Nepali social venture fund

In an effort to increase the access to finance to the rural enterprises and un banked population , the Central Bank has asked the commercial banks to earmark 3.5 % of their total loan polio to the deprived sector .Despite Central Bank’s pro financial inclusion polices and enormous opportunities in the uncharted areas ,commercial banks are reluctant to lend to the deprived sector .High per unit loan transaction expenses and risk of default are the main attributes that will make commercial banks reluctant to lend more than the obligatory 3.5% of their total loan polio. Considering , commercial banks cut throat competition and their constant battle to minimize loan loss provision and maximize the net income ,form the perspective of the commercial banks reluctantly can be rationalized .In order, to encourage the commercial banks to lend to the deprived sector ,Nepal Rastra Bank has to come out with a efficient strategies that will improve efficiency and inclusion of the poor in the deprived sector. One of the strategies could be encouraging equity investment rather than debt investment to the deprived sector. Under this strategy, commercial banks will buy tradable “deprived sector lending securities” from the NRB regulated, Microfinance institutions, and these tradable securities will fulfill the deprived sector lending obligation of the commercial banks. If implemented this scheme will allow commercial banks to (sell/trade ) these deprived sectors lending security to varieties of socially responsible investors including impact investors and international agencies, those who advocate for financial inclusion and access to finance to the poor. This financial product could also be useful to tap a particular segment of NRN investors, whose motive to invest in Nepal is more “social and emotional”, rather than to solely gain financial return