FinScope Survey Highlights

FinScope Survey Highlights Nepal 2014

Contents Introduction and background 1 About FinMark Trust. About UNCDF. FinScope survey. Survey Objectives. Partnering for a common purpose. Sampling and methodology 5 Target population. Coverage and fieldwork overview. Sample and fieldwork validation. Base sizes. Currency conversion. FinScope Nepal 2014 Survey Highlights 7 Nepal 2011 Census 18+ Population, Population by development region. By Ecological region. Age profile of adult population. Marital status, Level of education. Education by age group. Income profile of adult population. Regularity of income. Main source of income by individual. Household involvement with farming. Farming problems experienced. Living conditions in Nepal 11 Access to infrastructure. Access to basic amenities. Possession of documentation. Media channel used. Attitudes to life. Difficulties encountered. Ownership of household assets. Housing overview. Key takeouts. Technology 15 Usage of communication devices. Communication devices ownership among users. Communication devices usage by income. Financial services 16 Bank products. Profile of the banked and unbanked. Use of bank account. Reasons for not having a bank account or using bank services. Perceived triggers for choosing particular institutions. Overlaps between banking and cooperatives. savings and credit in cooperatives and savings groups. Remittances 20 Received money. Sent money. Send or receive money. Regional profiles of those sending money. Urban-rural profiles of those sending money. Channels used to send and receive money. Savings 22 Percentage of adults who currently have savings. Savings barriers. Savings products/mechanisms used. Reasons for saving. Profiles of adults who say they currently have savings. Belonging to a savings group. Savings group membership by type. Reasons for belonging to savings groups. Profiles of adults that belongs to a saving group. Savings summary. Borrowing and credit 26 Claimed borrowing. Borrowing/credit penetration and product mechanisms. Profiles of those who borrowed in the past 12 months. Top reasons for borrowing money. Borrowing perceptions. Top reasons for not borrowing. Insurance and risk management 29 Insurance product usage. How people cope with risks experienced in the past 12 months. Top reasons for not having insurance. Perceptions of insurance statements (of those aware of insurance). Type of insurance products held.

Financial literacy 31 Often spend more money than one has available. Dealing with finances is stressful or a burden. Keep track of income and expenditure on a monthly basis. Adjust expenses according to one s income. A budget helps to keep track of how much money one can spend. If something goes wrong or when in need of money, people rely on. Payment priority in case of financial problems. Responsibility for financial decision making. Control over how own money is spent. Planning to cover expenses for old age. Drivers to select financial institutions. Financial literacy summary. Access Strand 34 What is the Access Strand? Access Strand in Nepal. Access Strand by gender. Access Strand by location. Access Strand by age group. Access Strand by ecological region. Access Strand by development region. Access strand in Summary. Savings Strand. Savings Strand by gender. Savings Strand by age group. Savings Strand by location. Savings Strand by ecological region. Savings Strand by development region. Credit Strand. Credit Strand by gender. Credit Strand by age group. Credit Strand by location. Credit Strand by ecological region. Credit Strand by Credit Strand by development region. Landscape of Access/Key headline findings 41 Landscape of Access. Banking. Savings. Borrowing and credit. Insurance. Remittances.

Introduction and background The Government of Nepal recognises the importance of a well-functioning financial sector as one of the key drivers in reducing inequality and poverty. However, challenges for financial inclusion in Nepal remain ubiquitous. Financial inclusion refers to universal access to a wide range of financial services for people who need them, provided by a diversity of sound and sustainable institutions at a reasonable cost, operating in a competitive market environment. Nepal currently experiences a modest level of access to formal financial services, where formal credit markets are relatively underdeveloped and a large proportion of the population takes loans through informal sources. Usage of more sophisticated formal services such as insurance and electronic payment services is rare amongst people in Nepal. Access to affordable and appropriate financial instruments and products can improve the welfare of the unserved and under-served population by helping them conduct their financial lives more efficiently, increase income, manage risk, and build wealth over time. According to the Nepal Rastra Bank (NRB), the long term objective in Nepal is to achieve a greater degree of financial inclusion, to deliver financial services at an affordable cost to the unserved and underserved populations, especially disadvantaged and low income groups. This brochure highlights some of the key findings from the Nepal FinScope Consumer Survey 2014. ABOUT FINMARK TRUST FinMark Trust, an independent trust based in Johannesburg, South Africa, was established in 2002, and is funded primarily by UKaid from the Department for International Development (DFID) through its Southern Africa office. FinMark Trust s purpose is Making financial markets work for the poor. This is done by promoting financial inclusion and regional financial integration as well as institutional and organisational development, in order to increase access to financial services for the unserved and underserved. In order to achieve this, FinMark Trust commissions research to identify the systemic constraints that prevent financial markets from reaching out to these consumers and by advocating for change on 1

the basis of research findings. FinMark Trust is driven by its purpose to start processes of change that ultimately lead to the development of inclusive financial systems that can benefit all consumers. ABOUT UNCDF UNCDF is the UN s capital investment agency for the world s 48 least developed countries. It creates new opportunities for poor people and their small businesses by increasing access to microfinance and investment capital. UNCDF focuses on Africa and the poorest countries of Asia, with a special commitment to countries emerging from conflict or crisis. It provides seed capital grants and loans and technical support to help microfinance institutions reach more poor households and small businesses, and local governments finance the capital investments water systems, feeder roads, schools, irrigation schemes that will improve poor people s lives. UNCDF programmes help to empower women, and are designed to catalyse larger capital flows from the private sector, national governments and development partners, for maximum impact. FINSCOPE SURVEY The FinScope survey is a research tool developed by FinMark Trust. It is a nationally representative survey of how people source their income, and how they manage their financial lives. In South Africa, FinScope is conducted annually since 2002. FinScope has now been conducted in Nepal to both benchmark the state of financial access and usage and assess the component demand of financial services in the country. It is used to better understand money matters, with an emphasis on the market needs and attitudes to both informal and formal financial offerings and usage. To date, FinScope surveys have been conducted in 21 countries (12 in SADC, 5 in African non-sadc and 4 in Asia). FinScope surveys are currently underway in 6 countries. 2

