ROLE OF MICROFINANCE FOR POVERTY REDUCTION

A Dissertation submitted to the office of the Dean, Faculty of Management in partial

fulfillment of the requirements for the Master's Degree

By

Ritu KC
Exam Roll No : 787/16
Registration No.: 7-3-28-144-2015
Central Department of Management

Kirtipur, Kathmandu
August, 2022
 ii

CERTIFICATION OF AUTHORSHIP

I hereby corroborate that I have researched and submitted the final draft of
dissertation on entitled "Role of Microfinance for Poverty Reduction”. The work of
this dissertation has not been submitted previously for the purpose of conferral of any
degree nor it has been proposed and presented as part of requirements for any other
academic purpose.

The assistance and cooperation that I have received during this research work has been
acknowledge. In addition, I declare that all information sources and literatures used are
cited in the reference section of the dissertation.

__________________
Ritu K.C.
April, 2022
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REPORT OF RESEARCH COMMITTEE

Ms. Ritu K.C. has defended research proposal entitled "Role of Microfinance for
Poverty Reduction” successfully. The research committee has registered the
dissertation for further progress. It is recommended to carry out the work as per
suggestions and guidance of supervisor Asst. Prof. Santosh Pokhrel and submit the
thesis for evaluation and viva voce examination.

Asst. Prof. Santosh Pokhrel Dissertation Proposal Defended Date :

Thesis supervisior Sept. 18, 2018

Signature : ………………..

Asst. Prof. Santosh Pokhrel Dissertation Submitted Date :

Thesis supervisior April 8, 2022

Signature : ………………..

Name of Head of Research Committee

Dissertation Viva Voce Date :

Prof. Dr. Mahanand Chalise April 12 , 2022

Signature : ………………..
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APPROVAL SHEET

We, the undersigned, have examined the thesis entitled Role of Microfinance for
Poverty Reduction” presented by Ms. Ritu K.C. a candidate for the degree of
Master of Business Studies (MBS, semester) and conducted the viva-voce
examination of the candidate. We hereby certify that the thesis is worthy of
acceptance.

____________________
Asst. Prof. Santosh Pokhrel
Thesis Supervisor

_____________________
Asso. Prof. Gyan Mani Adhikari
Internal Examiner

_____________________
Asst. Prof. Dr. Bal Ram Duwal
External Examiner

_____________________
Prof. Dr. Mahanand Chalise
Chairperson, Research Committee

_____________________
Prof. Dr. Ramji Gautam
Head, Central Department of Management
Date: April 12 , 2022
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ACKNOWLEDGEMENT

I would like to express my heartfelt thanks and sincere gratitude to my supervisor

Asst. Prof. Santosh Pokhrel Central Department of Management, T.U, Kirtipur
Kathmandu for his guidance, inspiration and constant encouragement throughout the
whole study.

I am thankful to Central Department of Management for providing opportunity to

carry out this research programme. I am also thankful to all the staffs of Central
Library for providing necessary supports and environment for the completion of my
dissertation.

I am grateful to Prof. Dr. Mahanand Chalise, Chairperson, Research committee for his
continuous support and guidance throughout my research programme.

Likewise, I am grateful to the head of Central Department of Management (CDM)

and all my honorable teachers of CDM for their assistant support in every aspects of
this research.

Last but not the least, I would like to give many thanks to all the respondents for
giving their priceless time for filling up the questionnaires without support of whom
this study would not be possible.

Ritu K.C.
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TABLE OF CONTENTS

Page No
Certificate of Authorship ii
Report of Research Committee iii
Approval Sheet iv
Acknowledgements v
Table of Contents vi
List of Tables viii
Abbreviations ix
Abstract x
CHAPTER I
INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problems 4
1.3 Objectives of the Study 5
1.4 Significance of the Study 6
1.5 Hypothesis of the study 7
1.6 Limitations of the Study 7
1.7 Organization of the Study 7
CHAPTER II
REVIEW OF THE LITERATURE
2.1 Theoretical Review 9
2.1.1 Microfinance 9
2.1.2 Model of microfinance 10
2.1.3 The Poverty Theory 11
2.1.4 Role of Microfinance in Poverty Reduction 12
2.2 Empirical Review. 16
2.2.1 Review of Journals &Articles 16
2.2.2 Review of Related Thesis 22
2.3 Research Gap 26
2.4 Conceptual Framework 27
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CHAPTER III
RESEARCH METHODOLOGY
3.1 Research Design 29
3.2 Population and Sample 29
3.3 Nature and Source of Data 30
3.4 Data Collection Techniques 30
3.5 Data Presentation Analysis Techniques 31
3.6 Descriptive Statistics 31
CHAPTER IV
RESULTS AND DISCUSSION
4.1 Result 37
4.1.1 Age Composition of Respondents 37
4.1.2 Distribution of Respondents by Caste /Ethnicity 36
4.1.3 Educational Status of Respondents 36
4.1.4 Land Holding Pattern 37
4.1.5 Drinking Water of Respondent 38
4.1.6 Health Services for Respondent 38
4.1.7 Sources of Borrowing before and after the MFIs. 39
4.2 Descriptive Statistics 40
4.3 Major finding 45
4.4 Discussion 46
CHAPTER V
SUMMARY , CONCLUSION AND RECOMMENDATION
5.1 Summary 49
5.2 Conclusion 50
5.3 Implication 52
References
 viii

LIST OF TABLES

Table 4.1 Age structure of sample beneficiaries. 35

Table 4.2 Composition of caste/Ethnicity. 36
Table 4.3 Educational status of sample respondents. 37
Table 4.4 Land holding pattern. 37
Table 4.5 Sources of drinking water. 38
Table 4.6 User of hospital 39
Table 4.7 Sources of Borrowing of the respondents. 40
Table 4.8 Descriptive statistics. 40
Table 4.9 Correlations. 41
Table 4.10 Regression. 43
Table 4.11 ANOVA. 44
Table 4.12 Coefficients. 44
 ix

ABBREVIATIONS

ABBS - Anywhere Branch Banking Service

A/C - Account
A.D. - Anno Domini
ASS Assurance
ATM - Automated Teller Machine
B.S. - Bikram Sambat
CDM - Central Department of Management
CEO's - Chief Executive Officers
EMP - Empathy
Ltd. - Limited
No. - Number
NRB - Nepal Rastra Bank
RBB - Rastriya Banijya Bank
REL - Reliability
RES - Responsiveness
SPSS - Statistical Package for Social Science
TAN - Tangibility
T.U. - Tribhuvan University
i.e. - That is
& - And
% - Percentage
 x

ABSTRACT

Role of micro finance for women in poverty reduction (A Case Study of Dhangadhi
sub Municipality of Kailali District is a representative vision of the reality. The major
objectives set while preparing the proposal was to find out the socio-economic
condition of the community, to analyze role of microfinance in economic development
and to analyze the role of microfinance in social development.

Microfinance is a significant means of alleviating poverty, which is believed to be

caused by the scarcity of financial resources for the poverty-stricken in the main. The
role of MFIs has been beneficial: relaxing the eligibility criteria for credit has
allowed the deprived to access capital, and subsequently contributed to mitigating the
difficulties created by low incomes and lack of investment. Such success has led to a
growing demand for microfinance worldwide, especially in developing countries such
as Pakistan, where the group-lending model has been adopted. Furthermore, MFIs
provide doorstep banking and credit on personal guarantee only, without any
collateral. Consequently, with easier access than traditional banks to financial
services, those living in deprivation can at least meet their basic needs and improve
their living standards. The ultimate goal of microfinance is socio-economic
development of the community. Moreover, it is a target oriented program. The study
reveals that it needs to analyze while implementing microfinance program. The socio-
economic analysis performed in Dhangadhi sub Municipality reveals that most of the
indicators such as family size, male to female ratio, literacy level, housing types and
income level are better than in other rural areas of Nepal. Moreover, education level,
assets level and housing types have been changed after program intervention.

While calculating economic development, disposal income has been increased but
still overall expenditure is more than annual income. This could lead to increase in
indebtedness in the community in the long term. The economy activity in the
community in the participating clients has been found changing from agriculture to
off-farm business such as petty trades. In agriculture also, commercialization has
been introduced. However, foreign employment is still found attractive to the youth.
The share of informal sector in lending has been reduced because of availability of
financial services through microfinance. However, many are borrowings both from
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formal and informal sectors. The study reveals that microfinance has been found
playing positive role in improving economic level of the community.

Regarding social development, the program has contributed in creating enabling

environment for the social development. For example, awareness level on education
and opportunities have been increased. Similarly, society develops habit working in
group and raising collective voices. Furthermore, client families found increasing
knowledge on women and child rights and gender issue. This study show regardless of
many constraints of growth, the program has been towards meeting social as well as
economic goal. But the program can be more effective if the limitations and
shortcomings are corrected timely. However, this study has not been able to deal
many social theories. This means microfinance program alone cannot contribute
significant on social development.
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CHAPTER I

INTRODUCTION

1.1 Background of the Study

Microfinance deals with the provision of financial services, such as loans, savings,
insurance, money transfers, and payments facilities to income groups in the lower
cadre, (Awojobi, 2014). It could also be used for productive purposes such as
investments, seeds or additional working capital for micro enterprises. On the other
hand, it could be used to provide for immediate family expenditure such as food,
education, housing and health. Microfinance is an effective tool for reduction of
poverty and economic empowerment for poor people (Ayoade & Agwu, 2015).
Microfinance is no longer an experiment or a wish, it is a proven success.

Anyanwu (2004) stressed that Microfinance may not be able to solve all the problems
of the poor, but it certainly puts resources in their hands in order for them to live an
enhanced standard of life. Microfinance has shown that poor people can be viable
customers if properly focused. No doubt Microfinance has strongly attracted the
interest of private sector investors. However, the following challenges, among others,
face Microfinance institutions: They scale of financial services to the poor should be
increased by microfinance banks; they need to reach out and seek the poor wherever
they are and give them access to finance. The Grameen Bank of Bangladesh has set a
good example in this direction by allowing credit and other services to cost less for
the poor and train staff to be uniquely suitable to Microfinance business. The latter
enhances efficiency and sustainability of the sector; and develops tailored products to
meet the needs of their clients the poor, (Ayoade & Agwu, 2015).

Poverty is a complex and multidimensional phenomenon. It is widespread and

pervasive. Income poverty is considered as deprivation, low education, fragile health
including reproductive health, low nutrition and unemployment, and weak social and
political participation. These are supplementary elements of the deprivation of
capability and empowerment (Senayake, 2002). A study argued that the measurement
and the examination of the characteristic causes of poverty at household levels is an
important input into the design of economic policy and poverty reduction( Aryal,
 2

2007). Poverty has become now an international agenda and the world leader have
committed to social development in order to address the problems of poverty in
twenty first century. Recently continuous efforts were made for reducing the large
proportions of people living in extreme poverty.

Microfinance is a type of banking service that is provided to unemployed or low-

income individuals or groups who would otherwise have no other means of gaining
financial services. Microfinance is a source of financial services for entrepreneurs and
small business lacking access to banking and related services, which helps to low-
income people including women, who are deprived from economics activates. It helps
to those people in the society who have no access to take financial from the
commercial banks, because commercial banks provides the large amount of loan for
high level and income area with some mortgagee. The low income people have not
any property to keep the mortgagee to take loan for commercial banks.

Microfinance is one of the appropriate mechanisms to identify the poor and

disadvantages community and to address poverty by providing income, employment
and capacity building opportunity to the poor, disabled, dalits, marginalized group and
destitute including women and their socio-economic empowerment with the support
of social mobilization.(Shrestha, 2007).

Poverty in Nepal is overwhelmingly a rural characteristic. We have to be clear that

without proper looking of the basic characteristics of the individual and/ or group of
individuals and/ or household level, no further achievement can be made in the
reduction of poverty. Nepal has more than 50 year's development experience. The past
development history has shown that poverty reduction constitutes the precondition for
the overall development of the country. Without enabling those people living under
the poverty line to participate and involve spontaneously in decision making process
on every issues concerning themselves by increasing their per capita income,
providing them with income generating opportunities, Nepal’s development process
cannot be achieved smoothly. The consumption of goods and service such as people’s
basic and primary needs like food, clothing, shelter and health, education etc, depend
upon their purchasing power. And, these are the prerequisites for the infrastructure
development such as construction, road, irrigation, electricity etc, which is one of the
indicators of level of development in the country.
 3

Microfinance is related to the supply of loans, savings and other basic financial
services to the poor people living in poverty. Financial services needed by the poor
include working capital loans, consumer credit, saving, pensions, insurance and
money transfer services through the formal financial sector. Poor people are fulfilling
their need of financial services through a variety of financial services, mostly through
informal credit which is available from informal commercial and non commercial
money lenders, usually at a very high cost to borrowers (Imran, Zaheer & Saif,
2011)..

Likewise, saving services are available through a variety of informal relationships like
saving clubs, rotating savings and credit associations, and mutual insurance societies
that have a tendency to be erratic and insecure providers of financial services to the
poor. Such institutional arrangements. These services are not sufficient to fulfill the
requirements of the poor. This includes the service from donor-supported, non-profit,
Non Government Organizations (NGOs), commercial and state banks; insurance and
credit card companies; wire services post offices; and others. But the experiences
gained during the past 1980's, and 1990's have shown that the poor are credit –
worthy,; they are sincere and they repay their loans and are willing and able to pay
interest rates that cover the costs of providing such loans.

