate of interest
d Interest type (flat or reducing)
e Repayment frequency
f Penalty for delayed repayment
g Tenure
h Any other (specify)

4. Bookkeeping

4.1 Types of books maintained by CO (Y/N)


4.11 Meetings minutes register
4.12 Loan ledger - lending from RF
4.13 Loan ledger - lending from member savings
4.14 Cash book
4.15 Savings pass book
4.16 Any other (specify)

4.2 When were the books last updated (date)? (Nepali


Calendar)
4.21 Meetings minutes register
4.22 Loan ledger - lending from RF
4.23 Loan ledger - lending from member savings
4.24 Cash book
4.25 Savings pass book
4.26 Any other (specify)

4.3 Who is responsible for bookkeeping (specify which


books)?
a Social Mobiliser (PO staff)
b Office bearers (specify)
c Group member (specify)
d Jointly (PO & CO members)

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4.4 If books are solely maintained by CO members, since
when are they doing this?

4.5 Quality and accuracy of bookkeeping


a Disbursements are accurately recorded (Y/N)
b Principal repayment correctly recorded (Y/N)
c Interest repayment correctly recorded (Y/N)
d Member wise loan outstanding is accurately calculated
& up to date (Y/N)
e Savings collected are accurately recorded in CO books
(Y/N)
f Member wise savings balance accurately recorded & up
to date in pass books (Y/N)

5. Capacity building support from POs (COs feedback)

5.1 Regularity of PO/SM visits


5.11 Last visit date of the SM
5.12 No. of meetings attended by PO/SM during current FY
(15 July 2015 to date)
5.13 Is SM visit recorded (sign) in minutes register (Y/N)?

5.2 Average time spent by SM during CO visits (hour)

5.3 No. of visits by Project Coordinator/Supervisor


a 15 July 2015 to date
b Since inception (if possible)

5.4 Activities undertaken by SM & support provided to


COs
5.41 Formation of CO by mobilising community members
(Y/N)?
5.42 Development of business plan for PAF grant (Y/N)?
5.43 House visits of CO members to understand their
livelihood/cashflows (Y/N)
5.44 Bookkeeping (Y/N)?
5.45 Training to CO office bearers/members in bookkeeping
(Y/N)?
5.46 Opening of bank account of the CO (Y/N)

5.5 Training received (no. of members participated &


duration)
a Bookkeeping
b Business plan
c Vocational (like ginger cultivation, goat rearing etc.)
d Any other (specify)

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6. Financial Statement of CO (if available)

A Balance Sheet (specify as on)


6.1 Assets
Cash in hand
Bank balance
Loan outstanding
Receivables
Total assets
6.2 Liabilities
Savings balance
Payables
Total liabilities
6.3 Equity/Grant
Grant for revolving fund from PAF
Grant for training, monitoring & other activities
Grant for infrastructure
Community contribution
Accumulated surplus
Total equity
Total liabilities & equity

B P&L statement
6.4 Incomes
Interest income from loans
Fine/charges/entry fee from members
Interest from bank
Other incomes (specify) - VDC+PAF
Total income
6.5 Expenditure
Expenses on IG activities (like training, monitoring etc.)
Expenses on infrastructure
Travel expenses (to bank branch etc.)
Stationery (register, pen etc.)
Refreshments (during meetings or other occasions)
Audit fee
Other expenses (specify) Bank tax
Total expenses
Net income (income less expenses)

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Annex 3: Data collection template for POs

Date of workshop
Undertaken by (M-CRIL analyst)

1. General Information

1.1 Name of PO
a Name of Participant
b Designation
c Date of establishment (Nepali Calendar)
d Legal status
e Region/s (area of operation)
f District/s (area of operation)
g Basic thematic areas of work focus

1.2 Association with PAF since (Nepali Calendar)

1.3 Implementing PAF project in?


a No. of District Development Centers (DDCs)
b VDCs
c Municipalities

1.4 No. of COs established and supported (as on visit date)


a Old COs (>1 year)
b New COs (within 1 year)

1.5 Total staff strength


a Full time
b Part time

1.6 No. of staff involved under PAF (team structure?)


a Programme coordinator
b No. of Supervisors cum Accountant
c No. of Social Mobilisers/LRPs

2. Process adopted to establish COs


Discuss the PAF criteria which the POs need to follow
2.1 Criteria for identification of villages
a Remoteness (distance from district centre?)
b Economical backwardness (Ka, Kha, Ga and Gha)
Disadvantage Group Mapping category?)
c Caste (Disadvantage Group Mapping category?)
d Min no. of households (VDC size)
e Any others (specify)