SURVEY OBJECTIVES The survey aims to measure and profile the level of access to financial services by adults in Nepal (18 years and older), across income ranges and other demographics, and make this information available for use by key stakeholders such as policymakers, regulators, financial service providers and Non- Governmental Organisations (NGOs). Information provided by the survey is intended to help extend the reach of financial services in the country. Additionally, it helps to provide a deeper understanding to key stakeholders, policy makers, and financial service providers of the usage of financial services, both formal and informal, since it provides an understanding of the adult population in Nepal in terms of: n Their livelihoods and how they generate their income n Their financial needs and/or demands n The levels of financial inclusion (formal and informal) and the types of financial products (formal and informal, credit, savings, etc.) n Their financial perceptions, attitudes and behavior n Their demographic and geographical distribution n The obstacles they face and the factors that would have an influence on their financial situations n Current levels of access to, and utilisation of, financial services and products (formal and/or informal) n The landscape of access (i.e. types of products used in terms of transactions, savings, credit, insurance and remittances) n Drivers of financial products and service utilisation n Barriers to, utilisation of, and access to, financial products and services 3

PARTNERING FOR A COMMON PURPOSE Making Access Possible (MAP) is a diagnostic and programmatic framework to support expanding access to financial services for individuals and micro- and smallbusinesses. The MAP methodology and process has been developed jointly by UNCDF, FinMark Trust and Cenfri to foster inclusive financial sector growth. MAP Nepal is managed under the overall umbrella of UNNATI Access to Finance (A2F) project implemented by Nepal Rastra Bank (NRB) and funded by the Government of Denmark, DFID and UNCDF in partnership with UNDP. The full MAP process in Nepal will lead to the development of a strategic framework for financial inclusion in Nepal. In Nepal, the MAP diagnostic has been initiated with the FinScope survey; a quantitative demand-side study with the overall purpose of measuring the level of financial access and utilisation of financial products by all bankable adults. The FinScope survey is dynamic and the content is evaluated by a number of stakeholders including the private sector, Non-Governmental Organisations (NGOs), and the government to ensure that the most relevant consumer data is collected. By design, it is intended to involve a range of stakeholders, enriching the survey through a process of cross-cutting learning and sharing of information. At the country level, the core MAP partners, collaborate with other donors to ensure an inclusive, holistic process. In addition to the MAP members above, to formalise the MAP Nepal process, there was a technical subcommittee comprising additional members from UKAid, Central Bureau of Statistics of Nepal (CBS) and Ministry of Finance (MoF). 4

Sampling and methodology TARGET POPULATION According to the CBS of Nepal, the total population of Nepal is estimated to be 26 million for the census year 2011. FinScope focuses on the 18+ adult population. CBS estimates this population to be approximately 15 million i.e. 58 of the total population. COVERAGE AND FIELDWORK OVERVIEW n Coverage: nationwide survey including urban and rural areas as well as the rich and the poor n Fieldwork conducted between December 2014 and January 2015 n 4 014 face-to-face interviews were conducted by Inter Disciplinary Analysts (IDA) SAMPLE AND FIELDWORK VALIDATION n Survey data was weighted to Central Bureau of Statistics 2011 Census data by IDA n Nationally representative sample. Representative at three levels: national, urban/rural, and geographical region (Development and Ecological Regions) n Wards were drawn systematically using Probability Proportional to Size (PPS) sampling n Enumeration Area (EA) based sample. EAs were selected using simple random sampling with 1 EA per sample ward. 669 EAs selected nationally with approximately 6 interviews per EA n To identify respondents, two further levels of random sampling were applied: o Households were selected through systematic random method within each sampled EA o Individual respondents were then randomly selected from a list of all qualifying adult members (18 years and older) in the selected household using the Kish grid method n Only one respondent was selected and interviewed in each selected household n Prior to the survey, a listing was conducted in each of the sample areas to update the population to the latest demographics n Further technical details on the sample and methodology can be found in the technical document BASE SIZES n When interpreting the data, it is important that conclusions are not based on analysis done on responses of few respondents. As an indication of reliability of the analysis, base sizes have been included for the charts in this booklet n The findings presented in this brochure reflect the survey findings, weighted to the adult population of the country n Note that figures have been rounded to the nearest percentage typically and not all the tables or graphs may add up to 100 5

CURRENCY CONVERSION n The local currency in Nepal is Nepalese Rupees (NPRs). The average during a field work period was NPR 99.21 per USD 6

FinScope Nepal 2014 Survey Highlights This booklet reflects on some of the FinScope Nepal 2014 survey highlights. A more comprehensive understanding can be obtained from mining the FinScope Nepal 2014 data set. NEPAL 2011 CENSUS 18+ POPULATION n According to the Nepal 2011 Census, the total adult population of Nepal (18 years and older) broken down by region is estimated to be: BY DEVELOPMENT REGION Development region Adult population Percentage Eastern 3 437 430 22.3 Central 5 810 252 37.7 Western 2 888 513 18.7 Mid-Western 1 908 073 12.4 Far-Western 1 365 925 8.9 Total 15 410 193 100.0 BY ECOLOGICAL REGION Ecological region Adult population Percentage Mountain 978 823 6.3 Hill 6 762 527 43.9 Tarai 7 668 843 49.8 Total 15 410 193 100.0 AGE PROFILE OF THE ADULT POPULATION n=4014 18 24 years 23 25 39 years 35 40 54 years 23 55+ years 19 MARITAL STATUS n=4014 1 5 14 80 n n 80 Married 14 Never married n n 05 Widowed 01 Divorced 7