According to United Nations microfinance” is defined as the provision of small scale

financial services such as savings, credit and other basic financial services to poor low
income people. The term “microfinance institution” now refers to a wide range of
organizations dedicated to providing these services and includes nongovernmental
organizations, credit unions, co-operatives, private commercial banks non- bank
financial institutions and parts of state- owned banks

Financial services for the poor have proved to be a powerful instrument for poverty
reduction that enables the poor to build assets, increase incomes and reduce their
vulnerability to economic stress. However, with nearly one billion people are still
lacking access to basic financial services especially the very poor. Operationally, the
Nepal Rastra Bank has defined microfinance as the loan up to NRs 90,000. The
relevance of microfinance tools for the development of the rural Nepal and for the
improvement of living standard of low income people continues.
 4

1.2 Statement of the Problems

Microfinance can take the form of loans, savings accounts, and other cash
management assistance for those on low incomes, especially in the developing
countries (Robinson, 2001). A range of economic theories explain the vital role also
played by microfinance in generating greater profits for businesses. Small and
medium enterprises (SMEs) require a wide range of financial services to provide
working capital, acquire resources, stabilize consumption, and counter risks
(Ehigiamusoe, 2005).

MFIs can meet these needs through working capital loans, credit facilities, venture
capital, and money transfer services. By assisting in the success of businesses, MFIs
are able to indirectly influence poverty alleviation as well. Thus, it is worth reviewing
the various theories that shape poverty reduction strategies. Microfinance is a tool
with which financial facilities can be offered to not only deprived individuals but also
small-scale enterprises in both urban and rural areas, as well as nonfinancial
assistance, such as personal and business budgetary advice. It is also worth noting that
in recent years, NGOs and the private sector are converging their humanitarian
operations and microfinance services to bolster economic development and poverty
alleviation.

Simil;arly, Li (2018) examined the relationship between low income and financial
inclusion. The results suggested that less affluent families are inspired by their
wealthier neighbors’ success to utilize microcredit for investment and further
education to reduce their poverty level.

In this respect, foreign direct investment (FDI) is also beneficial: Musibau, Yusuf, and
Gold (2019) undertook an empirical investigation and discovered that the potential for
human capital development could encourage foreign investment and subsequently
reduce poverty. Moreover, Emily (2005) stated that MFIs can remove the call for
charitable donations, which intensifies the level of dependence. However, Mahmood,
Hussain, and Matlay (2014) and Rashid and Ejaz (2019) later explained that most
people in need apply for microcredit to meet their immediate needs rather than to set
up new or development current businesses, which did not lead to increased
employment or poverty reduction. Thus, microfinance does not guarantee better
 5

employment opportunities, income levels, and economic development, and

consequent poverty alleviation.

In fact, Gehlich–Shillabeer (2008) had recommended that MFIs learn more about their
client’s lives and the environment in which they live to better understand their needs.
Nevertheless, Tiberti, Maisonnave, Chitiga, and Mabugu (2018) adopted a macro–
micro methodology to discover that improvements, albeit small, and a decline in
poverty were achieved for the population as a whole. Furthermore claimed that, the
past experiences of MFIs have shown that those in need are more reliable than their
wealthier counterparts, reducing poverty also reduced the possibility of defaulting on
credit, around 95% of loans being repaid.

According to the census of 2068B.S, 33% of people in rural area are under the
poverty line and 82.93% population lives in village among which 73.3% depends on
agriculture sector. In that situation, the banks, financial organization cannot reach to
the rural area, lack of the accessibility of the banks, financial agencies, rural people
cannot utilize their self skills, capacity, labour in productive and better way , without
money is nothing possible like that, people of rural area are compelled to take loan
from individual or private sector rather than banks or financial agencies that result to
repay with high interest rate, the can fulfill only their basic needs, food cloth and
residence so that the study show the private sector inviting the more powering in rural
area and another important thing is the field of microfinance is only in the rural area,
there is large scale opportunity to enter microfinance program so the attempts made
how the financial sectors enter in rural area for poverty alleviation and what has done
to uplift their lifestyle by enhancing microfinance programme.

The study focused on the answers of the following research questions:

1. What is the role of microfinance in employment creation?
2. What is the relation between microfinance and basic needs?
3. What is relation between the microfinance and living standards?
4. Is any impact of microfinance programs in poverty reduction?

1.3 Objectives of the Study

The main objectives of the study is to analyze the impact of microfinance for
economic growth and its contribution to reduce poverty of the people.
 6

The major objective of the study is as follows:

1. To evaluate the role of microfinance in employment creation .
2. To state out the relation between microfinance and basic needs.
3. To explored relation between the microfinance and living standards (LS).
4. To examine the impact of microfinance programs in poverty reduction.

1.4 Significance of the Study

Nepal is least development country. Most of the population of Nepal lives in rural
area. But on the contrary all sorts of facilities is focused to urban area. Specially
banking facilities are focused on those urban areas. In this context micro finance
services important tools for the development of rural area. Because of banking
facilities are limited to urban areas; people from rural area have not access of those
facilities. Many small entrepreneurs are suffering from insufficient capital. They have
not enough credit facilities. There is no any institution for saving of their small
amount which they can save from their monthly expenditure. Micro finance is the
solution to fulfill those lacking. Many micro finance companies are providing their
services to rural people. They are conducting different activities like saving
collection, providing short term loan and others conducting social activities which
help to change their life style. Micro finance program encourages to regular saving
that helps to create capital.

Micro credit program is related to the poverty alleviation and women empowerment
for the sustainable development. The government of Nepal has been initiating
microfinance programs as well as promoting the development banks, rural banks,
NGOs, INGOs for such programs toward targeted group. Therefore, this study is
significant for decision makers for long term future planning in micro financing sector
and helps identify better solution from the problem which will arises in future. In
addition, the study helps identify the status of poor people in the rural areas as per
self- dependency.

This study is concern with those micro finance companies that how far those micro
finance companies are important to improve the living standard of rural people. What
is the role of micro finance company to reduce the poverty? Is there any significance
change to the people of rural people? This study analyzed the impact of micro finance
 7

company to the rural people. This study is helpful to ascertain the effectiveness of
micro finance company in developing country like Nepal.

1.5 Hypothesis of the study

The following hypotheses were developed to determine the relationship between

microfinance and poverty alleviation:
H1 : Microfinance has a significant relationship with basic needs (BN).
H2 : Microfinance has a significant relationship with living standards (LS).
H3 : Microfinance has a significant between microfinance and poverty.

1.6 Limitations of the Study

This study has concerned only to the macro financing institutions. The study has
following limitations:
• The study was based on Dhangadhi sub Municipality of Kailali district.
• Only basic need, living standard are taken as a determinant of poverty
reduction.
• This study is only concentration to nirdhan utthan laghubitta bittiya sanstha
ltd. and nepal grameen bikas bank ltd.of the kailali . So it is does not cover
the real scenario of Nepal.

1.7 Organization of the Study

This study has been organized into five different chapters.

Chapter- I: Introduction:

The first chapter deals with the subject matter consisting introduction, back grounding
of the study, statement of the problem, objectives of the study, significant of the
study, limitation of the study and organization of the study.

Chapter- II: Review of the Literature:

The second chapter is mainly focused on literature review that included a discussion
on the Concept microfinance in Nepal which studies relating with Poverty Reduction.
 8

Chapter- III: Research and Methodology:

The third chapter describes the research methodology used to conduct the present
research. It deals with research design, sources of data, data processing procedures,
population and sample; period of the study, method of analysis and financial and
statistical tools.

Chapter - IV: Data Presentation and Analysis:

The fourth chapter is concerned with analytical framework. It includes the analysis of
financial indicators.

Chapter - V: Summary, Conclusion and Recommendations:

The fifth chapter includes the summary, conclusion and recommendations of the study
which deals about the main theme of study and comparison of lending policy of the
banks with recommended for improvement of loan management of the selected banks.
The bibliography and annexes are also incorporated at the end of the study.
 9

CHAPTER II

REVIEW OF THE LITERATURE

This section includes review of related theoretical literature, review of empirical

literature, implications of review for the study and conceptual framework.

2.1 Theoretical Review

2.1.1 Microfinance

Microfinance has proved itself a powerfull tool for economic development of low-
income women and man. It is an effective approach for alleviating poverty through
access to the poor for operating their small enterprises.The term microfinance refers
to the provision of financial services to low-income clients, including the self-
employed, financial services generally including saving and credit ; however , some
microfinance organization also provide insurance and payment services.

Microfinance means providing very poor families with very small loans (micro credit)
to help them engage in productive or grow their tiny business. Over the time ,
microfinance has come to include a broader range of services ( credit, saving ,
insurance etc) as we have come to realize that me poor and the very poor who lack
access to traditional formal financial institutions require a variety of financial
products ( Yunus, 1987).

Microfinance activities usually involve:

- Small loans , typically for working capital.
- Information appraisal of borrowers and investments.
- Collateral substitutes , such as group guarantees or compulsory saving .
- Access to repeat and larger loans, based on repayment performance.
- Streamlined loan disbursement and monitoring.
- Secure saving products.

Since microfinance is targeted to poor people of rural areas, it assists the poor in many
ways. Such as ; providing poor people to invest in assets, organizing and facilitating
difficult activities to earn their livehood, protecting against income shocks in case of
 10

emergency needs and smooth consumption, improving quality of life by building

social capital.

Nobel peace prize winner of 2006, Mohammad Yunus of Bangladesh, the brain child
of grameen bank, apply regards poverty as " The denial of human right. A poor person
has no right at all, no matter what one puts into the book" ( Yunus , 1987 )

Some MFIs provide enterprises development services, such as skills training and
marketing, and social services, such as literacy training and health care; these are not
generally included in the definition of microfinance. MFIs can be non- governmental
organization ( NGOs), saving and loan cooperatives, credit unions, non- banks
financial institutions. Microfinance clients are self- employed as well as street
vendors, women, service providers ( hairdressers, rickshaw drivers ) and artisans and
small producer, such as blacksmiths and seamstresses.

2.1.2 Model of microfinance

Various Microfinance institutions in the world have adopted various credit lending
models. Some of them are described below:

2.1.2.1 community Banking

This banking model is mostly run by NGOs and other organization to develop
community by introducing community development programs. For this , semi-formal
institutions are lunch in the community to give out micro loan and train the
community members into different financial activities in generating income and
saving ( Bank, 2014).

2.1.2.2 Gramin model

Gramin model is set by the Prof. Mohammed Yunns in Bangladesh targeting women
from low-income group as the main borrower . In this model , a bank manager and
workers visit villages to explain the purpose and model of operation of the bank to the
local people .In first stage , two out of five people in an group receive loan.The group
are then monitored for a month to see if they are following the rule of the bank. The
other member of that group can borrow money only when the first two borrower
 11

repay money with interest within fifty weeks of lending period . This pressurise the
group to keep individual record clear(Bank, 2014).

2.1.2.3 Group model

In this model, if a member faces difficulty in paying back loan, then other members
put pressure on that member to pay it back soon. But it does not work then the whole
group will repay the loan on the behalf of that member ( Johnson and Rogaly, 2014).

2.1.2.4 Individual model

This model does not need any group to formulate as micro loan is provided directly to
the individual . So there is no peer pressure for repayment ( Bank , 2014).

2.1.2.5 Bank guarantees

In this model, a commercial bank plays role of lender in which it arranges money
from external donor or government agency or by internal source using member
saving. Loan are provided directly to an individual or a self-formed group. Many
international UNO have been creating international guarantees funds that banks and
NGOs can contribute to start micro funding programs (Bank, 2014).

2.1.3 The Poverty Theory

While relying on the vicious circle of poverty Theory, a credit investment framework
is constructed and seeks to explain how microcredit can be used as an instrument for
poverty reduction. Meanwhile, the proponent of the vicious theory (Nurkse, 1967)
explained that poverty perpetuates itself in mutually reinforcing vicious circle on both
supply and demand sides. It is argued that the must important circular relationships of
a kind are those that affect the accumulation of capital in economically backward
country or society explaining the supply side, the proponents hold the view that there
is a small capacity to save due to low level of real income. The low real income is a
reflection of low productivity, lack of capital, resulting in small capacity to save. With
regard to the demand side, it is argued that, demand for capital is influenced by
incentive to invest. However, the lack zeal to invest could be due to low purchasing
capacity of the people, small real income and as a result of low productivity.
 12

Low productivity, however, could be due to small amount of capital used in the
production, which may be caused partly by less incentive to invest. Meanwhile, the
low level of real income, due to low productivity, is an issue that is common to both
supply and demand sides of the circles. therefore, it could be argued that there are two
ways that people use microcredit. Thus, loans are either used to start a new enterprise
or expand an existing one. Provision of credit to people who are not working might
serve as a start-up capital of them in doing business (income generating activities),
thus, in the process creating jobs for them. Job creation could lead to reduction in
unemployment within beneficiaries, as unemployment is reduced, the general poverty
level can also be reduced.

