Nirdhan Credit Program in Nepal: A 1997 Impact Evaluation Revisited
Historical note: This article revisits findings from an impact evaluation completed in 1997. All figures, institutional conditions, recommendations, and observations reflect the situation during the study period and should not be read as a description of Nirdhan or Nepal today.
Authors of the original study: Dr. Champak Pokharel and Bharat Joshee
Original report date: January 1997
Study period: Primarily 1993–1996
Prepared for: Nirdhan, Bhairahawa, Nepal
Historical note: This article revisits findings from an impact evaluation completed in 1997. All figures, institutional conditions, recommendations, and observations reflect the situation during the study period and should not be read as a description of Nirdhan or Nepal today.
Background
In the early 1990s, rural poverty in Nepal remained closely linked with limited access to formal credit. Poor households, particularly women, often lacked collateral, savings, and access to banking institutions. In this context, Nirdhan began operating in March 1993 as a non-government microcredit initiative inspired by the group-based lending approach of Bangladesh’s Grameen Bank.
The program focused primarily on poor women, offering collateral-free loans through small groups and village centres. Its wider aim was not only to provide credit, but also to promote savings, income generation, social awareness, discipline, and collective support among rural women.
By October 1996, the program had expanded to approximately 3,600 borrowers, 900 groups, eight branches, and four Terai districts: Rupandehi, Kapilvastu, Nawalparasi, and Chitwan. At that stage, an independent ongoing impact evaluation was undertaken to assess progress, identify weaknesses, and offer recommendations for future growth.
Purpose of the Study
The study examined whether Nirdhan was progressing toward its stated objectives. It focused on:
economic effects on participating households;
access to and use of credit;
employment, income, savings, and asset creation;
changes in social awareness and women’s participation;
group and centre-level management;
financial sustainability of the branches and the institution; and
lessons for future expansion and replication.
The evaluation also reviewed the performance of the first four branches in Rupandehi District: Siktan, Dhakdhai, Sital Nagar, and Majgaun.
Methodology
The study combined document review, household surveys, interviews, group discussions, and rapid rural appraisal methods.
A total of 199 borrowers were surveyed in March 1996. These borrowers had completed at least one year of borrowing with Nirdhan. The sample represented about 24.4 percent of the 814 eligible borrowers in the selected branches.
The research team also interviewed branch managers, field staff, group leaders, centre chiefs, and central-office personnel. Survey tools were pre-tested and revised before field implementation.
The study therefore examined Nirdhan at several levels: borrower households, groups and centres, branch operations, central management, and cooperative initiatives.
Major Findings
1. Credit Was Reaching Poor Women
The evaluation found that the program had largely maintained its focus on poor women and small-scale income-generating activities. Borrowers generally fell within the program’s intended poverty criteria, and average landholding was close to the prescribed ceiling for participation.
The group-based approach enabled women without conventional collateral to obtain credit. Borrowers were organized into groups of five, with lending, repayment, savings, and supervision carried out through regular centre meetings.
This system combined credit access with peer support, discipline, and group responsibility.
2. Borrowers Reported Positive Economic Returns
The study found generally positive returns from Nirdhan-financed activities. On average, borrowers reported that the income generated through financed activities was sufficient to support weekly instalment payments.
Around 80 percent of borrowers reported repaying weekly instalments directly from the activity financed through the loan. The average weekly margin over instalment payments was estimated at approximately Rs. 179.
The study also reported that borrowers had invested in a variety of small-scale activities, including livestock, retail shops, trade, vegetable production, vocational work, and mixed enterprises.
3. Employment and Assets Increased
The program appeared to support employment generation at the household level. On average, each financed activity generated approximately:
1.3 adult full-time employment opportunities;
0.9 adult part-time employment opportunities; and
0.7 child part-time work opportunities.
Borrowers also reported improvements in household assets. These included livestock, land, housing improvements, radios, bicycles, ornaments, and televisions.
Some participants had improved thatched roofs into more durable housing structures. Others had acquired productive assets that could support future household income.
4. Savings and Financial Discipline Were Developing
Nirdhan had introduced compulsory group savings, weekly savings, emergency funds, livestock insurance funds, and voluntary personal savings.
By the time of the study, average group savings for a five-member group were approximately Rs. 1,500, while average personal savings were approximately Rs. 171.
Although these figures were modest, the study considered the development of regular savings habits to be an important outcome. For households with limited income, even small savings could increase financial discipline and help address emergencies.
5. Social Awareness and Women’s Position Improved
The study found evidence of broader social effects beyond income and credit access.
Participants reported increased awareness of education, sanitation, household cleanliness, vegetable cultivation, planting, community participation, and family decision-making. The proportion of daughters attending school had reportedly increased among participating households.