LEVEL OF EDUCATION Illiterate 25 Literate but formally uneducated 13 Pre-primary 1 Primary 15 Lower secondary 12 Secondary school 18 Upper secondary 11 Tertiary/higher 5 n 25 of Nepalese adults are illiterate and 13 have no formal education LEVEL OF EDUCATION BY AGE GROUP 8.4 25 6.1 10.7 19.9 1.5 6.1 13.6 8.8 2.2 1.7 5.7 5.5 10.8 2.1 30.4 13.8 16.8 2.3 22.8 19.9 18.4 16 9.1 3.4 0.5 7.2 1.3 11 16.7 32.5 49.2 18 24 years 25 39 years 40 54 years 55+ and older n Illiterate n Literate but formally uneducated n Pre-primary education n Primary education n Lower secondary education n Secondary education n Upper secondary education n Tertiary/higher education INCOME PROFILE OF ADULT POPULATION (US$1 = NPR 99.21) n=4014 NPR 10 000+ 24 NPR 6 000 9 999 10 NPR 3 000 5 999 Less than NPR 3 000 19 21 No money 2 No response 24 Note: 24 did not provide a response to this question 8

REGULARITY OF INCOME n=4014 No income 2 Regular monthly income 27 Irregular income 71 MAIN SOURCE OF INCOME BY INDIVIDUAL Own farming 31 Household member 16 Piece work Own business Remittances Private company/individual salary 7 11 10 12 Farm wages Government salary Pension/investments Government grant Do not receive money 2 5 3 1 2 n There is a low formalisation of employment. 31 of Nepalese adults claim farming to be their main source of income and 16 mainly depend on others n Income in Nepal is variable 71 claim that their income level varies from month to month HOUSEHOLD INVOLVEMENT WITH FARMING n=4014 23 55 22 n n n 22 Involved in farming and no-one in the household has any other work 55 Involved in farming AND other work 23 NOT involved in farming at all 9

FARMING PROBLEMS EXPERIENCED Lack of irrigation Lack of fertilisers/seed Product spoiling 27 Drought 27 36 62 Lack of agricultural technician Lack of land Lack of tools 12 12 12 Selling prices Transport goods to market Not receiving loans None 6 4 3 7 n Farming is a key driver of income for many households n The biggest problems experienced are lack of irrigation (62), lack of fertiliser (36), product spoiling (27), drought (27) 10

Living conditions in Nepal ACCESS TO INFRASTRUCTURE n=4014 The table below shows the percentage of adult Nepalese who claim to take different periods of time to access places such as grocery stores, banks etc. These time periods are shown in an increasing fashion across the three tables: Infrastructure accessibility Less than 5 minutes 5 14 minutes 15 29 minutes Grocery store 56 26 8 Market 8 20 20 Post Office 3 13 17 Bank 3 11 14 ATM 3 8 9 Point of access to public transport 20 27 16 Informal market 2 6 7 Private money lender 12 27 14 Infrastructure accessibility 30 60 minutes 61 min. 1 1 hour 31 hour 30 min. mins. 1 hour 59 min. Grocery store 6 2 1 Market 22 9 6 Post Office 23 11 6 Bank 22 12 7 ATM 15 8 5 Point of access to public transport 14 7 4 Informal market 6 3 1 Private money lender 8 3 1 Infrastructure accessibility 2 5 hours More than 5 hours Don t know/ Don t use Grocery store 1 Market 11 4 Post Office 7 3 17 Bank 14 10 7 ATM 8 7 37 Point of access to public transport 6 2 4 Informal market 2 1 72 Private money lender 1 1 33 n Grocery stores and public transport access points are the nearest places cited by Nepalese adults n 37 of adults claim to either not use or not know about ATMs n 28 of adults claim access to a bank within 30 minutes 11

ACCESS TO BASIC AMENITIES Water of individuals with inside water supply (piped or underground) 67 Electricity of individuals with electricity for 5+ hrs/day 77 Toilet of individuals with access to toilet facilities 78 POSSESSION OF DOCUMENTATION National ID card Family book Utility bill Proof of residence Passport Drivers license 8 13 12 23 59 91 Payslip Title deed Lease agreement 1 1 5 n 91 of adult Nepalese claim to have a National ID card MEDIA CHANNEL USED Radio TV Newspapers Internet Magazines 14 14 23 41 58 12

ATTITUDES TO LIFE Life will be better in 2 years 84 14 2 Household money improved in past year 65 34 1 Happy with education 46 40 14 Up to government to provide for family 25 73 2 n Agree n Disagree n Not applicable n 84 of Nepalese adults believe that their lives will be better in 2 years time but only 46 claim to be happy with their level of education DIFFICULTIES ENCOUNTERED in the past 12 months Went without medicine 1 7 29 62 1 Skipped a meal 1 5 20 73 1 Unable to send children 1 4 22 60 to school 13 n Always n Often n Sometimes n Never n Do not know/not applicable n Only 7 of adult Nepalese claim to have often gone without medicine in the past 12 months compared with 5 that claimed to have often skipped a meal in the past 12 months OWNERSHIP OF HOUSEHOLD ASSETS Household assets n = 4014 Bed 98 Television 52 Radio 40 Bicycle 41 Electric fan 41 Electric/gas cooker or hotplate 30 Electric iron 28 Electric pot 20 Video/DVD player 20 Motorcycle 17 Refrigerator 12 Sewing machine 10 Ox/horse cart 9 Water boiler 7 Tractor 4 Microwave 2 13