Oxford Advanced Learner’s Dictionary defines poverty as not having and not able to
get necessaries of life. There are many words to name the poverty as destitution, lack,
difficulties, bad circumstances, embarrassed, insolvency, disadvantaged, measurable
etc. In simple word, the poor mean the person who does not have any property
(Kunwar, 2002).

Encyclopaedia Britannica lauds poverty is the condition that is said to exist when
people lack the means to satisfy their basic needs. The dictionary of sociology
distinguishes the difference between relative poverty and absolute poverty. Absolute
poverty occurs when people fail to receive sufficient resources to support a minimum
level of physical health and efficiency that often expressed in terms of calories or
nutritional levels. Relative poverty is defined as the general standards of living in
different societies and what is culturally stated as being poor rather than some
absolute level of deprivation (Kunwar, 2002).

Gillian & Gillian defines “Poverty is that condition in which a person either because
of inadequate income or non-envisaged expenditure does not maintain a scale of
living high enough to provide his physical and mental efficiency and to enable him
and his natural dependents to function usefully according to the standards of the
society of which he is a member”.

2.1.4 Role of Microfinance in Poverty Reduction

The microfinance by definition is the provision of financial services to low income

groups which include savings, credit, payment and micro-insurance services. The
 13

poor used to depend upon local merchant and local traders for borrowings when
needed for buying inputs, treatment, social functions and other emergency. But this
informal sector charges exorbitant interest rate and it is not reliable source too. The
other option is to receive service of the traditional banks. But these banks are reluctant
to serve poor because of risky and its main aim to generate profit than development.
Moreover, the poor people cannot fulfill the requirement of banks such as collateral
requirement and series of documentations. It is also expensive to borrow small loans
from traditional bank to poor.

In addition, poor needs social mobilization and training in addition to loans which is
beyond the scope of traditional banks and informal sector. It is only microfinance
which has been designed considering the situation of the poor. The microfinance can
contribute in poverty reduction because of the following reasons (Kunwar, 2002).
• The main mission of microfinance is poverty reduction by providing demand
based products to poor
• Microfinance does not require collateral, in most of the cases loans are
disbursed on group guarantee
• Microfinance services are offered at door step and process is easy
• Savings services are equally important to poor which is available in
microfinance
• Social mobilization is the integral part of the microfinance which increases
awareness and help the people to work in group
• Microfinance offers capacity enhancement training in addition to financial
services which is necessary for the poor
• MDGs has envisaged employment which is only possible by making
availability of financial services to initiate income generating activities
• The poor generally feel alone and exclusion, they need group, which is
possible through microfinance program
• Capital formation at local level is necessary for sustainable operation of the
livelihood program which is possible through implementation of
microfinance program

Kunwar in his book ‘The Himalayan Poverty, Threat To The World, writes that
Agricultural Development Bank, Small Farmers Development program, Production
 14

Credit for Rural Women, Micro-Credit Project for Women, Grameen Bikas Bank,
Intensive Banking Program, Cooperatives, Rural Microfinance Development Center,
Rural Self-reliance Fund and Microfinance Development Banks has been established
for poverty reduction.

Micro-finance has evolved as an economic development approach intended to benefit

low income women and small framers. The term refers to the provision of financial
service to low income clients, including the self- employment. Financial services
generally includes saving and credit, however, some micro-finance organizations also
provide insurance and payment services. Many MFIs provide social intermediation
services such as group formation, development of self-confidence and training in
financial literacy management capabilities among members of a group.

Women’s empowerment, is power with, power within, power in, and power over
(Kabeer, 2001), can be a robust yardstick to beat the severe challenge of the 21st
century that is the unequal distribution of income and resources which results in
poverty, degraded well-being, illiteracy, and poor health and sanitation (Acharya,
2020). Women are deprived in all sectors and communities; consequently, women are
victims of poverty more than men (Khan & Noreen, 2012). Ironically, women
empowerment is a global need but most of the countries as well Nepal are still
chasing the goal.

Khan and Rehman (2011) revealed that microfinance institutions provide credit to
underprivileged populace particularly those living in rural areas. This is a successful
device for poverty reduction, improvement in health, schooling and getting better
living standards. Microfinance programs specially focus women by facilitating them
for self employment. A microfinance program increases confidence among its female
borrowers and improves their living within the family which in turn empowers
women.

Wheatley (2011) concluded that microfinance is a useful device to empower women

as it leads to fight for women’s right. It is indispensable for poor women. Even a
Small amount of loan given by microfinance institutions has 24 lasting effects on their
lives and the lives of those related to them. She can commence a business and
increase income. However the amount contributing financially is a cause of influence
 15

within the family. The echo of the supremacy they achieve will reflect through their
children, their relatives, and in return throughout the development of their country.

Riaz et al. (2012) concluded that micro-credit had a positive impact on the livestock,
living standard, and household income of the members of credit organizations,
therefore improving the economic conditions of rural women. They also discovered
that micro-credit had an insignificant impact on savings and housing. It was found
that the main obstacles to women empowerment were lack of earnings, employment
opportunities and access to credit for women. Provision of financial services made it
possible for the poor people to increase their household income and make assets.
These people could make arrangements for their future and schooling of their
children.

Empowerment means growing of the religious, social, political, and economic power
of communities and individuals. It entails developing self-belief of the individual in
her personal ability (Mohammad and Mohammed 2007).

Empowerment of women, as discussed by Mayoux (2005), is possible when women

can control their resources and decide on themselves about their resources and life.
Therefore, it is crucial to examine the contribution of microfinance services to uplift
the socio-economic status of women. It becomes important in the Nepalese scenario
where the youth female literacy rate is 87 percent whereas adults are 60 percent (The
World Bank, 2018).

The role of microfinance institutions in poverty reduction and wellbeing improvement

has attracted the policymakers’ attention in the developing countries across the globe.
Yet, the clear evidence on the positive impact of microfinance is no exists. What is
the role of microfinance on women empowerment? This question is always repeated
among the academicians and the policymakers in the government and non
government agencies. Therefore, this research attempts to uncover the role of
microfinance institutions on the investors. The intervention of microfinance
institutions is consists of three major functions of financial, nonfinancial and social
intermediation services which have significant impact on the poor wellbeing which
manifested in the clients’ household, empowerment and their micro and small
enterprises’ performance.
 16

2.2 Empirical Review

2.2.1 Review of Journals &Articles

Bashyal, (2005) evaluated the impact of microfinance program on poverty reduction

in her Ph.D. dissertation entitled 'Impact of Microcredit Programs on Poverty
Alleviation in Nepal: A case study of Rupandehi district'. She gave more emphasis on
her study that women will not be empowered until and unless they get benefited both
qualitatively and quantitatively with the promotion of gender equality. Overall
objectives of the study were to evaluate the socio-economic impact and implications
of microfinance on poverty alleviation through empowering women.

Poudel, (2007) had found that the investments were mainly of three types i.e.
investment of loan to support existing business/ occupation, expenditure. Out of 97
new employment, the highest contribution in new employment generation was from
small business and lowest was from animal keeping sector. The highest amount of
loan was borrowed for the purpose of small business. It is also seemed that investment
of the bank loan to the members who have existing business/ occupation is not fruitful
for poverty alleviation. It is also proved that the performance of bank to identify target
group is also poor.

Singh & Dara, (2007) found that the Lack of democratic functioning, delays in
operational aspects, lack of appropriate legislation to regulate the credit flow to the
poor, social exploitations by the private money lenders charging high rate of interest
and by-passing the needy persons, weak banking system unable to access the poor,
officials indulging in corrupt practices are the main problems faced by the
beneficiaries. For improving the Micro Finance the suggestions include generation of
awareness, encouraging Fis, expediting services, making policy changes and
modification in NABARD Act, removing monopoly of government and making
provision of social audit.

Shrestha, (2012) found that in order to meet the substantial demands of microfinance
services, micro entrepreneurs, micro finance practitioners and donors are suggested to
look in to this solution to the problem and develop policies and strategies in long term
perspectives to serve the micro entrepreneurs’. In this article he has presented the
background to the SFDP and its implementation in several districts. In his findings he
 17

has basically pointed two problems in the implementation of the successful micro
finance program. The program was expanded all over the country which raised
question on its financial viability and sustainability. The research also pointed that
there is shortage of competent staff who could work in harmony with the people of
remote areas.

Sharma, (2013) indicated micro-finance as one of the most powerful tools for
alleviating poverty. Micro-finance institutions (MFI) in Nepal are serving primarily
the micro-enterprises. Accesses to micro- enterprises to micro-finance services
provide them with an important tool for improving their efficiency, productivity and
welfare while reducing risk. In other words,(MFI) is both a formal and informal,
providing financial services which help in creating job opportunities to the micro-
enterprises, both wage and self- employment and there by generating income among
the poor.

Chakraborty and Jayamani, (2013) found that the microfinance, a poverty alleviation
tool to mitigate the vulnerability of the people of the weaker section in the society, has
widely been implementing all over the world by engaging especially, the women in
the main stream economic development. From the conducted study suggests that
microfinance has been able to make poor women psychologically empowered and has
raised their consciousness level high. It is also found that now they are equally
capable of executing their decision- making power in the family matters. From the
table of consciousness level of the beneficiaries, it is evident that the consciousness
level regarding exercising voting right, preparing oral saline and drinking tube well
water is satisfactory while the habit of using contraceptive is little bit low. Thus for
the overall development of the country including rural sector, the weaker section
women must be included as the key force with the existing male dominated financial
sectors and all the development program must be addressed to the financially
backward women.

Khanal, (2014) found that investment in modified traditional pottery making into
ceramic factory from the loan of financial institutions organizing individual
entrepreneurs into single enterprise and training on enterprise skill and management
improve the livelihood of the entrepreneur’s household. However the repayment of
installment of loan and interest has been a crucial problem due to lack of adequate
 18

demand of their product, which require to be improved by providing rigorous skill

training to them. With the access to micro finance of the. She has also recommend to
the concern agencies like ministry of industry, department of industry, FNCCI, and
I/NGOs to assists for the expansion of the market of their product through-out the
country.

Shrestha (2015) found that the long as the sector remains play used by such serious
anomalies it can never establish itself as a potent instrument of employment
promotion and poverty reduction in the country despite the sound and fair
occasionally generated by such event like micro-finance submit. The urgent need is to
look at the various discrepancies playing the micro-finance sector and devise the
necessary means and ways to make it vibrant so that it can achieve the objectives of
alleviating poverty and self-employment promotion in Nepal which has a very high
rate of unemployment.

Sharma, (2015) examined MFIs to grow and attain sound financial health. Some of
the desired roles for HMG are demonstrating firm commitment towards poverty
alleviation through action, stopping direct involvement in running and managing
MFIs, stopping owning MFIs, and handing over presently owned shares of such
institutions to the private sector through appropriate and transparent mechanism.

Sharma argue that Microfinance is not simply banking for the poor; it is a
development approach with a social mission and a private sector-based financial
bottom line that uses tested and continually adjusted sets of principles, practices and
technologies. The key to successful microfinance lies in the ability of the provider to
cost-effectively reach a critical mass of clients with systems of delivery, market
responsiveness, risk management and control that can generate a profit to the
institution. Typically, this profit is ploughed back to ensure the long-term survival of
the institution, i.e. the continuous provision of services demanded by its clients. The
two long-term goals of microfinance are thus substantial outreach and sustainability.
This article focus on microfinance services practices in Nepal on the basis of opinion
survey.

Kayastha, (2016) explored the current issues of microfinance emerging in Nepal, and
claims that institutionals governance is the effective method to overcome most of
 19

these obstacles. Institutional governance is probably a new concept for microfinance

in Nepal. It simply mean the exercise of managing the political, social, and economic
matters and human interactions. Institutional governance help to interact between
different institutions- public and private/ and contributs to put values on formal and
informal rules which can finally contribute in order to address the current issue that
this research has identified. With a point of view of institutional governance, Neplese
microfinance sectors needs clear vision and policy according to the heterageneous
modalities of microfinance institutions, and coordination between the Government of
Nepal and microfinance institutions to create the healthy environment of microfinance
in order to contribute in poverty reduction in Nepal.

Sapkota, (2018) found that now they are equally capable of executing their decision-
making power in the family matters. It is evident that the consciousness level
regarding exercising voting right, preparing oral saline and drinking tube well water is
satisfactory while the habit of using contraceptive is little bit low. Overall
development of the country including rural sector, all the development program must
be addressed to the financially backward women and the weaker section women must
be included as the key force with the existing male dominated financial sectors.

Kharel, (2018) investigated the problems and prospects of microfinance'. He has

come to include a broaden range of service-credit, insurance and saving. Lack of
democratic functioning, delays in operational aspects, lack of appropriate legislation
to regulate the credit flow to the poor by the private money lenders charging high rate
of interest and weak banking system unable to access the poor, officials indulging in
corrupt practices are the main problems faced by the beneficiaries.