2.2 Criteria for CO membership

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a Household economic level (how is it defined?)
b Caste
c Gender
d Loan requirement (IGA , Infra, livestock )
e Age limit
f Max/Min no. of members
g Any Others (specify)

2.3 Capacity building by PAF (if any)


a Processes to be followed for establishing COs
b Development of business plans for the COs
c Standardized templates for bookkeeping/reporting by POs
to PAF
d Standardized templates for bookkeeping by COs
e Leadership
f SIYB (Self Improve Your Business)
g Exposure visit
h Cooperative management
i Any Others (specify)

2.4 Average time spent in formation of one CO (No. of person


days)
a Identification of VDC (incl. ward selection)
b Basti/area selection (identification and visit to target group,
well-being ranking and Basti mapping)
c Group formation (mobilisation of members, identification
of members, group formation, selection of office bearers
and bank account opening )
d Business plan (skill identification, collection of demand,
market assessment, preparation of proposal and business
plan and submission of plan to PAF)
e Initiation of savings mobilisation and record keeping
(including bank account)
f Approval of business plan & signing of agreement with PAF

3. Capacity Building of COs


3.1 Level of involvement of CO members in development of
business plan?
a Deciding savings amount (1-high, 2-medium, 3-low)
b Deciding loan products & setting terms & conditions (1-
high, 2-medium, 3-low)
c Deciding revolving funds requirement from PAF & COs
contribution (1-high, 2-medium, 3-low)

3.2 Level of involvement of CO members in deciding


operational responsibilities
a Selection & rotation of office bearers (1-high, 2-medium, 3-
low)

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b Drafting COs operational manual (1-high, 2-medium, 3-low)
c Frequency of group meetings (1-high, 2-medium, 3-low)

3.3 Level of involvement of CO members in bookkeeping (1-


high, 2-medium, 3-low)

3.4 No. of CO (under this PO) that are now independently


doing bookkeeping

3.5 Training provided to the CO members


3.51 Development of business plan (Y/N)
a a. No. COs participated
b. Total members participated
c. Duration of training (days)
b Bookkeeping (Y/N)
a. No. COs participated
b. Total members participated
c. Duration of training (days)
c RF management (Y/N)
a. No. COs participated
b. Total members participated
c. Duration of training (days)
d Vocational training (Y/N)
a. No. COs participated
b. Total members participated
c. Duration of training (days)
e Any other training (specify)
a. No. COs participated
b. Total members participated
c. Duration of training (days)

4. Monitoring and reporting


4.1 Number of actual monitoring visits by PO staff and Board
members within a year (like frequency, activities to be
done)?
a PO Board Visit
b Project Coordinator (PC)
c PO Board & PC
d Social Mobiliser
e Any Others (specify)

4.2 Actual frequency of visits by PO staff (monthly, quarterly


etc.), indicate last visit date
a Project Coordinator
b Supervisors cum accountant
c Social Mobilisers

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4.3 Average no. of visits per CO per year by the SMs

4.4 Average duration of monitoring visit by SMs


a Visit to COs during a month (person days)
b Time spent at each CO (Hours)

4.5 Distribution of time spent by SMs for CO monitoring


(hours)
a Book keeping
b Training on various aspects of CO operations (specify)
c Organising vocational training
d Reporting
e Any Others (specify)

4.6 Types and frequency of reports prepared by the


POs/Portfolio Managers
a Utilisation report of COs (after 1st tranche of RF)
b Completion report of COs (after 2nd tranche)
c CO monitoring report (by SM) to Portfolio Manager (4-
monthly)
d District level consolidation report to PAF HO by Portfolio
Manager (4-monthly)
e Annual report (incl. financial report)

4.7 Timeliness of reporting (4 monthly & annual reports)


a Note delays (& reasons) in submission of report to PAF

4.8 Any external auditor of COs facilitated (Y/N)


a If Yes, for which COs (indicate number)
b Who were the auditors
c What was the cost of each audit & was borne by whom

5. Financial aspects
5.1 Total assets of the PO (last audited financial statement)

5.2 Revenues of the PO (last audited financial statement)


a Total revenues (note main sources of income)
b From PAF project
c Total grant to be received under PAF (as per agreement) & duration

5.3 Expenses related to PAF


a Staff salaries
b Travel
c Communication
d Any Others (specify)

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6. Have you done any innovation in the COs/programme (What? and When?)
a Bookkeeping
b Capacity building
c Best practices in process (formation, loan process, recovery,
disbursement, etc)
d Any Others (specify)

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Annex 4: Brief cases on use of RF
for improved incomes/livelihoods of members

Case 1: Multiplied household income with multiple cycles of loans

CO Name: Pragatishil Community Organization


Location: Khulpur Village, Neulapur VDC, Bardiya District

As a cultural practice in rural families of Nepal, young women get married at an early age. Kumari
Saraswathi also got married after graduating from high school (10+2) and started her own family.
Saraswathi had a dream to become an independent entrepreneur and contribute income to her
family. Her husband is a college passout. He left the college and started working in a furniture
workshop as a daily labourer and earned NPR 200 per day. She was a housewife in a joint family and
her father-in-law was one of the village leaders.