HOUSING OVERVIEW Ownership status of dwellings n = 4014 You own the house 35 Another member of your household owns the house 57 You rent the house 6 The house is provided rent free 2 Another member of your household rents the house 1 KEY TAKEOUTS n 81 of the adult Nepalese population live in rural areas n 77 of households are involved in farming: 22 only farm, 55 farm and do other work and 23 are not involved in farming at all n 27 of Nepalese adults claim to earn a regular monthly income n 31 of adults claim farming to be their main source of income 14

Technology USAGE OF COMMUNICATION DEVICES Communication device usage n = 4014 Cellphone 79 Public pay phone 5 Landline at home 9 Computer, laptop or tablet 10 Internet 14 Email 9 COMMUNICATION DEVICES OWNERSHIP AMONG USERS Cellphone n=3139 Landline at home n=308 Computer, laptop or tablet n=295 Yes 85 80 79 No 15 20 21 COMMUNICATION DEVICES USAGE BY INCOME Total No income Less than NPR 6 000 NPR 6 000 9 999 NPR 10 000+ Cellphone 79 59 74 83 90 Public pay phone 5 7 3 4 10 Landline at home Computer, laptop or tablet 9 12 5 8 16 10 15 7 9 17 Internet 14 14 9 15 21 Email 9 11 6 10 15 15

Financial services BANK PRODUCTS n=4014 Savings account 27 ATM card 7 Current/Cheque account Personal loan account Home loan Vehicle loan Credit card Special savings account/ Fixed term deposit Internet/online banking Cellphone/SMS banking 2 1 0.6 0.5 0.4 0.3 0.2 5 PROFILE OF THE BANKED AND UNBANKED Demographics Total Banked Unbanked Estimated number of adults 15 410 194 6 192 500 9 217 696 100 40 60 Level of education Male 47 52 43 Female 53 48 57 Age group 18 24 years 22 19 25 25 39 years 35 39 33 40 54 years 23 25 22 55+ years 20 17 20 Rural / Urban Rural 81 73 86 Urban 19 27 14 Ecological region Mountain 6 4 8 Hill 44 43 44 Tarai 50 53 48 Development region Eastern 22 21 23 Central 38 39 37 Western 19 22 16 Mid-Western 12 9 15 Far-Western 9 9 9 16

PROFILE OF THE BANKED AND UNBANKED Demographics Total Banked Unbanked Farming Only involved in farming and no-one in the household has 22 17 25 any other work Involved in farming AND other work 55 55 54 NOT involved in farming at all 23 28 21 Level of education Illiterate 25 16 30 Literate but formally uneducated 13 11 15 Pre-primary education 2 1 2 Primary education 15 12 17 Lower secondary education 12 14 10 Secondary education 18 22 15 Upper secondary education 11 15 9 Tertiary/higher 5 10 2 Personal income group No income 2 1 4 Less than NPR 6 000 40 32 45 NPR 6 000 9 999 10 9 10 NPR 10 000+ 24 34 17 Do not know/refused 24 24 24 Demographics Total Banked Unbanked Estimated number of adults 15 410 194 6 192 500 9 217 696 100 40 60 Main source of income Own farming 31 28 33 Household member 16 11 18 Own business 12 16 11 Piece work 11 6 14 Remittances 10 14 8 Private company/individual salary 7 8 6 Government salary 5 8 2 Farm wages 2 2 2 Pension/investments 3 6 2 Government grant 1 0 1 Do not get money 2 1 3 n 40 of Nepalese adults are banked n 52 of the banked are men and 48 are women 17

USE OF BANK ACCOUNT Banked Save 75 Keep money safe 45 Obtain credit or loan 25 Receive salary or wages 12 Make payment or receive money 11 Someone opened account for me 1 REASONS FOR NOT HAVING BANK ACCOUNT OR USING BANK SERVICES Cannot maintain minimum balance Do not need Too far away/transport difficult Do not understand how it works Financial accounts not for you Do not know Service charges too high Do not know how to apply Can obtain services needed elsewhere 9 8 7 4 4 4 16 33 42 n 42 of the unbanked claim not to have a bank account because they cannot maintain the minimum balance n Of those banked, 75 say that this is to save and 45 say that they are banked to keep their money safe PERCEIVED TRIGGERS FOR CHOOSING PARTICULAR INSTITUTIONS Interest on savings Recommended by others Convenient distance 26 26 37 Easy access to money Simple processes/documentation Low interest on loans 20 19 18 Products needed Easy and quick access to loans 15 14 Convenient hours 8 n Financial accounts are seen to be useful for keeping money safe and earning interest n Rate of interest paid out and personal recommendations are cited as reasons to choose institutions 18

OVERLAPS BETWEEN BANKING AND COOPERATIVES Banked only 29 Both 11 Cooperatives only 11 n 22 of the total adults claim to belong to a cooperative n 40 of the total adults are banked, including 11 that also use cooperatives n 11 of Nepalese adults are unbanked and use cooperatives n Bank users are more likely to be male, live in Tarai, claim remittances as main source of income and are younger n Cooperative users are more likely to be female, have lower levels of education, claim money from own farming, household member or piece work as main source of income, have an average household monthly income of NPR 10 000 14 999 or less, 40 54 years of age and live in rural areas, particularly Mountain and Central n Users of both banks and cooperatives are more likely to be 25 39 years, have higher levels of education, claim money from own business or salary from government, have an average household monthly income of NPR 25 000 or more, and live in the Hill ecological region SAVINGS AND CREDIT IN COOPERATIVES AND SAVINGS GROUPS 22 19 9 Cooperatives members Savings in cooperatives Credit from cooperatives n 22 of Nepalese adults claim to belong to a cooperative of all Nepalese adults 19 claim saving and 9 claim borrowing from cooperatives 29 Saving groups members 18 Savings in saving groups 8 Credit from saving groups n 29 of Nepalese adults claim to belong to a savings group, 18 of adults claim to be saving with their groups. 8 claim to obtain credit from their savings group 19