Ganawali (2018) investigated the economic empowerment of women through

functions of microfinance institutions. This study based on primary data through self-
administered questionnaire to the women of Butwal and data were analyzed by using
appropriate statistical tools and percentage analysis. This study showed that
microfinance institutions plays a positive role on women who invest in them by
increasing their well-being access to and control their resources, eradicating illiteracy
among women, taking part in economic decision and microfinance institution had
boosted women’s self-esteem.
 20

Dhungana (2017) examined the impact of micro-finance on women empowerment of

the people living in western development region of Nepal. The research is based on
primary data collected through observation, focus group discussion, and structured
questionnaires. The survey includes 500 micro-finance clients from four districts
(Nawalparasi, Kaski, Parbat, and Baglung) of western development region consisting
300 from government MFIs and 200 from Private MFIs clients who have been
involved in micro-finance programme since last five years. The Wilcoxon signed rank
test and women empowerment index has been used to evaluate the women
empowerment after MF intervention. The study shows that individual empowerment,
socio-political empowerment, and economic empowerment of women has
significantly increased after involvement in micro-finance programme through
financial and non-financial services. The study also finds positive relationship
between educational level and women empowerment index.

Sinha , Dutta and Sengupta (2019) investigated the impact of microfinance access on
three dimensions of women empowerment which make influence upon decisions
making on the issues of credit, expenditure, and children. This study examined the
role of microfinance access on women empowerment by using primary data on
women borrowers from different microfinance institutions in Nadia and Murshidabad
district of west Bengal in India. The study had conducted a primary survey on about
800 respondents of women borrowers from different microfinance institutions.
Finding of the study showed that the greater access to microfinance credit negatively
impacts on economic empowerment that is decisions on credit and expenditure related
issues.

Sachin and Rastogi (2020) explored the roles of microfinance institutions for women
empowerment have caught the attention of the policymakers in India. The
fundamental premise of providing microfinance services for women empowerment is
women's participation in entrepreneurial activities to improve their economic
conditions self-esteem and efficacy. Women play an important role in the economic
development of a country. Microfinance, which is also referred to as microcredit is a
type of banking service provided to poor or low-income individuals who have no
other access to financial services. Despite the popularity of microfinance in India,
there is no clear evidence that asserts the effectiveness of microfinance schemes in
 21

women empowerment. A theoretical background which would help in analyzing the

effectiveness of microfinance is lacking. Therefore, the main purpose of this study
was to propose a conceptual framework on the role of microfinance in women
empowerment. In the study semi, structured interviews were conducted to collect and
analyze qualitative data. The study showed that women entrepreneurs apart from
seeking loans also need training and access to networks for information and guidance.
The study recommended that women should join professional associations to get
information and other resources necessary for entrepreneurial ventures.

Ijanada, Inusa and Aliyushika (2020) examined the effect of microfinance bank
services on empowering women business in sabongari local government area of
kaduna state. The study used cross sectional survey research design. The population
of the study comprised 20,000 registered women entrepreneurs. A total of 392 women
were selected using stratified sample techniques. The analysis of the data had done
through partial least square structural education modeling with aid of smart software.
Finding of the study showed that microfinance saving, microfinance loans, and
financial interventions or donations had significant and positive impact on
empowering women business in SabonGari local government. The study concluded
that microfinance saving deposits is an avenue for women entrepreneurs to save their
little incomes and as such, it serves as security to accessing loan and other
microfinance institutions should deploy more staff to different business areas where
women who are able to make small income from their business can save and give
their daily contribution. This study suggested that government should create more
microfinance banks schemes and other financial intervention packages so as to boost
their services and ensure that the donations and funds get to the women entrepreneurs.

Banerjee, Alok &George (2020) investigated that an employed woman, having her
own income source, higher educational level, knowledge of legal rights, higher
educational level of the mother of the woman, having property in her own name, more
freedom of movement during her school days, having high self-esteem and belonging
to a relatively affluent background, increases domestic making power of the women,
and thus empowerment. Some possible policies are suggested for developing
economies.
 22

Jain (2020) examined how far micro financing services positively affect the
empowerment of Nepali women living in the eastern part of Nepal. A purposive
sampling method was used and responses of 97 women were collected through
structured questionnaires. The women were using microfinance services on their own
and at least from the last three years. Results indicate that the use of microfinance
services (credit and saving) helps women to empower. Easy access to financial
services and satisfaction with the loan payment period causes no difference in the
improvement of women’s empowerment. Saving service is significantly associated
with women’s household decision-making, major decision-making in the domestic
context, and availability of basic household needs. Microfinance services contribute to
women’s socio-economic empowerment and their children’s education.

Abbas, Isaac. et al. (2021) examined the determinants of women empowerment in

Pakistan.The study operationalized the concept of women’s empowerment and
investigated its determinants through representative secondary data taken from the
Pakistan demographic and health surveys among women at reproductive age (15-49
years).The study found that the binary logistic regression highlighted that almost all
of the selected demographic, economic, social, and access to information variables
were significantly associated with women’s empowerment (p < 0.05) in both PDHS
datasets. Results of the multivariable regression analysis conducted separately for
two empowerment indicators (decision-making and ownership) corroborated the
findings of the one indicator of women empowerment.

2.2.2 Review of Related Thesis

Various students regarding the various aspacts of microfinance company poverty

reduction, women participation ,lending process ,economic impact of sociaty have
conducted several thesis works. same of them as supported to be relevent for the study
as prescribed below:

Gyawali (2011) conducted a study on "Impact of Microfinance Programme in socio-

Economic Empowerment of women in Nepal Acase study of DEPROSC Nepal in
Thaiba VDC of Lalitpur District, Major objective is to study the Economics impact
of microfinance on women Empowerment. To the social impact of microfinance on
women empowerment and to analize the constraints faced by women clients becouse
 23

of the competitive microfinance services. The major finding of the study are: Women
are found to have enhanced food security. Better health nutrition sanitation etc. after
being involved in MFPs. microfinance program has contributed towards generating
more income from small scale busimess, agriculture and live stock farming.

Regmi, (2013) conducted a study on Role of Microfinance in Poverty Reduction A

case study of Microfinance program of Manushi in Goldhunga V.D.C of Kathmandu
district. The main objective of the study is to evaluate the effectiveness of th micro
finance program in the area in the context of poverty reduction, to analyze the effect
of Microfinance in living standard and empowerment of women participants in the
study area, and to provide suggestions for enhancing the effectiveness of the program.
The major finding of the of the study are: Drinking water supply in the family
engaged in microfinance have satisfactory. Almost all of the families have toilet in
their home which shows satisfactory level of personal hygiene in their households.
The family of the study area has got moderate level of health services. Most of the
family of the study area have their own land for agricultural activities. Microfinance
client have many alternatives of income. Most of the clients have improved their
income level by utilizing loan from the microfinance institution. Survey shows that
most of client used the loans in agriculture and animal husbandry .so loan
disbursement to be made accordingly in the survey area. It observed from the survey
those clients are satisfied with the service of microfinance institution. It is observed
that microfinance institution provide microfinance services to poor people especially
poor women.

Gurung (2013) conducted a study on "Impact of Microfinance Program for Poverty

Reduction and Women Empowerment: A case study of micro Finance Program of
kaski District". The main objectives of the study is to examine the socio-economics
impact of micro finance programs on clients of NUMl in koshi bistrict, to analize the
impact of MFPs on women empowerment, to access the impact of The MFPs on the
poverty reduction. Major Finding of the study are: In an average, the age of clients in
40 years which is includes mostly literate and married women. Income level of
women increased to Rs,46500 from Rs,39725after involving in MFPs. Being
economically sound, Micro-credit has helped a large number of clients to diversify
their occupation by under taking newer activities. After involving in MFPs the
 24

condition of drinking water has improved which proves that women are getting
awareness through MF as well.

Poudel, (2014) conducted a study on "Microfinance Enterprises and Women

Empowerment under Village Development Programme (A case study Nirmal Pokhari
VDC, Kaski )". The main objective of the study is to analyze the status of women
enterprises in NIrmal pokhari VDC, to eveluate how efficiently proper is utilized by
women enterprises, to explore the repayment status of loan portfolio and to study on
funding management of village development by women enterprises in NIrmal Pokhari
VDC, Kaski. The major finding of the study are: Income level has increased after
VDC. Out of 70 sample women 31% and 13% are found to earn between Rs, 100000-
150000 and Above Rs.150000 respectively. Repayment of loan is satisfactory with
91% borrowers paying back on time. Main Problams Faced by women enterprises are
water (for agriculture and livestock). transportation and market. Investment is higher
in agriculture and livestock than in trading and manufacturing enterprises.

Bhandari, (2015) conducted her MBS thesis topic "Economic Impact of MIcrofinance
on Women" (A case study of Tokha, kathamandu Nepal). The major finding of the
study are: the women beneficiaries of the micro finance program have improved their
earning and equally stimulated their living standard. Repayment of the loan amount is
mostly on time. Through the loan has not generally seemed to be utilized on the
mentioned purpose they have been paying of time from other sources. Most of the
respondents are married women who are also in a greater need to support their family
economically. The majority of the respondents (58.97%) belong to small sized family
while 30.77% belong to medium size family with six to ten members. 34.18% of the
respondents took loan for business purpose, 20.51% were found to take for
agriculture, 17.09% for household purposed and 15.38% for their children's
education. It indicates that women have been business minded and aware for the
proper investment. Major occupations after involvement in MFPs are livestock/
poultry farming, shop kipping, weaving/ tailoring and small scale business as candle,
soat, prickle, making etc. Most of the women take loan from 2000-50000. very few
women take loan above 50000 as the risk would be higher with high loan amount.

Dhital (2015) conducted thesis on 'Socio Economic Impact of Micro Finance' (With
Reference to Sangle V.D.C. of Kathmandu District, Nepal)'. The thesis has focused on
 25

the impact of microfinance to develop the socio economic condition of the people,
role of microfinance for the rural poor people in income generating activities, effect of
microfinance program on the economic status of beneficiaries. The thesis finds that
the age of majority of women is between 20-40 years. So that, MFP has involved only
earning aged members and female. Majority members of the MFP can be found
illiterate in the study area. Literate members also are hardly able to write their own
name. The most of the households have the medium family size. Medium family size
consists of between 4 to 7 family members. Living standard of respondent is increased
after the MFP in the study area, similarly economic to send their children to private
school after than before MFP. Not only their sons but also daughters sent to the
private school. There is positive effect of MFP on source of fuel consumptions.
Except small parts of the respondents, most parts of the respondents use gas as a fuel
after MFP.

Neera, (2018) conducted thesis on Role of Microfinance on Women Entrepreneurship

Development (A Case study of Kirtipur Municipality-4, Kathmandu). This thesis has
focused on to analyze the saving habit of member women, to study the source of
income of women respondents, to analyze the loan use practice of member women, to
analyze the impact of micro finance to improve in economic status of the member
women o explore suggestions to improve the and to economic condition of poorest
women. Main Findings were: Microfinance is a practical model to microfinance
program. The overall study shows that the program has made positive impact on the
women living standard by generating employment and increasing productivity. The
most important and effective program is to the basis to uplift the economic condition
of rural women. Most of the sampled women are under farmer's category and the
major source of income of women is agriculture.

Acharya (2019) conducted thesis on Impact of Microfinance on Women

Empowerment (A Case Study of Sunal - 4, Nawalparashi District). This thesis has
focused on to examine the role of micro finance in economic empowerment of
Nepalese women, to examine the Nepalese women’s participation in Family decision
making and social status after joining microfinance program and to examine the
improvement on the status of women from the program.
 26

Many researchers which related to microfinance and women empowerment have been
conducted. Most of the previous researches are closely related to the present study
which helped the researcher to explore what has already been done and what is still
remaining to be done. The previous studies are similar to the present study. The
present study focuses on the role microfinance in poverty reduction. A study by
Acharya (2019) on Impact of microfinance on women empowerment helps me to find
out the women empowerment factors.

A study by Sara long theory of empowerment give knowledge about the

empowerment factors and branches. It helps to develop theoretical framework and
conceptual framework. Moreover, the researcher got is got ideas to decide research
design, specifying the objective of the study, determine selection of the research tools,
data collecting procedures, analysis and interoperate sate and etc. to say in a single
sentence they helped the researcher in all aspects of the study. The review of these
literatures also provided the researcher clear idea about role of microfinance on
poverty reduction. Above review has focused on to analyze the saving habit of
member women, to study the source of income of women respondents, to analyze the
loan use practice of member women, to analyze the impact of micro finance to
improve in economic status of the member women o explore suggestions to improve
the land to economic condition of poorest women. Main Findings were: Microfinance
is a practical model to microfinance program. The overall study shows that the
program has made positive impact on the women living standard by generating
employment and increasing productivity. The most important and effective program is
to the basis to uplift the economic condition of rural women.

2.3 Research Gap

The microfinance is an emerging issue to overcome the poverty. Many organizations

words on that field but how are they working in that field, what did impact the poor
people. Many researchers are conducted on that could not draw the clear picture, so
that is the research gap. The study was aimed at evaluating and exploring the impact,
prospects of microfinance and making broad recommendations to make program
effective. This study has also made an effort to raise general awareness among those
people or organizations who were working for the rural Man women. Many
researchers have been conducted in the sector of micro finance. But environment is
 27

changing rapidly so this research is carried out to fulfil the gap of time and to
analyzed current effect of micro finance on this current scenario.

2.4 Conceptual Framework

The theoretical framework clearly MFI helps and role of improve the living standards
of women.