After one year into marriage, she came to known about the PAF programme which started in the
village. She joined in Pragatishil CO on 22 June 2010 (8 Asadh 67) and became the Treasurer of the CO.
After a few months, she received her first loan worth NPR 26,730 and started a poultry farm with the
support of family members and made around NPR 10,000 profit within 3-4 months. After repaying her
loan in 6 months, she took another loan of NPR 20,000 for the same purpose. Thereafter she took 4
cycles of loans (NPR20,000 each) within 2 years and repaid all of them successfully. The poultry
business took 3-4 months for each business cycle; each cycle she invested around NPR 20,000 for
chicks, fodder and maintenance. During each cycle, she earned between NPR 10,000 to NPR 12,000.
During the 5th cycle, she took a loan NPR 40,000 and constructed a shed for the poultry farm. Since,
there was no further scope to improve the business in the village, her family began to explore other
business ventures. After repaying the 5th cycle loan, she took a higher loan amount of NPR 50,000 in
the 6th cycle and set up a mobile sales and repair Shop for the husband; bought a tractor with the 7th
cycle loan (NPR 50,000). She manages the poultry business whereas the mobile shop and the tractor
are managed by her husband and brother-in-law. Saraswathi, who has been a member of Pragatishil
CO for 5 years has received a cumulative loan amount of NPR 226,730 in 7 cycles, and has a current
loan outstanding of NPR 50,000.

Due to her entrepreneurial initiatives which helped the household in enhancing the income,
Saraswathi receives full support from her family members and has also been able to increase
recognition among them. She admitted that she is well respected by her husband for her entrepreneur
ventures. She is being included in major household decisions such as whom to invite on family events,
management of household expenditure etc.

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Case 2: Stitching toward empowerment

CO Name: Mausam Community Organisation,


Location: Krishnapur village, Kanchanpur District

Ms. Babitha Chaudhary (age 29) was


only 16 years when she was married.
She and her husband are both
uneducated. She spent an indigent life
for eight years after marriage, and she
& her husband worked as construction
labourers and used to earn NPR 300 per
day on a good day.

She heard about the PAF programme in


the village and joined in Mausam CO on
16 May 2010 (20 Jestha 2067). The CO
received 1st installment (NPR 331,440)
from the PAF. She received only NPR
10,000 as the 1st loan and started a
small Grocery (Kirana) shop. Due to
limited working capital and
considerable distance to get materials
and meager margin, she was unable to
make the business profitable.

After a year, she joined in a free tailoring course offered by Council for Technical Education &
Vocational Training with the support of PAF programme staff. After completion of 65 days of tailoring
course, she took a 2nd cycle of loan NPR 20,000 as capital to start tailoring business. She used the
money to purchase raw materials, sewing machine, thread, and other tools. Within a few months, she
her husband also started supporting her in this business. Now both are engaged full time in tailoring.

Over time, Babitha established a good client bases in the local market, as well as other nearby villages
and expanded her business by buying an improved sewing machines. This helped her to enhance the
family monthly income further. Both of them earn range from NPR 15,000 20,000 per month from
tailoring.

The story of Babitha inspired other women in neighboring villages, women started to come for
learning of tailoring. She started to teach tailoring courses to women and charges NPR 300 per month.
She trained 4 women and currently two are in training phase.

She sends her children to a school and living a life of self-respect. Her husband gives her full support
and treats her as equal partner in the life which gives her much satisfaction.

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Case 3: Migrant worker to self-reliance

CO Name: Subhakamana Community Organization


Location: Madaha Village, Motipur VDC, Bardiya District

Mr. Yam Bahadur Sunar is from a


remote village (Madaha) from Bardiya
district. He was very poor, uneducated,
unskilled and unemployed. For such
unskilled labor, he got paid very little
money, which by no means was
enough to feed his 6 member family
(parents, wife and two children). He
used to go to India for labour work, but
he hardly saved money after his
maintenance and travel cost. He
learned tailoring during his migration.
He only had a small piece of land and
small house which was not registered
in his name. He was called
"Sukumbasi- it means literally no
property in his name. It was hard for him to send his children to school and maintain family expenses.