Remittances n About 24 of Nepalese adults claimed to have received money in the past 12 months from someone living outside the country RECEIVED MONEY n=4014 n Yes n No 92 76 8 Have received money within the country 24 Have received money outside the country SENT MONEY n=4014 n Yes n No 92 99 8 Have sent money within the country 1 Have sent money outside the country REGIONAL PROFILES OF THOSE SENDING MONEY n=4014 16 10 5 n Mountain n Hill n Tarai 1 1 1 Have sent money within the country Have sent money outside the country URBAN-RURAL PROFILES OF THOSE SENDING MONEY n=4014 n Rural n Urban 7 10 1 3 Have sent money within the country Have sent money outside the country 20

CHANNELS USED BY REMITTANCES/MONEY TRANSFER SENDERS/RECEIVERS Money transfer agent 63 Bank Friends / family Informal agent (Hundi) 3 23 22 21

Savings PERCENTAGE OF ADULTS WHO CURRENTLY HAVE SAVINGS n=4014 57 43 Yes No SAVINGS BARRIERS No money after living expenses Do not earn no money to save Never thought about it Do not have bank account Do not need Do not want 3 5 12 16 35 51 SAVINGS PRODUCTS/MECHANISMS USED Saving products/mechanisms currently have Bank products 27 Savings and credit cooperation 19 Savings group 18 Someone in household/family or a friend who keeps it safe for you 7 Jewellery/gold 7 Secret place at home 6 Livestock 6 Insurance/Linked deposits 5 Deposit taking MFI 4 Someone respectable in community, such as a community leader, who keeps it safe for you 1 22

AMONGST THE TOTAL POPULATION, THE TOP REASONS ADULTS CLAIM TO SAVE OR PUT MONEY AWAY Reasons for saving Living expenses when you do not have money at that time Medical expenses either planned or emergency Total Rural Urban 30 29 33 16 14 21 Education or school fees 13 11 18 An emergency other than medical 10 9 12 Retirement or old age 8 8 8 Buying household appliances, goods or furniture 7 7 6 Special occasion/events 7 7 7 PROFILES OF ADULTS WHO SAY THEY CURRENTLY HAVE SAVINGS Demographics Total number of adults who say they currently have savings Adults who say they have savings 8 824 342 Age group 18 24 years 17 25 39 years 39 40 54 years 26 55+ years 18 Residence Rural 78 Urban 22 Gender Male 45 Female 55 Region Mountain 7 Hill 49 Tarai 44 Farming Only involved in farming and no one in the household has any other work 20 Involved in farming AND other work 57 NOT involved in farming at all 23 Personal income group No income 1 Less than NPR 6 000 37 NPR 6 000 9 999 10 NPR 10 000+ 32 Do not know/refuse 20 23

DO YOU BELONG TO A SAVINGS GROUP? Population Yes 4 497 929 29 No 10 912265 71 Total 15 410 194 100 SAVINGS GROUP MEMBERSHIP BY TYPE Village savings group/bank/ development fund 91 Savings group for production 8 Informal ROSCA 2 TOP REASONS FOR BELONGING TO SAVINGS GROUP Savings group members Can obtain money easily when needed 36 To borrow money 33 Can turn to them when in financial need 32 It is an easy way of saving 18 Close and/or easy to get to 18 Trust and know them 17 To socialise or meet friends 16 Easy to become a member 12 They give financial advice 11 It is compulsory for people in tribe or village 9 Inherited the position from parents 5 To exchange ideas with other members 4 Do not get charged fees 2 Other 1 24

PROFILE OF ADULTS THAT BELONGS TO A SAVINGS GROUP Belong to saving group Total number of adults that belong to saving group 4 497 929 Age group 18 24 years 14 25 39 years 38 40 54 years 29 55+ years 19 Residence Rural 86 Urban 14 Gender Male 34 Female 66 Region Mountain 11 Hill 50 Tarai 39 Farming Only involved in farming and no one in the household has any other work 23 Involved in farming AND other work 62 NOT involved in farming at all 15 Personal income group No income 1 Less than NPR 6 000 41 NPR 6 000 9 999 10 NPR 10 000+ 26 Do not know/refuse 22 DEMOGRAPHICS OF THOSE WHO BELONG TO SAVINGS GROUPS TEND TO BE n Female (66) n Live in households involved in farming and other work (62) n Earn less than NPR 6 000 (41) n Aged 25 54 years (67) SAVINGS SUMMARY n 57 of adults claim to save money n Of those who save, 27 claim to save in banks, 9 with cooperatives and 7 with savings groups n The most cited barriers to not saving are no money left after expenses (51) and no earnings (35) 25

Borrowing and credit CLAIMED BORROWING Have not borrowed money 51 Have been paying back money in past 12 months Have borrowed in the past 12 months 21 27 Owe money and still need to pay it back Have taken goods on credit in the past 12months Someone owes money that my land is attached to as collateral Do not know 1 1 8 12 n 27 of Nepalese adults claim to have been paying back money in the past 12 months, 12 to owe money and still need to pay back and 21 to have borrowed money in the past 12 months n 51 of adults say that they have not borrowed money BORROWING/CREDIT PENETRATION AND PRODUCT MECHANISMS Borrowing/product mechanisms Total Money lender in community 21 Savings and credit cooperatives 9 Savings group 8 Family/friends that you had to pay back 8 Banked (not including MFIs) 6 Microfinance institution 3 Employer 1 Pawn Shop 1 Government scheme/institution 1 26