Independent Variables Dependent Variables

Basic Needs
Living standards Poverty

Income
Employment
Usage of microfinance
Purchase Decision

The primary objective of microfinance is to enhance outreach to disadvantaged

sectors of the economy through financial inclusion. It is linked to the empowerment of
the poor by the provision of financial emancipation and a simple way to provide
loans, and other financial services to impoverished individuals to enhance their
income generating capacity and to foster economic activities in low income segments.
The concept of microfinance can be traced back to the mid-nineteen century when
Lysander Spooner documented the benefits of micro-credits to farmers and
entrepreneurs as a way through which poor people would and can get out of poverty.

Microfinance has a key role in altering issues in the field of agriculture, rural finance,
and rural development activities. Microfinance, or financial services for the poor,
offers a distinctively crosscutting tool capable of alleviating some of the most
challenging issues of our time. These include, but are not limited to, ending extreme
poverty and hunger, promoting gender equality, enabling access to healthcare, and
promoting inclusive economic growth. Microfinance plays an important role at the
economic level because it allows people with low income to obtain small loans to
participate effectively in the local economy and achieve financial stability which
gives them more autonomy. Microfinance is the provision of a broad range of
 28

financial services such as deposits, loans, payment services, money transfers, and
insurance to poor and low-income households and their micro-enterprises. It includes
a diverse set of financial activities which facilitate the micro-enterprises and help low-
income households and the poor to develop themselves as well as raise living
standards.
 29

CHAPTER III

RESEARCH METHODOLOGY

This chapter deal with technique and procedures used during the research study. this
chapter includes the introduction about Nirdhan Utthan laghubitta bittiya sanstha Ltd
and Gramin Bikas laghubitta Bittiya sanstha ltd, research design, nature and source of
data, sampling technique and procedure, data collection technique, analysis and
presentation of data.

3.1 Research Design

To conduct present study descriptive and analytical research design was adopted. It
describes the relationship between income, basic need, living standard and other
variables. Descriptive was used for conceptualization of the research objectives and
research problem of the study. In order to describe the present status and past
experience of clients of microfinance program, case study research design has also
been followed. This study facilitated a long discussion with interacting clients
regarding the impact of microfinance. Attitudes, values, perceptions and behaviors of
the participants of the microfinance program have also been explored. Descriptive
research design is used for accessing the opinions, behaviors or characteristics of
given beneficiaries, and describe the situation and events occurring at present. Present
researcher was used to analyze the collected data and information more accurately and
critically.

3.2 Population and Sample

Population is the entire set of items from which you draw data for a statistical study. It
can be a group of individuals, a set of items, etc. It makes up the data pool for a study.
Generally, population refers to the people who live in a particular area at a specific
time. But It can be a group of individuals, objects, events, organizations, etc. You use
populations to draw conclusions. A sample represents the group of interest from the
population, which we used to represent the data. The sample is an unbiased subset of
the population that best represents the whole data. To overcome the restraints of a
population, we can sometimes collect data from a subset of your population and then
 30

consider it as the general norm. We collected the subset information from the groups
who have taken part in the study, making the data reliable. The results obtained for
different groups who took part in the study can be extrapolated to generalize for the
population.

The sampling technique that is used in this research is non-probability sampling

method given that the research is based on the subjective judgment of the researcher.
Among the various non-probability sampling techniques, purposive sampling
technique was used for the study purpose because the study participants are chosen
based on researcher knowledge about the population and the purpose of the study and
it had been convenient to respondents as they were free to express and share their
information with the researcher.

The sample size has been taken from involved women in Nirdhan Utthan Laghubitta
Bittiya Sanstha Ltd and Gramin Bikas Laghubitta Bittiya Sanstha Ltd in Dhangadhi
sub municipality. Altogether around 980 female members in both microfinance
(Nirdhan Utthan Laghubitta Bittiya Sanstha Ltd (540) and Gramin Bikas Laghubitta
Bittiya Sanstha Ltd (440) are the population of the study. Among them only 125
women were selected as sample for this study using simple random sampling method.

3.3 Nature and Source of Data

This study is based on the primary as well as secondary data. This studyis mainly
based on primary data , which is collected from the field survey using structured
questionnaire , check list for focus group discussion and the observation method. The
related secondary data is obtained from documents, reports, journals etc, different
books and bulletins of microfinance have to use.

3.4 Data Collection Techniques

Secondary data were collected from different literatures. This study basically was
based on primary data. Primary data was collected from the different primary data
collection techniques.
 31

Questionnaire

Questionnaire was used to get qualitative information. But some important

quantitative information is also collected the respondents of questionnaire survey are
the sample numbers and group managers of the program. Questionnaires were handed
out through delivery and collection method. Delivery and collection of questionnaires
allow researcher to confirm that the questionnaires were filled up completely and
reduce the occurrence of missing data. It facilitates the researcher to explain
respondents about any queries they may have regarding the questionnaire. This, in
turn, would increase the accuracy of the data being collected.

3.5 Data Presentation Analysis Techniques

The collected primary and secondary data have been thoroughly checked, compiled
and presented in an appropriate table to facilitate analysis and interpretation. Analyses
have been done both descriptively as well as statistically. Statistical tools such as
Percentage, Bar Diagram, Trend Analysis, etc. have been used as per the requirement
and summarized the major findings of the study. Various clear tables, figures and
graphs have been used to analyze, interpret and conclude the result of the study.

3.6 Descriptive Statistics

Descriptive statistics is used to describe the basic features of the data in a study.
Descriptive statistics provide simple summaries about the sample and about the
observations that have been made. It measures maximum, minimum, mean and
standard deviation Descriptive analysis was carried out to accomplish the objective of
the study, and also to know the demographic and socio-economic characteristics of
the sample and their household in the study area. According to Nachmias and
Nachmias, (1992) descriptive analysis is used for categorizing and analytically
summarizing the data in a comprehensible form. It is based on the percentages and
classification of the data.

Correlation Analysis

Having indicated the descriptive statistics, Pearson’s correlation coefficients are

computed. This study is finding the Pearson’s correlation coefficients among different
 32

dependent and independent variables. The independent variables are basic needs (BN)
income (IN) employment (EM), Living Standards (LS), purchase decision (PD) and
Usage of microfinance (UM). The dependent variable is Poverty (PV). The person
correlation method is used to analyze the correlation among variables. It is an
expression of the change or effect produced by the variation in certain variables, or of
the ratio between two different quantities.

Regression Model Regression Model

The main, financial indicators are BN, LS, IN, EM, UM, PD and PV has taken as
performance variable. The equation to be estimated has been specified as under the
equation which is stated below:

PV= 0+ 1 BN1it + 1 LS1it +1 IN1it + 2EM2 it + 4PD4it +5UM5it + U it ……....(i)

Where,
PV Poverty
BN Basic Needs
LS Living Standards
IN Income
EM Employment
UM Usage of microfinance
PD Purchase Decision

Definition of Variable

Basic Needs

The basic needs approach is one of the major approaches to the measurement of
absolute poverty in developing countries. It attempts to define the absolute minimum
resources necessary for long-term physical well being, usually in terms of
consumption goods. The poverty line is then defined as the amount of income
required to satisfy those needs. The basic needs approach to development was
endorsed by governments and workers' and employers' organizations from all over the
world. It influenced the programmes and policies of major multilateral and bilateral
development agencies, and was the precursor to the human development approach. A
traditional list of immediate "basic needs" is food (including water), shelter and
 33

clothing. Many modern lists emphasize the minimum level of consumption of "basic
needs" of not just food, water, clothing and shelter, but also sanitation, education, and
healthcare. Different agencies use different lists. The basic needs approach has been
described as consumption-oriented, giving the impression "that poverty elimination is
all too easy.

Living standards

Standard of living is the level of income, comforts and services available, generally
applied to a society or location, rather than to an individual. Standard of living is
relevant because it is considered to contribute to an individual's quality of life.
Standard of living is generally concerned with objective metrics outside an
individual's personal control, such as economic, societal, political and environmental
matters such things that an individual might consider when evaluating where to live in
the world.

To evaluate the impact of policy for sustainable development, different disciplines

have defined Decent Living Standards in order to evaluate or compare relative living
experience. During much of its use in economics, improvements to standard of living
was thought to be directly connected to economic growth, increase amount of energy
consumption and other materials.

Income

Income is the consumption and saving opportunity gained by an entity within a

specified timeframe, which is generally expressed in monetary terms. Income is
difficult to define conceptually and the definition may be different across fields. For
households and individuals in the United States, income is defined by tax law as a
sum that includes any wage, salary, profit, interest payment, rent, or other form of
earnings received in a calendar year. In the field of public economics, the concept
may comprise the accumulation of both monetary and non-monetary consumption
ability, with the former (monetary) being used as a proxy for total income. For a firm,
gross income can be defined as sum of all revenue minus the cost of goods sold. Net
income nets out expenses: net income equals revenue minus cost of goods sold,
expenses, depreciation, interest, and taxes
 34

Employment

Employment is a relationship between two parties regulating the provision of paid

labour services. Usually based on a contract, one party, the employer, which might be
a corporation, a not-for-profit organization, a co-operative, or any other entity, pays
the other, the employee, in return for carrying out assigned work.[1] Employees work
in return for wages, which can be paid on the basis of an hourly rate, by piecework or
an annual salary, depending on the type of work an employee does, the prevailing
conditions of the sector and the bargaining power between the parties. Employees in
some sectors may receive gratuities, bonus payments or stock options. In some types
of employment, employees may receive benefits in addition to payment. Benefits may
include health insurance, housing, disability insurance. Employment is typically
governed by employment laws, organization or legal contracts

Purchase Decision

Purchase decision is the thought process that leads a consumer from identifying a
need, generating options, and choosing a specific product and brand. The level of
dominance of each process at a particular time is the key determinant of purchasing
decisions.
 35

CHAPTER IV

RESULTS AND DISCUSSION

4.1 Result

This chapter deals with the presentation and analysis of data collected through the
administration of questionnaires. Presentations of the data have been made by tables
and charts and data have been analyzed on the basis of the average of the response.
Question included in the questionnaire has five point rating scale (1 for the lowest and
5 for the highest).

4.1.1 Age Composition of Respondents

The age structure of sample beneficiaries has been presented in table 4.1

Table 4.1
Age Structure of Sample Beneficiaries
Age of Respondents No of Respondent Percent
20-30 5 4
31-40 53 42 .4
41-50 39 31 .2
51-60 28 22 .4
Total 125 1 00

Source: Field survey, 2022

The age structure of sample beneficiaries shows that, most of the respondents in the
sample fell in the age group of 31-40 years followed by these in the age group of 41-
50 years and 51-60 years. The proportion of respondents' age 10-20 years was almost
non-existent. So it was seen that the age of 30 through 60 years of women are the
significant age group, which are involved in the microfinance program. The negligible
participation of old aged women in the microfinance program might be explained by
the fact that old aged women are not involved in earning activities by obtaining loan
from the co-operative
 36

4.1.2 Distribution of Respondents by Caste /Ethnicity

Nepal's ethnic diversity is well known. The involvement in microfinance program of

Man & women appeared to be uniform rather than diverse in terms of ethnic
composition. The ethnic group to which they were related traditionally affects the
social and economic activities of rural people. Furthermore social and economic
activities greatly differ by cast and ethnic group irrespective of any financial
feasibility. Distribution of respondents by caste/ethnicity has been shown below.

Table 4.2
Composition of Caste /Ethnicity
Caste group No. of Respondents Percent
Brahmin 24 19.2
Tharu 34 27.2
Magar 20 16
Gurung 5 6.4
Rai 13 10.4
Tamang 9 7.2
Others 10 8.00
B.K. 7 5.60
Total 125 100.00

Source: Field survey, 2022

The composition of cast and ethnic structure of sample beneficiaries shows that Tharu
are in majority (27.2 %) and followed by Brahm (19.2%), Position of Magar is also
significant which occupied (16 %). Rai (10.4), Gurung (6.4 %), Tamang (7.2 %) and
B.K. ( 5.6%) are also important cast/ ethnicity in the study area.

4.1.3 Educational Status of Respondents

Educational status is one of the important factors or indicators of poverty. With regard
to educational status, sample respondents are categorized in different groups which
are presented as below:
 37

Table 4.3
Educational status of sample respondents
Level of Level No. of Respondents Percentage
Illiterate 5 4
Under SLC 69 55.2
+2 level 43 34.4
Bachelor level 8 6.4
Total 125 100

Source: Field survey, 2022

Table 4.3 shows that the educational level of the sample respondents where as much
as 69 respondents i.e. 55.2 percent are under S LC. Only 5 respondents i.e. 4 percent
are found as illiterate and 43 i.e. 3 4.4 percent respondents are found as +2 levels. 8
i.e. 6.4 percent respondents are found as bachelor level.

4.1.4 Land Holding Pattern

Table 4.4
Land Holding Pattern
Land holding pattern Before the After the changed
program program

Own land more than 15 Ropani 66 63 -3

Own land less than 15 Ropani 35 40 5
Other’s land in rent 17 15 -2
Landless 7 7 0
Total 125 125 Not
applicable

Source: Field survey, 2022

There is no significant change in land holding pattern. However, three households

sold the land and divert the business. Accordingly, some families purchased land.
Because of the availability of financial services 17 families rented the other’s land for
vegetable production. But in the same community 3 families have rented out the land
to other involve in business. The price of land went very high last year and in that
period many people sold some land. There are 7 landless in the community who has
 38

been implementing off-farm business in the community with the financial

support of microfinance program. The role of the microfinance program found less on
land hold- ing pattern. However, there is 33% increment on other’s land rented by
client families. This could be due to easy access to formal credit for commercial
farming.

