Micro finance institution is a licensed corporate body incorporates to carry on financial transactions pursuant to section 49(4) of banks and financial institution act, 2073. This type of financial institution is established to reduce poverty by proving necessary financial services to the poor people;
Role MFIs in reducing poverty in Nepal
It encourages rural & urban small entrepreneurs by extending credit without collateral;
It provides small scale financial services to the rural and urban poor people for self-employment opportunities;
It directly affects the household income of poor and low-income people by encouraging productivity;
It also encourages socio economic development of the concerned society;
It helps farmers to invest in large agriculture technology that might increase their income;
It also diversity of production and productivity as well as maximize the utilization of available resources and to exploit their competitive advantage within market place;
It formulates several strategies with saving and credit facilities and to increase the household securities of the poor in rural and urban areas, especially women;
It involves the provision of financial services such as saving, loans, and insurance to poor people who are unable to obtain such services from the formal financial sectors;
It has increased the financial literacy by proving a window of opportunities for the poor people to access a borrowing and saving facility;
It may help to impulse progress in the wellbeing of the poor in overall Nepal;
It has a positive impact on the sectors like education, health, consumption etc;
It helps government of Nepal to formulate appropriate policies and strategies for the poverty alleviation by providing required data;
It encores plans and policies formulate by the government to alleviate existing mass poverty;
It conducts training programs to increase the skills of local peoples for the upliftment of an economy;
Micro finance companies are providing necessary financial service to those people who are not in reach of formal financial institutions. It provides loan without collateral to poor people of rural areas to encourage them to conduct economic activities and conduct various training programs to increase their skills and financial literacy to enhance the living standard of general people of Nepal.