PROFILES OF THOSE WHO BORROWED IN THE PAST 12 MONTHS Have borrowed in the past 12 months n=920 Owe money and still need to pay it back n=1 210 Estimated number of adults 3 254 158 4 222 160 Age group 18 24 years 18 15 25 39 years 38 38 40 54 years 26 30 55+ years 18 17 Residence Rural 86 86 Urban 14 14 Gender Male 52 47 Female 48 53 Region Mountain 8 9 Hill 47 46 Tarai 45 45 Farming Only involved in farming and no one in the household has any other work 31 21 Involved in farming AND other work 50 60 NOT involved in farming at all 19 19 Personal income group No income 1 4 Less than NPR 6 000 45 38 NPR 6 000 9 999 11 10 NPR 10 000+ 24 27 Do not know/refuse 19 21 TOP REASONS FOR BORROWING MONEY n=2 080 Living expenses when needed Medical expenses Buying household appliances Education or school fees Starting/expanding business Non-medical emergency Buying or building dwelling Special events Farming expenses 6 14 11 9 9 9 20 19 31 27

BORROWING PERCEPTIONS 65 43 40 Need credit to feed family Borrow money to settle debts Embarassing to borrow money TOP REASONS FOR NOT BORROWING MONEY Reasons for not borrowing money Not borrowing n=1 934 Can pay living expenses with what we have 44 No specific reason 44 Fear of debts 10 Interest charged on borrowed money is too high 6 Do not believe in borrowing money 2 Not allowed to borrow money by spouse, by family or other 2 Do not know how to apply for a loan 1 Do not know where to borrow money 1 Do not want to borrow from moneylenders 1 Do not have assets to give as security or collateral 1 Borrowing money is shameful or embarrassing 1 Do not have a credit record 1 n The main reason cited for not borrowing money is to manage what one has 28

Insurance and risk management n 28 are aware of insurance n Only 11 of Nepalese adults have a formal insurance product INSURANCE PRODUCT USAGE Insurance risks experienced in past 12 months Illness within the household or family that requires medical expenses Drought, poor rainfall or loss of access to water for farming Total 39 16 Increase in household size 14 Harvest failure or losses of crop harvest (including plant disease) 10 Having to pay unforeseen school/education fees 9 Rise in prices of goods and services (including transport, electricity, groceries, interest rates) 9 Death or illness of livestock 5 Low selling prices e.g. rice, floor prices, or prices buyers are prepared to pay 4 Flooding/storms 4 Death of other family member not main income earner 3 Loss/failure of ones business 2 Loss of ones savings 2 Disability self or household member 2 Death of or loss of income from main income earner 1 Loss of job self or household member 1 Loss of ones land or access to land one uses 1 Loss of ones home 1 Fire or destruction of household property 1 HOW PEOPLE COPE WITH RISKS EXPERIENCED IN THE PAST 12 MONTHS n=2 479 Borrowed money Used savings Cut down expenses Sold something Claimed insurance 2 Did nothing 16 19 38 48 68 n The biggest insurable risk cited is medical expenses due to illness within a household n The main coping mechanisms during financial risks are borrowing money (68) and using savings (48) 29

TOP REASONS FOR NOT HAVING INSURANCE n=3 488 Cannot afford it 24 Have never thought about it 23 Do not need it 14 Have not heard about it 14 Do not know 13 No specific reason 10 Do not know how it works 9 Do not know how to obtain it 5 n The main reasons given for not having insurance are affordability (24) and have not considered it (23) PERCEPTIONS OF INSURANCE STATEMENTS (OF THOSE AWARE OF INSURANCE) n=4 014 29 32 32 34 31 29 8 7 12 18 33 55 63 61 56 48 36 16 Having insurance protects one when one has a problem Insurance is a way of saving on a long term basis The security of having insurance is worth the cost There are other ways to protect oneself against future problems Being insured stops one worrying about losing things Insurance is for rich people n Agree n Disagree n Not sure TYPE OF INSURANCE PRODUCTS HELD Have Used to have Never had/ Do not know Life assurance/credit life 9 1 90 Motor vehicle insurance 3 0 97 Personal injury/accident insurance 1 0 99 Medical insurance/health fund 0 0 100 Agricultural/crop insurance 0 0 100 Property insurance 0 0 100 Travel insurance 0 0 100 Pension scheme 0 0 100 Informal RoSCA 0 0 100 Funeral fund 0 0 100 30 n Outside of life and motor vehicle insurance, insurance use does not feature amongst the broader Nepalese population

Financial literacy n=4 014 OFTEN SPEND MORE MONEY THAN ONE HAS AVAILABLE 66 33 1 n Agree n Disagree n Not sure/not applicable DEALING WITH FINANCES IS STRESSFUL/ A BURDEN 89 8 3 n Agree n Disagree n Not sure/not applicable KEEP TRACK OF INCOME AND EXPENDITURE ON A MONTHLY BASIS 15 82 3 n Agree n Disagree n Not sure/not applicable ADJUST EXPENSES ACCORDING TO ONE S INCOME 58 38 4 n Agree n Disagree n Not sure/not applicable A BUDGET HELPS TO KEEP TRACK OF HOW MUCH MONEY ONE CAN SPEND 58 18 24 n Agree n Disagree n Not sure/not applicable 31

IF SOMETHING GOES WRONG OR WHEN IN NEED OF MONEY, PEOPLE RELY ON n=4 014 Parent/other family member 73 Friends 31 Child/children 24 Moneylender Financial institution like bank or MFI Chief/headman Other persons Informal savings group/ neighbourhood association Community based organisation Other places 6 5 5 5 4 2 2 PAYMENT PRIORITY IN CASE OF FINANCIAL PROBLEMS 43 24 15 10 Health Education House/utilities Clothing RESPONSIBILITY FOR FINANCIAL DECISION MAKING n=4 014 Manage household money alone 22 Manage household money with others Someone else in household manages for everyone 32 46 CONTROL OVER HOW OWN MONEY IS SPENT n=4 014 Full control 38 Together with others No control 13 49 32