4.1.5 Drinking Water of Respondent

Health and sanitation also represents the living standard of the people. To evaluate
health and sanitation variables drinking water and toilet are chosen for the study. So
with regard to health and sanitation, sample respondents were asked about their
sources of drinking water. Their responses and frequencies are given in the table as
below:

Table 4.5
Sources of drinking water
Before joining MFI After joining MFI
Sources Number % Number %
Private Tap 58 46.4 71 56.8
Public Tap 67 53.6 54 43.2
Total 125 100 125 100

Source: Field survey, 2022

Table 4.5 shows that 125 sample respondents i.e. 46.4 percent were drinking water
from tap whereas 67 respondents i.e. 53.6 percent were using well as source of
drinking water. After joining the micro finance program number of respondents using
tap as a source of drinking water has increased to 71 i.e. increased by 23 whereas
number of respondents using well for drinking water has decreased to 54.

4.1.6 Health Services for Respondent

Micro finance practice shows that, this program is much effective with this area. They
are easily to be grouped because men are more individualists. According to the rule of
bank, all clients must benefactions to health post so the 100 percent clients of the
microfinance programs were grow a consciousness for our health.
 39

Table 4.6
Users of Hospital
Hospital No. of Respondents Percent
Local hospital 91 72 .8
Private clinic 18 14 .4
District hospital 11 8.8
Regional hospital 5 4
Total 125 1 00

Source: Field survey, 2022

Table 4.6 shows, as much as respondents are going to local hospital. Around
72.8 percent of the respondents i.e. 91 are found as local hospital and 18 respondents
are found as private clinic. Similarly, out of 125 sample respondents 11 respondents
are goes to district hospital and 5 respondents are going to reason hospital.

Economic Development is a vague term which includes both macro as well as micro-
economic development. The microfinance is concern with micro-economic
development. It deals with economic development of an individual and society. The
disposal income has been found increased after the program intervention. In addition,
there are changes on economic activity because of credit program intervention.
However, the finding of this study has not been found supporting any specific
economic theory described in the literature review. It could be the negligible role of
microfinance on macro-economic development because it has limited share in terms
of economic volume.

With regard to impact of micro finance program, sample respondents were asked
about the impact of MFI program. Role of microfinance on economic activity and
income has been described hereunder.

4.1.7 Sources of Borrowings Before and After the MFIs

Generally in rural area, people are found borrowing from local trader and merchants
at high interest rate. Bank and financial institutions are not offering loan to the low
income level and they do not provide loan without collateral as well. Hence rural
people are suffering from financial support. With regard of borrowing, sample
respondents are asked about their source of borrowing. Their responses and
frequenciesare presented in the table 4.8 as below:
 40

Table 4.7
Source of Borrowing of the Respondents
Before MF program After MF program

No of No of
Sources Respondents % respondents %
Local traders 64 51.2 11 8.8
Co-operatives 52 41.6 36 28.8
MFIs 7 5.6 75 60
Bank and other FIs 2 1.6 3 2.4
Total 125 100 125 100

Source: Field survey, 2022

The data indicates that only 1.6% were getting loan from the bank and financial
institutions before the program. Over 51.2% borrowed loans from local traders and
merchants at high interest ranging from 4-5% per month but friends and relatives with
2-3% per month. The MFIs working in the area are charging cheaper interest rate than
informal sector. Moreover, these MFIs are found reliable sources and providing
institutional based financial services that proof from the data presented in the table
which is increased by 54.4% after the program. After the MFIs program, sources have
been diverted from informal to formal sources (microfinance has been able to work as
substitution of informal sector). A Total of 60% MFIs clients have borrowed loans
from microfinance institutions.

4.2 Descriptive Statistics

Table 4.8
Descriptive Statistics
N Minimum Maximum Mean Std.
Deviation
Basic Needs 125 2.27 3.73 3.0230 .31453
Living standards 125 2.33 3.44 2.9305 .26268
Income 125 1.60 4.00 2.9750 .62131
Employment 125 1.83 3.83 2.7080 .52542
Usage of microfinance 125 2.68 3.35 2.9308 .16109
 41

Table 4.9
Correlations
PV BN LS IN EM UM
PV Pearson .345 .334 0.01 .005 .161 .540
Correlation
Sig. (2- 0.456 .445 .443 1 -.037 .093
tailed)
N 125 125 125 125 125 125
**
BN Pearson .234 0.349 0.282 0.526 0.513 0.445**
Correlation
Sig. (2- 0.777 0.447 .078 0.000 .001 0.004
tailed)
N 125 125 125 125 125 125
**
LS Pearson 0.566 .282 1 -.433 .226 -.100
Correlation
Sig. (2- 0.00 .078 0.01 .005 .161 .540
tailed)
N 125 125 125 125 125 125
** **
IN Pearson 0.526 0.000 0-.433 1 -.037 .093
Correlation
Sig. (2- .000 .000 .005 0.00 .821 .568
tailed)
N 125 125 125 125 125 125
**
EM Pearson 0.513 0.237 0.226 -.037 1 -.123
Correlation
Sig. (2- 0.444 .001 .161 .821 0.000 .451
tailed)
N 125 125 125 125 125 125
**
UM Pearson 0.123 .445 -.100 .093 -.123 1
Correlation
Sig. (2- 0.00 .004 .540 .568 .451 .24
tailed)
N 125 125 125 125 125 125

From SPSS output (Appendix )

**. Correlation is significant at the level of 0.01(2-tailed).
 42

Correlation between Basic needs and Poverty

Table 4.9 shows that the Pearson correlation between basic and Poverty is found to be
0.234 which is positively correlated Its P-value is 0.777 and level of significance is
0.01. Therefore, there is a positive and significance relationship between Asset
Possession and empowerment. (r-0.282, P 0.078<0.01).

Hypothesis 1

Since P value is less than 5% of significance, it shows that there is significant

relationship between basic needs and poverty. The data we collect primarily informs
me about the basic needs and secondarily help determine the role of female asset
ownership and inheritance on women’s empowerment and household welfare in
Dhangadi.

Correlation between Income and Poverty

The correlation coefficient Income and poverty is found to be 0.526 which is

correlated its P-value is 0.000 and level of significance is 0.00. Therefore, there is a
positive and significance relationship poverty and Income (0.00, P 0.526>0.01).
Decision: Since P value is more than 5% of significance, it shows that there is
significant between Income and poverty.

Correlation between Living standards and Poverty

The correlation living standards and poverty is found to be .566 which is correlated its
P-value is 0.01 and level of significance is 0.05. Therefore, there is a positive and
significance relationship between purchase decision and women empowerment
(0.513, P 0.01>0.01).

Hypothesis 2

Since P value is more than 5% of significance, it shows that there is significant

hibetween living standards and poverty.
 43

Correlation between usage of microfinance and Poverty

The correlation coefficient microfinance and poverty is found to be .123 which is

correlated its P-value is 0.00 and level of significance is 0.05. Therefore, there is a
positive and significance relationship between capacity building and women
empowerment (0.123, P 0.00<0.01).

Hypothesis 3

Decision: Since P value is more than 5% of significance, it shows that there is

significant between microfinance and poverty.

The present study is based Nirthdhan Utthan microfinance on Dhangadi Researcher

found that the women have increased their confidence level. Women are happy that
they are earning themselves.

Table 4.10
Regression
Model Summary
Model R Adjusted R Std. Error of Change Statistics
Square the Estimate R Square F Change df1 df2 Sig. F
Change Change
1 1.000a .35 .00258 1.000 37913.304 4 35 .000
a. Dependent Variable: Poverty
b. Independent variable Basic Needs Living standards Income Employment Usage of microfinance,
c. Purchase decision

Table 4.10 summarizes the regression results for the role of microfinance in meeting
basic needs. The adjusted R2 value of 35% suggests that the independent variable
(MF) predicts 35% of variation in the dependent variable (BN), which is quite high
for cross-sectional data.
 44

Table 4.11
ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 1.012 4 .253 37913.304 .000b
1 Residual .000 35 .000
Total 1.012 39
d. Dependent Variable: Poverty
e. Independent variable Basic Needs Living standards Income Employment Usage of microfinance,
Purchase decision

Table 4.12
Coefficients
Model Unstandardized Coefficients Standardized t P value
Coefficients
B Std. Error Beta
(Constant) .004 .008 .447 .658
Basic needs .277 .002 .540 184.288 .000
Living standards .449 .002 .732 255.855 .000
1
Income .124 .001 .477 179.670 .000
usage of .150 .001 .489 188.161 .000
microfinance

Table 4.12 presents the coefficients relating to the effect of microfinance on meeting
basic needs for each of the five questions. MFI1, concerning the importance of MFIs
in fighting increasing poverty, exerts the greatest significant effect (p = 0.658; β =
0.540): a 1-unit change in micro financial performance will meet 0.54 units of basic
needs. Although MFI2, which refers to the affordability of interest rates, is also
significant p = 0.00, its effect (β = 0.277) is less than that of MFI1. Likewise, MFI3
about MFIs providing the minimum capital required by young people exerts the least
significant effect (p = 0.00, β = 0.14). In contrast, both MFI4 and MFI5—whether
obtaining a loan from MFIs is easier compared with traditional banks and whether
MFI services are unproductive in Dhangadi do not significantly affect basic needs (p
= 0.09, 0.42; β = -0.10, -0.05).
 45

4.3 Major Findings

The major findings of the study are as follows:

 The age structure of sample beneficiaries shows that, most of the respondents
in the sample fell in the age group of 31-40 years followed by these in the age
group of 41-50 years and 51-60 years. The proportion of respondents&#39;
age 10-20 years Was almost non-existent.
 The composition of cast and ethnic structure of sample beneficiaries shows
that Tharu are in majority (27.2 %) and followed by Brahm (19.2%), Position
of Magar is also significant which occupied (16 %). Rai (10.4), Gurung (6.4
%), Tamang (7.2 %) and B.K. ( 5.6%) are also important cast/ ethnicity in the
study area.
 Study shows that the educational level of the sample respondents where as
much as 69 respondents i.e. 55.2 percent are under S LC. Only 5 respondents
i.e. 4 percent are found as illiterate and 43 i.e. 3 4.4 percent respondents are
found as +2 levels. 8 i.e. 6.4 percent respondents are found as bachelor level.
 There is no significant change in land holding pattern. However, three
households sold the land and divert the business. The price of land went very
high last year and in that period many people sold some land. There are 7
landless in the community who has been implementing off-farm business in
the community with the financial support of microfinance program.
 This study shows that 125 sample respondents i.e. 46.4 percent were drinking
water from tap whereas 67 respondents i.e. 53.6 percent were using well as
source of drinking water. After joining the micro finance program number of
respondents using tap as a source of drinking water has increased to 71 i.e.
increased by 23 whereas number of respondents using well for drinking water
has decreased to 54.
 This study shows around 72.8 percent of the respondents i.e. 91 are found as
local hospital and 18 respondents are found as private clinic. Similarly, out of
125 sample respondents 11 respondents are goes to district hospital and 5
respondents are going to reason hospital.
 The data indicates that only 1.6% were getting loan from the bank and
financial institutions before the program. Over 51.2% borrowed loans from
 46

local traders and merchants at high interest ranging from 4-5% per month but
friends and relatives with 2-3% per month. A Total of 60% MFIs clients have
borrowed loans from microfinance institutions.
 This study shows summarizes the regression results for the role of
microfinance in meeting basic needs. The adjusted R2 value of 35% suggests
that the independent variable (MF) predicts 35% of variation in the dependent
variable (BN), which is quite high for cross-sectional data.
 This study shows the coefficients relating to the effect of microfinance on
meeting basic needs for each of the five questions. MFI1, concerning the
importance of MFIs in fighting increasing poverty, exerts the greatest
significant effect (p = 0.658; β = 0.540): a 1-unit change in micro financial
performance will meet 0.54 units of basic needs. Although MFI2, which refers
to the affordability of interest rates, is also significant p = 0.00, its effect (β =
0.277) is less than that of MFI1. Likewise, MFI3 about MFIs providing the
minimum capital required by young people exerts the least significant effect (p
= 0.00, β = 0.14).

4.4 Discussion

Microfinance is a significant means of alleviating poverty, which is believed to be

caused by the scarcity of financial resources for the poverty-stricken in the main. The
role of MFIs has been beneficial: relaxing the eligibility criteria for credit has allowed
the deprived to access capital, and subsequently contributed to mitigating the
difficulties created by low incomes and lack of investment. Such success has led to a
growing demand for microfinance worldwide, especially in developing countries such
as Pakistan, where the group-lending model has been adopted. Furthermore, MFIs
provide doorstep banking and credit on personal guarantee only, without any
collateral. Consequently, with easier access than traditional banks to financial
services, those living in deprivation can at least meet their basic needs and improve
their living standards.