Many women stated that they had greater involvement in decisions regarding the use of their earnings. About 60 percent reported ownership or control over their income, while around two-thirds reported making expenditure decisions through discussion within the household.
The evaluation also found that the program had not worsened landlord–labour relations. Instead, it suggested that improved economic opportunities had strengthened the bargaining position of labourers in some communities.
6. Financial Sustainability Was Improving, but Not Yet Secure
One of the most important findings concerned the program’s financial performance.
Nirdhan was expanding rapidly, but its branches had not yet fully reached profitability. However, the operating cost per rupee of lending had declined substantially, from approximately Rs. 0.49 in the first year of operation to Rs. 0.13 by 1996.
The study estimated that the institution’s implicit return on funds had improved from a negative position in the early years to a positive return by 1996. This indicated progress toward operational sustainability.
Siktan and Sital Nagar were approaching stronger financial performance, while Dhakdhai and Majgaun required more attention to borrower growth, lending volume, staffing, and operational efficiency.
The break-even analysis suggested that Nirdhan still needed to expand its active borrower base, groups, and lending volume in a carefully managed way in order to cover full operating costs.
Key Institutional Concerns Identified
The evaluation found that the program was moving in a positive direction, but it also identified several risks that required management attention.
Rapid Expansion Needed Stronger Monitoring
Nirdhan had expanded quickly across branches and districts. The study cautioned that horizontal expansion—opening new branches—should not move faster than the institution’s capacity to supervise, monitor, train staff, and maintain financial records.
The report recommended strengthening central-office staffing, branch-level accounting, computerization, and management information systems.
Portfolio Planning Needed Improvement
The study observed that lending was increasingly concentrated in certain activities, particularly livestock, retail shops, and trade.
It recommended more systematic portfolio planning based on local market demand. Without such planning, rapid lending expansion could create marketing difficulties for borrowers, especially where many households invested in similar activities.
The report recommended a “pocket concentration” approach: identifying locally suitable activities, market opportunities, and value chains before expanding loans in a particular area.
Cooperatives Required Reconsideration
At the time of the study, Nirdhan was supporting several consumer-goods retail cooperatives. All of the cooperatives reviewed were operating at a loss.
The evaluation recommended that Nirdhan phase out this form of cooperative involvement before losses became difficult to manage. Instead, it suggested exploring farmer-oriented marketing cooperatives for commodities such as milk and vegetables, where collective collection and marketing could offer a clearer economic purpose.
Group Discipline and Leadership Rotation Needed Attention
The study found that many group and centre rules were being followed. However, some issues required stronger monitoring:
relatives were sometimes found within the same borrowing group;
leadership positions were not always rotated on time;
some members were borrowing elsewhere to manage repayments;
monitoring of the “Sixteen Decisions” was limited; and
group formation sometimes depended too heavily on staff rather than member-led selection.
The report emphasized that these issues were still manageable but could become serious if ignored as the program expanded.
Main Recommendations Made in 1997
The original study recommended that Nirdhan:
Prepare a long-term master plan for sustainable growth.
Strengthen monitoring, accounting, record keeping, and computerized financial reporting.
Increase central-office and branch-level staffing capacity.
Expand borrower groups and credit delivery carefully to improve branch viability.
Base lending portfolios on local market opportunities and demand.
Conduct viability analysis before opening additional branches.
Improve coordination with district line agencies for literacy, health, family planning, plantation, and other support services.
Develop literacy opportunities for members.
Improve monitoring of group composition, leadership rotation, repayment behaviour, and centre discipline.
Reconsider the retail cooperative model and explore market-oriented farmer cooperatives instead.
Maintain caution regarding direct interest subsidies, while strengthening group and emergency funds for member benefit.
Involve husbands and families where appropriate, so that women borrowers could work in a more supportive household environment.
Reflection from Today
Looking back, this study captured an early phase of Nepal’s microfinance development. It showed that access to small, collateral-free credit could contribute to household income, savings, women’s participation, social awareness, and local economic activity.
At the same time, the study made an important point that remains relevant to development programs: rapid expansion alone is not enough. Sustainable impact requires strong systems, responsible portfolio planning, reliable monitoring, sound accounting, staff support, and attention to borrower well-being.
The report also illustrates that microcredit should not be evaluated only through repayment rates or loan disbursement. Its wider impact includes women’s confidence, household decision-making, education, social participation, productive assets, and the ability of poor households to manage risk.
Citation
Pokharel, Champak, and Bharat Joshee. 1997. Nirdhan Credit Program in Nepal: On-going Impact Evaluation. Submitted to Nirdhan, Bhairahawa, Nepal.
SpandanVerse Research Archive
This article is a revised public-facing summary of a 1997 research report. It is presented for historical, academic, and reflective purposes. All data and recommendations refer to the study period and should not be treated as current information about Nirdhan or Nepal’s present microfinance sector.