PLANNING TO COVER EXPENSES FOR OLD AGE n=4 014 Savings Rely on family/friends Pension Sell something Government grant 2 3 4 24 26 No plans 18 DRIVERS TO SELECT FINANCIAL INSTITUTIONS n=4 014 High interest on savings 37 Recommendation from others Convenience of access distance 26 26 Easy access to money Simple processes/documentation required Low interest on loans 20 19 18 Suitable product/services offered Easy and fast access to loans 15 14 Low minimum balance 11 Convenience of access opening hours 8 Whether someone has to have a job 6 Low transaction fees Other No queues 2 3 3 FINANCIAL LITERACY SUMMARY n Adults in Nepal collectively make decisions 46 claim to manage household money collectively with others and 49 claim to control how their own personal money is spent together with others n Payment priorities identified are health (43) and education (24) n 66 say they often have to spend more money than they have available, 89 say dealing with finances is stressful n Only 15 of Nepalese adults claim to keep track of income and expenditure on a monthly basis 33

Access Strand WHAT IS THE ACCESS STRAND? n The Access Strand focuses on the financial system in its broadest sense and assumes that all adults in a country will fall into one of three broad segments n The segments are differentiated by current product usage indices ranging from people who are formally included (by A,B, C, and D classes of banks recognised by Nepal Rastra bank, and other formal institutions), those who use informal products and mechanisms only, and those who use no products or services to manage their financial lives (neither formal nor informal) n Overlaps in product usage are taken out in the Access Strand n The FinScope methodology uses financial product usage to segment the adult population (aged 18 years and older) Total adult targeted population = Minimum age defined by the age at which individuals can enter into a legal financial transaction in their own capacity Financially included = Adults who have/use financial products and/or services formal and/or informal Financially excluded = Adults who do not have/use any financial products and/or services if borrowing, they rely only on friend/family; and if saving, they save at home Formally served = Adults who have/use financial products and/or services provided by a financial institution (bank and/or non- bank) Informally served = Adults who have/use financial products and/or services which are not regulated, e.g. saving clubs/groups, private money lenders Banked = Adults who have/use financial products and/or services provided by A, B, C or D classed banks regulated by the central bank Served by other formal financial institutions = Adults who have/use financial products and/or services provided by regulated non- bank formal financial institutions, including cooperatives, insurance companies, retail credit providers, remittance service providers Formal inclusion 34

ACCESS STRAND IN NEPAL In constructing this strand, the overlaps in financial products/services usage are removed, resulting in the following segments: n Financially excluded adults, i.e. they do not use any financial products/services neither formal nor informal to manage their financial lives (18) n Adults who have/use informal mechanisms only but no formal products/services (21) n Adults who have/use formal non-bank products/ services but no regulated bank products (21) they might also have/use informal mechanisms n Adults who have/use regulated bank products/ services (40) ACCESS STRAND IN NEPAL n=4 014 40 21 21 18 n Banked n Other formal (non-bank) n Informal only n Excluded OVERLAPS () Consumers generally use a combination of financial products and services to meet their financial needs an individual could have a bank account and also use informal mechanisms. Banked 8.47 Excluded 18.16 Formal only 6.15 9.01 8.38 14.67 14.11 Informal only 21.05 ACCESS STRAND BY GENDER Male 45 19 20 16 Female 36 21 23 20 n Banked n Other formal (non-bank) n Informal only n Excluded ACCESS STRAND BY LOCATION Urban 56 15 11 18 Rural 36 22 24 18 n Banked n Other formal (non-bank) n Informal only n Excluded 35

ACCESS STRAND BY AGE GROUP 18 24 years 34 21 20 25 25 39 years 44 20 19 17 40 54 years 43 23 22 12 55+ years 37 17 26 20 n Banked n Other formal (non-bank) n Informal only n Excluded ACCESS STRAND BY ECOLOGICAL REGION Mountain 24 34 27 15 Hill 40 21 24 15 Tarai 43 18 18 21 n Banked n Other formal (non-bank) n Informal only n Excluded ACCESS STRAND BY DEVELOPMENT REGION Eastern 38 25 20 17 Central 42 20 17 21 Western 48 18 21 13 Mid-Western 29 19 28 24 Far-Western 39 18 33 10 n Banked n Other formal (non-bank) n Informal only n Excluded ACCESS STRAND IN SUMMARY n 40 of Nepalese adults claim to be banked n 61 of Nepalese adults are formally served, which excludes informal institutions n 18 of Nepalese adults are financially excluded i.e. claim to neither use formal nor informal financial providers n 56 of adults residing in urban areas have/use banking products versus 36 of adults in rural areas n More men are formally served (64), compared to women (57) 36

SAVINGS STRAND n 43 of adults in Nepal were not saving at the time of the survey n 1 keep all their savings at home, i.e. they do not have/use formal or informal savings products or mechanisms n 16 rely on informal mechanisms such as savings groups (they might also save at home, but they do not have/use any formal savings products) n 13 have/use formal non-bank savings products (they might also have/use informal savings mechanisms, but they do not have/use savings products from a regulated bank) n 27 have/use savings products from a regulated bank (they might also have/use other formal and/or informal mechanisms, or save at home) n=4 014 27 13 16 1 43 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving SAVINGS STRAND BY GENDER Male 32 10 12 1 45 Female 23 15 19 2 41 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving SAVINGS STRAND BY AGE GROUP 18 24 years 18 10 14 2 56 25 39 years 33 14 15 1 37 40 54 years 32 14 18 1 35 55+ years 23 12 17 1 47 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving SAVINGS STRAND BY LOCATION Urban 44 12 8 1 35 Rural 23 13 18 1 45 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving 37