In 2011, Rural Self- Reliance Development Center (RSDC), partner organization of PAF started a
programme in the village. He joined in Subhakamana CO, become the Secretary of the CO and made
proposal for Sewing and Cutting business. After receiving 1st installment from PAF, he got a loan of
NPR 40,000. From the loan amount, he bought two sewing machines, one interlock, one iron and one
counter table of wood to start his own business. From the business he cleared first loans. Mr. Bahadur
applied for a subsequent loan of a higher amount (NPR 50,000) and kept expanding his business.
Currently, he earns around NPR 500 per day (NPR 15,000 per month). From the business, he is now
able to meet the family expenses and more importantly both his children are enrolled in a school.
Bahadur said that he wanted his children to complete his studies and did not want them to become a
daily labourer.

He bought a small land which he registered in his name and wants to buy a house. He hopes that this
business would fulfill his dream of constructing his own home.

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Case 4: Member gets out of debt

CO Name: Tri Shakti


Client: Santoshi Kumari Chowdhary
Location: Saptari (East)

The client initially had no source of income and was


completely dependent on her husband who is a daily
wage labourer. Their family used to have sufficient food
only for 3-4 months.

After associating with the CO which was formed in


10/12/2066, Santoshi had obtained a loan of Rs 13,200 for
leasing a plot of land (~0.15 bigha) for agricultural.
However, due to draught conditions, she was barely able
to produce enough from the land to feed her family and
pay off the loan. Due to pressure from other members
repay off the loan, she took financial assistance from
other CO members and also took some smaller loans
(~10%-15%) from local money lenders.

Despite being in debt, she took another loan of Rs 20,000 from the CO and commenced a rice trading
business. The business consisted of buying rice at a wholesale rate from farmers and selling the same
at local markets at a higher price. This business got her good profit which she used to pay off all her
existing loans.

Thereafter she took another loan of NPR 10,000 for rice business and a solar loan of Rs 13,000. The
solar lamp enables her children to study during night time. It is to be noted that currently their family
is self sufficient in terms of food throughout the year. Savings from her business over the years has
allowed her to invest NPR 2 lakhs for house construction.

Case 5: Member increases her garments business

CO Name: Fulmat Mai Pran


Client: Deopati Yadav
Location: Rautahat district

Before joining the CO, she used to engage herself in agriculture and sewing activities. She has 5
children apart from 4 other members in her family. Three of her children go to school. Thereafter she
joined the CO and took a loan of NPR 36,000 to start a poultry farm in 2070. Afterwards, she took NPR
45,000 to start a garment business along with 3 more members from a different CO. She also obtained
loans from other sources (NPR 2.5 lakhs). Her approximate investment in the business is NPR 3 lakhs.

Currently, the business has expanded to NPR 15 lakhs and her profit share is NPR5 lakhs. She along
with other partners are engaged in buying large machines and generators. They have also hired 2
people and pay them around NPR 10,000 NPR 15,000 as wages. Due to the exposure received
through CO and capacity building training, she has gained the confidence to talk freely with other
people and improve the standard of living of her household.

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Case 6: Member increases her dairy business

CO Name: Jay Hanuman


Client: Dulari Devi
Location: Parsa district

5 years back, the client had no source of income and had to completely rely on her husband who works
as a labourer. After getting associated with PAF, she received loans (NPR 10,000 = 1st, NPR 20,000 =
2nd, NPR 35,000 = 3rd, NPR 50,000 = 4th) which she used to buy 2 buffaloes. She started selling milk and
makes a profit of NPR 20,000 on a monthly basis. She is using the extra income to send her 4 children
to school. This was not the case 5 years back.

Additional income has increased her confidence as she does not need to depend on family members
for income purpose. She is the only member in the entire CO who has taken 4 loans (others have taken
3 or less than 3 loans).

Case 7: Member uses business profits for house construction

CO Name: Jay Bishnu


Client: Chandrawati Devi
Location: Parsa district

Malik is a factory worker who used to earn NPR 7,000/month. She has 2 sons, one lives abroad and
sends NPR 20,000/ month. Another son is young and stays at home. Before associating with PAF, she
had no source of income. Till date, she has taken the following loans:

1st Loan: NPR 30,000 (Purchasing buffalo)


2nd Loan: NPR 50,000 (Purchasing buffalo)
3rd Loan: NPR 12,000 (Purchasing agriculture equipment)
4th Loan: NPR 50,000 (Purchasing boring and other equipment)
5th Loan: NPR 90,000 (Purchasing boring and other equipment)

Her annual income currently is NPR 60,000 from agriculture. Initially she had no income from
agriculture. She grows wheat, vegetables and rice on her farmland. With the profit generated from
sale of crops, she has bought katha land for constructing her home which costed NPR 5 lakhs. Her
son also contributed 30% of the cost. The land value has appreciated to NPR 8 lakhs at present. Apart
from the compulsory savings of NPR 50 in the CO, she has also started saving NPR 100/month at her
home for her son.