Microfinance has positive effect on poverty reduction and household income,

household expenditure, food and non food expenditure or income diversification and
assets accumulation (Regmi, (2013). However, recent studies such as (Gurung (2013)
and Bhandari, (2015) found that microfinance is not a bullet magic in poverty
 47

reduction and it may has negative impact and argues that microfinance works
differently from one context to others and from rural to urban the population density,
attitudes to debt, group-cohesion, enterprise development, financial literacy, financial
service providers and other. In line with this study, the Nepalese microfinance has
positive impact on poverty reduction and women household income especially in rural
areas. The result of this study highlighted the important of control variables that have
positive impact on women household income. For instance, access to business
training has positive impact on women household income. This indicates that women
with knowledge about business are more able to make profit and enhance their
business revenue.

A study by Ganawali (2018) was similar to this research that microfinance institutions
plays a positive role on women who invest in them by increasing their well-being
access to and control their resources, eradicating illiteracy among women, taking part
in economic decision and microfinance institution had boosted women’s self esteem.
This study also found that women play a positive role in poverty alleviation.

Likewise, Ijanada, Inusa and Aliyushika (2020) were parallel to my study. His study
concluded that the microfinance saving deposits is an opportunity for women
entrepreneurs to save their little incomes and as such, it serves as security to accessing
loan and other microfinance institutions should deploy more staff to different business
areas where women who are able to make small income from their business can save
and give their daily contribution. My study found that the important of control
variables that have positive impact on women household income. For instance, access
to business training has positive impact on women household income.

A study by Banerjee, Alok & George (2020) investigated that an employed woman,
having her own income source, higher educational level, knowledge of legal rights,
higher educational level of the mother of the woman, having property in her own
name, more freedom of movement during her school days, having high self-esteem
and belonging to a relatively affluent background, increases domestic making power
of the women, and thus empowerment. Some possible policies are suggested for
developing economies. This study indicated that women with knowledge about
business are more able to make profit and enhance their business revenue.
 48

A study by Jain (2020) examined how far micro financing services positively affect
the empowerment of Nepali women living in the eastern part of Nepal. A purposive
sampling method was used and responses of 97 women were collected through
structured questionnaires. The women were using microfinance services on their own
and at least from the last three years. Results indicate that the use of microfinance
services (credit and saving) helps women to empower. The finding of this study is the
importance of extending nonfinancial services such as business development and
entrepreneurship training to women clients before providing them loan.

The study by Ijanada, Inusa and Aliyushika (2020) concluded that microfinance
saving deposits is an avenue for women entrepreneurs to save their little incomes and
as such, it serves as security to accessing loan and other microfinance institutions
should deploy more staff to different business areas where women who are able to
make small income from their business can save and give their daily contribution.
Many organizations words on that field but how are they working in that field, what
did impact the poor people. This study has also made an effort to raise general
awareness among those people or organizations who were working for the rural Man
women. Many researchers have been conducted in the sector of micro finance. But
environment is changing rapidly so this research is carried out to fulfil the gap of time
and to analyzed current effect of micro finance on this current scenario.
 49

CHAPTER V

SUMMARY, CONCLUSION AND IMPLICATIONS

5.1 Summary

In present context of Nepal, women do occupy more than half of the total population
women just used to be locked inside the house in ancient period. Women were not
given opportunity to involve in economic activities. Women used to remain busy in
their household works to preserve of vicious circle of poverty. There was very
miserable condition of women in the past.

Microfinance programmes are currently promoted as a key strategy for

simultaneously addressing both women empowerment and poverty alleviation in
Dhangadi. Microfinance is the powerful instruments for the rising the living standard.
It generally provides the small loans by accepting the little deposit. The empowerment
lies in the ability of the women to control the own destiny. The empowered woman
must have the equal capability of education, health, resources, opportunities, for
making the choices and the decisions. The micro finance provides the sense of
responsibility to the women fighting towards many problems. Microfinance is the tool
that enables the people to be out of the problems and generate the additional income.

The main objective of the study is to analyze the impact of microfinance for economic
growth and its contribution to reduce poverty of the people. The specific objectives of
the study are to state out the relation between microfinance and basic needs, to
explored relation between the microfinance and living standards (LS) and to examine
the impact of microfinance programs in poverty reduction. To conduct present study
descriptive research design was adopted. The sample size has been taken from
involved women in Nirdhan Utthan Laghubitta Bittiya Sanstha Ltd and Gramin Bikas
Laghubitta Bittiya Sanstha Ltd in Dhangadhi sub municipality. Only 125 women were
selected as sample for this study using simple random sampling method. This study is
based on the primary as well as secondary data. This study is mainly based on primary
data, which is collected from the field survey using structured questionnaire, check
list for focus group discussion and the observation method. The related secondary
data is obtained from documents, reports, journals etc, different books and bulletins of
 50

microfinance have to use. Secondary data were collected from different literatures.
This study basically was based on primary data. Primary data was collected from the
different primary data collection techniques. Questionnaire was used to get qualitative
information.

The study concludes that enhanced microfinance accessibility improves both

economic and social empowerment of women with significant reference to marital
status and education of women. Women, after involved in micro finance program
have become able to improve to their living standard. Their living style has been
changed towards positive direction. They have become able to create good image in
their family and in the society. 3. After being participated in microfinance program,
their income has been increase in comparison to before being involved in
microfinance program. Together with the increment in the level of income, they have
also become able to increase their saving rate than before.

5.2 Conclusion

Poverty is about not having enough money to meet basic needs including food,
clothing and shelter. However, poverty is more, much more than just not having
enough money. Poverty is about not being able to participate in recreational activities
not being able to send children on a day trip with their schoolmates or to a birthday
party not being able to pay for medications for an illness.

1. The study reveals that it needs to analyze while implementing microfinance

program. The socio-economic analysis performed in Dhangadhi sub
Municipality reveals that most of the indicators such as family size, male to
female ratio, literacy level, housing types and income level are better than in
other rural areas of Nepal. Moreover, education level, assets level and housing
types have been changed after program intervention.
2. Women, after involved in micro finance program have become able to
improve to their living standard. Their living style has been changed towards
positive direction. They have become able to create good image in their family
and in the society. The standard of living is measured by things that are easily
quantified, such as income, employment opportunities, cost of goods and
 51

services, and poverty. Factors such as life expectancy, the inflation rate, or the
number of paid vacation day's people receive each year are also included.
3. Women have become able to come out of the house and learn new things after
being involved in MFPs. Women have become able to know and learn about
the world by coming out from the house. They are providing economic
contribution towards their family, society and towards their nation as well.
4. After being participated in microfinance program, their income has been
increase in comparison to before being involved in microfinance program.
Together with the increment in the level of income, they have also become
able to increase their saving rate than before. Due to this, their living standard
has also being uplifted and their poverty status has been reduced. This
indicates that women with knowledge about business are more able to make
profit and enhance their business revenue.
5. Level of income was one of the indicators used to test the change in living
standard of loaners. The result of this study highlighted the important of
control variables that have positive impact on women household income. For
instance, access to business training has positive impact on women household
income. This indicates that women with knowledge about business are more
able to make profit and enhance their business revenue.
6. The study reveals that economic status of women has risen due to income
generating activities and they were socially empowered due to group solidarity
created by microfinance program. They can raise voice against gender
discrimination.
7. The finding of this study is the importance of extending nonfinancial services
such as business development and entrepreneurship training to women clients
before providing them loan
 52

5.3 Implications

Based on the above mentioned summary, conclusion and researchers field experience,
following implications have been made for further improvement of successful
implementation of micro-finance program for women all over the country.

1. It has been found that skillful and useful trainings should be given by
microfinance institutions difficulty and confusion about where and how to
utilize the money to improve their living standard and present economic status.
Through the help of skillful trainings, women can make themselves busy in
money generating activities.
2. Local government bodies may guideline to shape their plans and policies field
of women empowerment and poverty alleviation through this study. This
study may be useful to the NGOS that are working in the field of women to
get an overview of the economic strength of women and to shape their plan
and policies.
3. Role of micro finance company to generate employment and their self job
satisfaction is also subject matter for upcoming researcher. Role of micro
finance company to generate capital is also subject matter for upcoming
researcher.
4. Together with trainings, women clients should be provided with employment
opportunity by microfinance institutions. If proper way to earn money is
shown by such institutions, they can get economically empowered.
5. Nepal’s formal microfinance institution could play a key role in developing
financial services to low- income households. Yet, the performance of this
sector is disappointing especially in the remote hills and mountains. It is
necessary to device appropriate operational microfinance modalities to
enhance hill and mountain poor people’s participation in the credit market.
6. Government should also provide attention towards the management of
microfinance institutions and should make those institutions client-oriented
together with profit-oriented.
7. From the study it is found that even the limited access of the households on
the credit market is skewed against the garget groups and communities. So it is
recommended that the government should extend the financial institutions
 53

with appropriate policies and products to promote the government’s agenda of

inclusive growth and equity.
8. This study may help for the banks and other financial institutions. Similar
studies could be further developed by including more variables as mediating,
moderating and or intervening in the regression model with a larger sample
size, the study has only considered economic and social dimensions of women
empowerment but there are other many aspects of women empowerment such
as health, political and psychological which could be measured and that could
be followed by future researcher.
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Tokha Kathmandu. Faculty of Management, Shanke Dev campus ,T.U.

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empowerment, Journal of Economic & Finance, 2(1), 28-34.

Dhital, B. ( 2015). Socio economic impact of micro finance: with reference to Sangle
V.D.C. of Kathmandu district, Nepal. Prithivi Narayan Campus, Faculty of
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vulnerability in Bangladesh. Disaster Prevention and Management, 17(3),
396-409.

Gurung, P. (2013). Impact of micro finance program for poverty reduction and
women employment a case study of microfinance program of Kaski District,
Faculty of Management, Shanke Dev Campus ,T. U.

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Metropolitan, Nepal, Journal of Underrepresented and Minority Progress,
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Regmi, B. (2013). Role of microfinance in poverty reduction a case study of
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 Questionnaire

Dear Madam,
This study entitled “Role of Microfinance for Poverty Reduction”. This research
work deals with some of the major components of poverty reduction by microfinance.
This research is conducted as a partial fulfillment of Masters of Business studies
(MBS). Your responses will be kept confidential and used only for the purpose of this
study.
1) Name (optional):
2) Age:
a) 20-30 years
b) 30-40 year
c) 40-50 year
d) Above 50
3) Education Level
a) No formal education
b) Secondary
c) +2 level
d) Bachelor
e) others (specify):………………
4) Marital status:
a) Single
b) Married
c) Divorced
5) Occupation:
a) Agriculture
b) Labourer
c) Housewife
d) Formal employment
6) Religion:
a) Hindu
b) Buddhist
7) No. of family members:
a) less than 5
b) above 5
8) No. of children:
a) no children
b) less than 2
c) more than 2
10) School:
a) private school
b) Government school
11) Annual Family income:
a) Less than one lakh
b) 1to 2 lakh
c) more than 2

12) What is the source of the initial capital invested?

a) Microfinance institution b) Family income
c) Personal saving d) others
13) Why did you prefer to start your own business?
a) Family profession b) your own decision
c) No other alternative for income d) Other specify:
14) How long have you been taken loan from microfinance?
a) Less than 2 year b) 2-5 years
c) 5-10 year d) more than 10 year
Please indicate your opinion on the scale as given below.
Basic Needs and Poverty
1. You feel better to deal with your business by yourself.
2. You want more loans if you are allowed without family permission.

3. You go to attend meeting without seeking permission from your family.

4. You go to purchase business items from market.

5. You feel prestigious in society by the presence of microfinance.

Income and Poverty
6. You are currently in a better situation than ever before

7. You are able to purchase daily household needs like food and others.

8. You are able to pay health care expenses if needed.

9. You are able to pay school expenses for the children without seeking financial
support and permission from others.
 10. Your economic condition has been improving due to microfinance.

Microfinance and Poverty

11. It is your own decision to join with microfinance.

12. It is your own decision to invest in any business you like.

13. You can invest in any assets by own decision.

14. You feel satisfied with your own decision.

15. You feel proud to be a good decision maker.

16. You feel better to deal with your business by yourself.

17. You want more loans if you are allowed without family permission.
18. You go to attend meeting without seeking permission from your family.

19. You go to purchase business items from market.

20. You feel prestigious in society by the presence of microfinance.

 A THESIS PROPOSAL ON
ROLE OF MICROFINANCE FOR POVERTY REDUCTION

A Dissertation submitted to the office of the Dean, Faculty of Management in partial

fulfillment of the requirements for the Master's Degree

By

Ritu KC
Exam Roll No : 787/16
Registration No.: 7-3-28-144-2015
Central Department of Management

Kirtipur, Kathmandu
 CHAPTER I

INTRODUCTION

1.1 Background of the Study

Microfinance deals with the provision of financial services, such as loans, savings,
insurance, money transfers, and payments facilities to income groups in the lower cadre,
(Awojobi, 2014). It could also be used for productive purposes such as investments, seeds
or additional working capital for micro enterprises. On the other hand, it could be used to
provide for immediate family expenditure such as food, education, housing and health.
Microfinance is an effective tool for reduction of poverty and economic empowerment for
poor people (Ayoade & Agwu, 2015). Microfinance is no longer an experiment or a wish,
it is a proven success.