SAVINGS STRAND BY ECOLOGICAL REGION Mountain 19 24 21 1 35 Hill 29 14 19 1 37 Tarai 27 10 12 2 49 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving SAVINGS STRAND BY DEVELOPMENT REGION Eastern 26 13 16 1 44 Central 30 15 12 2 41 Western 29 10 15 1 45 Mid-Western 19 12 17 2 50 Far-Western 24 12 31 33 n Banked n Other formal (non-bank) n Informal only n Savings at home n Not saving 38

CREDIT STRAND n=4 014 n 10 of adults have/use credit/loan products from a regulated bank (however, they could also have other credit/loan products and or borrow from friends and family but defining characteristics are that they borrow from a bank) n 8 have/use credit/loan products from other formal (non-bank) institutions (however, they could also have/use informal mechanisms and/or borrow from friends and family but they do not have/use credit/loan products from a regulated bank) n 28 rely on informal mechanisms such as informal money lenders. Although they do not have any formal financial credit/loan products, they might borrow from family and friends) n 54 claimed not to borrow at the time of the survey, neither from friends/family nor from formal/informal financial service providers 10 8 28 54 n Banked n Other formal (non-bank) n Informal only n Excluded CREDIT STRAND BY GENDER Male 12 7 30 51 Female 9 9 27 55 n Banked n Other formal (non-bank) n Informal only n Excluded CREDIT STRAND BY AGE GROUP 18 24 years 6 5 25 64 25 39 years 12 7 31 50 40 54 years 13 12 31 44 55+ years 11 7 24 58 n Banked n Other formal (non-bank) n Informal only n Excluded CREDIT STRAND BY LOCATION Urban 14 7 16 63 Rural 9 9 31 51 n Banked n Other formal (non-bank) n Informal only n Excluded 39

CREDIT STRAND BY ECOLOGICAL REGION Mountain 4 14 37 45 Hill 9 9 31 51 Tarai 12 7 25 56 n Banked n Other formal (non-bank) n Informal only n Excluded CREDIT STRAND BY DEVELOPMENT REGION Eastern 10 8 31 51 Central 12 8 24 56 Western 11 8 25 56 Mid-Western 6 9 36 49 Far-Western 8 7 35 50 n Banked n Other formal (non-bank) n Informal only n Excluded 40

Landscape of Access The FinScope survey provides a measure and understanding of consumer demand with regards to four categories of financial products, namely transactions, savings, credit, and insurance products. The Landscape of Access serves as an indicator to describe the following: n Transactions: the proportion of the adult population with a secure mechanism in which funds can be deposited, transmitted, and withdrawn to meet regular transaction needs. Please note that traditionally remittances is also covered under transactions but in this analysis it is also shown separately n Savings: the proportion of the adult population with a means of accumulating money, whether on a contractual or discretionary basis excludes those that save at home n Credit: the proportion of the adult population with funds/services having been provided in advance against a committed repayment stream n Insurance: the proportion of the adult population with products/services covering a defined risk event in return for a premium (includes life, burial, health, and short-term insurance) The Landscape of Access is used to illustrate the extent to which financially included individuals have/use financial products/services (excluding those borrowing from family/friends and those who save at home/hiding in secret place) LANDSCAPE OF ACCESS Savings 68 49 Transactional 66 60 Insurance 13 31 57 24 Credit 41 33 Remittances n n Total usage Formal usage n Savings and transactional banking outperforms the other product categories 41

Key headline findings The following summarises key aspects of financial services usage across different categories amongst the adult population of Nepal. Banking 40 are classified as banked. The main barrier to greater use of banking services is affordability. 42 of unbanked adults claim that they cannot maintain the minimum balance. Another important barrier is perceived lack of need (33). This perhaps points to products and services that should be more relevant to people. Savings Of the 57 of adults in Nepal who are currently saving: n 51 said that they are saving to meet their daily expenses, 26 to meet their medical expenses and 22 for educational fees Of the 43 of adults in Nepal who are currently not saving: n 51 said they do not save because there is no money left after meeting living expenses n 35 said they do not save because they do not earn any money n 16 of adults said they have never thought about saving Examples of savings places used/products currently held: n Bank (27) n Cooperatives (19) n Saving groups (18) n Household members/friends (7) n Jewellery/gold (7) n Secret place (6) Borrowing and credit Money lenders in Nepal feature highest as a source of credit. 82 of the adults agree that money lenders are an important part of their community. The top five sources for taking loans are: n Money lenders in the community (21) n Bank (including MFIs) (10) n Cooperatives (9) n Saving groups (8) n Family/friends (8) The top five reasons for taking a loan are: n Living expenses when one does not have money at that time (31) n Medical expenses either planned or emergency (20) n Buying household appliances, goods or furniture (19) n Education or school fees (14) n Starting or expanding a business or household business activities (11) 42

Insurance 28 of adults claim to be aware of insurance, while only 11 claim to have a form of insurance. The top 3 insurable risks that are claimed to have occurred during the past 12 months: n Household illness (39) n Drought (16) n Increased household size (14) The top reasons for not having insurance: n Cannot afford it (24) n Have never thought about it (23) n Do not need it (14) n Have not heard about it (14) Remittances n 8 claim that they have sent money to someone inside the country n 1 claim that they have sent money to someone outside the country n 8 claimed that they have received money from someone inside the country n 24 claimed that they received money from another country Of the adults who receive remittances, the top three channels used for receiving money are: n Money transfer agents (63) n Bank transfer (23) n Family/friends (22) 43

FinScope footprint Contact For more information on FinScope Consumer Survey Nepal 2014, including a detailed report on the findings and access to the data set, please contact: Dr Kingstone Mutsonziwa kingstonem@finmark.org.za Tel: +27 11 315 9197 Fax +27 86 518 3579 www.finmark.org.za www.finscope.co.za Published August 2015 44

Tel +27 11 315 9197 Fax +27 86 518 3579 www.finmark.org.za www.finscope.co.za