Case 8: Doubling income through hard work

CO Name: Janakalyan Community Organisation


Client: Ram Dutt Bhattarai

Janakalyan community organization was formed in February 2011 with 35 members in the Doti
district, VDC Basani. The secretary Ram Dutt Bhattarai has been a member since inception. He has
taken till date four loans for purchase of a jersey cow from India. Chhation village has 55 households
where this CO is functional. Almost all members have been involved in IGA activities through revolving
fund provided by PAF Nepal.

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One of the members of the group named Ram Dutt currently holds a key post person of the community
organization and has benefited a lot through the fund extended to him. The alertness and pro-
activeness of Ram has now benefited 18 members of the group to purchase a jersey cow which has
resulted in a double income for the group members. The village of CO is almost bordering Indian
district of Pithoragarh where members have gone for training as an exchange program from village.

The training on livestock has helped the members of the village to think differently and adapt modern
techniques to increase the milk production. Initially Ram purchased a jersey cow from Pithoragarh
town and brought it in his village. The production of milk has almost doubled compared to local cows,
which has enabled Ram to purchase one more Jersey cow from India. Slowly members realized the
benefit of keeping jersey cow and other members also decided to buy Jersey cow from India, for which
they took financial help of NPR 100,000 from Nepal government for transportation cost to bring 18
cows to their village. The cows were purchased from the loan under RF and internal savings of
members.

The members have developed a market for their milk in nearby town in Burar bazaar where they sell
their milk at NPR 40 per litre. The villagers are requesting a Kisan Kendra in village in order to increase
their capacity in various other livelihood programs. Members are also requesting PAF to build a cold
storage where they can store excess milk. Members have developed a sense of ownership with PAF
and want it to continue in future.

Case 9: Empowerment through income generation

CO Name: Jewan Jyoti Community Organisation


Client: Kamla Devi Damai

Kamla Damai, a mother to four boys and 1 girl has a happy family now. Domestic abuse by her husband
has also stopped once she had the courage to show him her ability to run the family on her own by
stitching clothes and earning a considerable amount to meet household expenses. Kamla was always
depressed and worried about her drunken husbands inability to work and earn regular income. When
she came to know about the PAF revolving fund she immediately joined with the helped of other
members and bought a stitching machine from her first loan of NPR 20,000. She contributed her
members contribution by taking a loan from money lender of NPR 2000 and repaid him once she had
sufficient cash at her disposal which amounted to NPR 3,200 with interest.

Once she started stitching and earning regular income she rented a shop in the local market. Gradually
the business grew, and she added more machines through loans from PAF and savings. Currently she
has 3 machines and 1 interlock machine which she owns and has also provided employment to a
helper who is paid on a daily basis. Now she earns a monthly income of NPR 20,000 a month on an
average, and has admitted her child in private school in Dhangandi a district town in Far West Nepal.

Case 10: Hard work really pays off

CO Name: Kailash community organization


Location: Mahakali Anchal village, Jhalari ward no 7.

Man Bahadur Dagora, earlier a bonded labour, has transformed into a successful mechanic in Jhalari
bazaar. In 2000 Nepal government abolished the law pertaining to bonded labour. His family was
provided 5 katta land from Nepal government as a compensation and rehabilitation for such people.
After possession was given they started to earn their livelihood from doing some cultivation in the
land. He got training from Bhumi Sudar (NGO) for 15 days on cycle repairing which helped him to open

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a small shop where he used to repair a cycle tubes and puncture. In 2006, he and other members of
village came to know about the PAF revolving fund program with help from NNSWA (Partner
organization). He took a loan of NPR 15,000 for establishing a shop in the Mahakali Anchal.

He has some savings which he has kept when he used to work as helper earlier. Currently his business
has grown from an ordinary cycle repair shop to a motorcycle repair shop. Continuous support in
terms of loan from PAF and savings has helped him to expand his business. He has also started selling
used motorbikes and is able to earn NPR 30000- 40000/month from this activity. The current inventory
and motor parts available in his shop is above NPR 700,000, and he makes an approximate profit of
NPR 30,000 on a monthly basis. He plans to open a bike showroom in near future.

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