Anyanwu (2004) stressed that Microfinance may not be able to solve all the problems of
the poor, but it certainly puts resources in their hands in order for them to live an enhanced
standard of life. Microfinance has shown that poor people can be viable customers if
properly focused. No doubt Microfinance has strongly attracted the interest of private
sector investors. However, the following challenges, among others, face Microfinance
institutions: They scale of financial services to the poor should be increased by
microfinance banks; they need to reach out and seek the poor wherever they are and give
them access to finance. The Grameen Bank of Bangladesh has set a good example in this
direction by allowing credit and other services to cost less for the poor and train staff to be
uniquely suitable to Microfinance business. The latter enhances efficiency and
sustainability of the sector; and develops tailored products to meet the needs of their
clients the poor, (Ayoade & Agwu, 2015).

Poverty is a complex and multidimensional phenomenon. It is widespread and pervasive.

Income poverty is considered as deprivation, low education, fragile health including
reproductive health, low nutrition and unemployment, and weak social and political
participation. These are supplementary elements of the deprivation of capability and
empowerment (Senayake, 2002). A study argued that the measurement and the

1
examination of the characteristic causes of poverty at household levels is an important
input into the design of economic policy and poverty reduction( Aryal, 2007). Poverty has
become now an international agenda, and the world leader have committed to social
development in order to address the problems of poverty in twenty first century. Recently
continuous effort were made for reducing the large proportions of people living in extreme
poverty.

1.2 Statement of the Problems

According to the census of 2068B.S, 33% of people in rural area are under the poverty
line and 82.93% population lives in village among which 73.3% depends on agriculture
sector. In that situation, the banks, financial organization cannot reach to the rural area,
lack of the accessibility of the banks, financial agencies, rural people cannot utilize their
self skills, capacity, labour in productive and better way , without money is nothing
possible like that, people of rural area are compelled to take loan from individual or
private sector rather than banks or financial agencies that result to repay with high interest
rate, the can fulfill only their basic needs, food cloth and residence so that the study show
the private sector inviting the more powering in rural area and another important thing is
the field of microfinance is only in the rural area, there is large scale opportunity to enter
microfinance program so the attempts made how the financial sectors enter in rural area
for poverty alleviation and what has done to uplift their lifestyle by enhancing
microfinance programme.

The study focused on the answers of the following research questions:

1. What is the role of microfinance in employment creation?

2. What is the relation between microfinance and basic needs?
3.What is relation between the microfinance and living standards?
4.Is any impact of microfinance programs in poverty reduction?

2
1.3 Objectives of the Study

Every study has its own objectives. This study also not apart from that. The main
objectives of the study are to analyze the impact of Unique Nepal for economic growth
and its contribution to reduce poverty of the people.

The major objective of the study is as follows:

1. To evaluate the role of microfinance in employment creation.

2. To state out the relation between microfinance and basic needs.
3. To explored relation between the microfinance and living standards.
4. To examine the impact of microfinance programs in poverty reduction.

1.4 Significance of the Study

Nepal is least development country. Most of the population of Nepal lives in rural area.
But on the contrary all sorts of facilities is focused to urban area. Specially banking
facilities are focused on those urban areas. In this context micro finance services important
tools for the development of rural area. Because of banking facilities are limited to urban
areas; people from rural area have not access of those facilities. Many small entrepreneurs
are suffering from insufficient capital. They have not enough credit facilities. There is no
any institution for saving of their small amount which they can save from their monthly
expenditure. Micro finance is the solution to fulfill those lacking. Many micro finance
companies are providing their services to rural people. They are conducting different
activities like saving collection, providing short term loan and others conducting social
activities which help to change their life style. Micro finance program encourages to
regular saving that helps to create capital.

Micro credit program is related to the poverty alleviation and women empowerment for
the sustainable development. The government of Nepal will be initiating microfinance
programs as well as promoting the development banks, rural banks, NGOs, INGOs for
such programs toward targeted group. Therefore, this study is significant for decision
makers for long term future planning in micro financing sector and helps identify better

3
solution from the problem which will arises in future. In addition, the study helps identify
the status of poor people in the rural areas as per self- dependency.

This study is concern with those micro finance companies that how far those micro
finance companies are important to improve the living standard of rural people. What is
the role of micro finance company to reduce the poverty? Is there any significance change
to the people of rural people? This study analyzed the impact of micro finance company to
the rural people. This study is helpful to ascertain the effectiveness of micro finance
company in developing country like Nepal.

1.5 Hypothesis of the study

The following hypotheses were developed to determine the relationship between

microfinance and poverty alleviation:

H1 : Microfinance has a significant relationship with basic needs (BN).

H2 : Microfinance has a significant relationship with living standards (LS).

H3 : Microfinance has a significant relationship with the usage of microfinance (UM)

1.6 Limitations of the Study

This study has concerned only to the macro financing institutions. The study has following
limitations :

• only basic need , living standard are taken as a determinant of poverty reduction
• The study will be based on Dhangadhi sub Municipality of Kailali district.
• This study is only concentration to nirdhan utthan laghubitta bittiya sanstha ltd.
and nepal grameen bikas bank ltd. Of kailali. So it is doesnot cover the real
scenario of Nepal.

4
1.7 Organization of the Study

This study will be organized into five different chapters.

Chapter- I: Introduction:

The first chapter deals with the subject matter consisting introduction, back grounding of
the study, statement of the problem, objectives of the study, significant of the study,
limitation of the study and organization of the study.

Chapter- II: Review of the Literature:

The second chapter is mainly focused on literature review that included a discussion on
the Concept microfinance in Nepal which studies relating with Poverty Reduction.

Chapter- III: Research and Methodology:

The third chapter describes the research methodology used to conduct the present
research. It deals with research design, sources of data, data processing procedures,
population and sample; period of the study, method of analysis and financial and statistical
tools.

Chapter - IV: Data Presentation and Analysis:

The fourth chapter is concerned with analytical framework. It includes the analysis of
financial indicators.

Chapter - V: Summary, Conclusion and Recommendations:

The fifth chapter includes the summary, conclusion and recommendations of the study
which deals about the main theme of study and comparison of lending policy of the banks
with recommended for improvement of loan management of the selected banks. The
bibliography and annexes are also incorporated at the end of the study.

5
 CHAPTER II

REVIEW OF THE LITERATURE

This section includes review of related theoretical literature, review of empirical literature,
implications of review for the study and conceptual framework.

2.1 Theoretical Review

2.1.1 The Poverty Theory

While relying on the vicious circle of poverty Theory, a credit investment framework is
constructed and seeks to explain how microcredit can be used as an instrument for poverty
reduction. Meanwhile, the proponent of the vicious theory (Nurkse, 1967) explained that
poverty perpetuates itself in mutually reinforcing vicious circle on both supply and
demand sides. It is argued that the must important circular relationships of a kind are those
that affect the accumulation of capital in economically backward country or society
explaining the supply side, the proponents hold the view that there is a small capacity to
save due to low level of real income. The low real income is a reflection of low
productivity, lack of capital, resulting in small capacity to save. With regard to the demand
side, it is argued that, demand for capital is influenced by incentive to invest. However,
the lack zeal to invest could be due to low purchasing capacity of the people, small real
income and as a result of low productivity.

Low productivity, however, could be due to small amount of capital used in the
production, which may be caused partly by less incentive to invest. Meanwhile, the low
level of real income, due to low productivity, is an issue that is common to both supply
and demand sides of the circles. therefore, it could be argued that there are two ways that
people use microcredit. Thus, loans are either used to start a new enterprise or expand an
existing one. Provision of credit to people who are not working might serve as a start-up
capital of them in doing business (income generating activities), thus, in the process
creating jobs for them. Job creation could lead to reduction in unemployment within
beneficiaries, as unemployment is reduced, the general poverty level can also be reduced.

6
Oxford Advanced Learner’s Dictionary defines poverty as not having and not able to get
necessaries of life. There are many words to name the poverty as destitution, lack,
difficulties, bad circumstances, embarrassed, insolvency, disadvantaged, measurable etc.
In simple word, the poor mean the person who does not have any property (Kunwar,
2002).

Gyawali (2011) conducted a study on "Impact of Microfinance Programme in socio-

Economic Empowerment of women in Nepal Acase study of DEPROSC Nepal in Thaiba
VDC of Lalitpur District, Major objective is to study the Economics impact of
microfinance on women Empowerment. To the social impact of microfinance on women
empowerment and to analize the constraints faced by women clients becouse of the
competitive microfinance services. The major finding of the study are: Women are found
to have enhanced food security. Better health nutrition sanitation etc. after being involved
in MFPs. microfinance program has contributed towards generating more income from
small scale busimess, agriculture and live stock farming.

Regmi, (2013) conducted a study on Role of Microfinance in Poverty Reduction A case

study of Microfinance program of Manushi in Goldhunga V.D.C of Kathmandu district.
The main objective of the study is to evaluate the effectiveness of th micro finance
program in the area in the context of poverty reduction, to analyze the effect of
Microfinance in living standard and empowerment of women participants in the study
area, and to provide suggestions for enhancing the effectiveness of the program. The
major finding of the of the study are: Drinking water supply in the family engaged in
microfinance have satisfactory. Almost all of the families have toilet in their home which
shows satisfactory level of personal hygiene in their households. The family of the study
area has got moderate level of health services. Most of the family of the study area have
their own land for agricultural activities. Microfinance client have many alternatives of
income. Most of the clients have improved their income level by utilizing loan from the
microfinance institution. Survey shows that most of client used the loans in agriculture
and animal husbandry .so loan disbursement to be made accordingly in the survey area. It
observed from the survey those clients are satisfied with the service of microfinance

7
institution. It is observed that microfinance institution provide microfinance services to
poor people especially poor women.

Gurung (2013) conducted a study on "Impact of Microfinance Program for Poverty

Reduction and Women Empowerment: A case study of micro Finance Program of kaski
District". The main objectives of the study is to examine the socio-economics impact of
micro finance programs on clients of NUMl in koshi bistrict, to analize the impact of
MFPs on women empowerment, to access the impact of The MFPs on the poverty
reduction. Major Finding of the study are: In an average, the age of clients in 40 years
which is includes mostly literate and married women. Income level of women increased to
Rs,46500 from Rs,39725after involving in MFPs. Being economically sound, Micro-credit
has helped a large number of clients to diversify their occupation by under taking newer
activities. After involving in MFPs the condition of drinking water has improved which
proves that women are getting awareness through MF as well.

Poudel, (2014) conducted a study on "Microfinance Enterprises and Women

Empowerment under Village Development Programme (A case study Nirmal Pokhari
VDC, Kaski )". The main objective of the study is to analyze the status of women
enterprises in NIrmal pokhari VDC, to eveluate how efficiently proper is utilized by
women enterprises, to explore the repayment status of loan portfolio and to study on
funding management of village development by women enterprises in NIrmal Pokhari
VDC, Kaski. The major finding of the study are: Income level has increased after VDC.
Out of 70 sample women 31% and 13% are found to earn between Rs, 100000-150000
and Above Rs.150000 respectively. Repayment of loan is satisfactory with 91% borrowers
paying back on time. Main Problams Faced by women enterprises are water (for
agriculture and livestock). transportation and market. Investment is higher in agriculture
and livestock than in trading and manufacturing enterprises.

Bhandari, (2015) conducted her MBS thesis topic "Economic Impact of MIcrofinance on
Women" (A case study of Tokha, kathamandu Nepal). The major finding of the study are:
the women beneficiaries of the micro finance program have improved their earning and
equally stimulated their living standard. Repayment of the loan amount is mostly on time.

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Through the loan has not generally seemed to be utilized on the mentioned purpose they
have been paying of time from other sources. Most of the respondents are married women
who are also in a greater need to support their family economically. The majority of the
respondents (58.97%) belong to small sized family while 30.77% belong to medium size
family with six to ten members. 34.18% of the respondents took loan for business purpose,
20.51% were found to take for agriculture, 17.09% for household purposed and 15.38%
for their children's education. It indicates that women have been business minded and
aware for the proper investment. Major occupations after involvement in MFPs are
livestock/ poultry farming, shop kipping, weaving/ tailoring and small scale business as
candle, soat, prickle, making etc. Most of the women take loan from 2000-50000. very
few women take loan above 50000 as the risk would be higher with high loan amount.

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 CHAPTER III

RESEARCH METHODOLOGY

This chapter deal with technique and procedures used during the research study. this

chapter includes the introduction about Nirdhan Utthan laghubitta bittiya sanstha Ltd and

Gramin Bikas laghubitta Bittiya sanstha ltd, research design, nature and source of data ,
sampling technique and procedure, data collection technique, analysis and presentation of
data.

3.1 Research Design

To conduct present study descriptive research design will adopted. It describes the
relationship between income, investment and other variables. Descriptive will used for
conceptualization of the research objectives and research problem of the study. In order to
describe the present status and past experience of clients of microfinance program, case
study research design has also been followed. This study facilitated a long discussion with
interacting clients regarding the impact of microfinance. Attitudes, values, perceptions and
behaviors of the participants of the microfinance program have also been explored.
Descriptive research design is used for accessing the opinions, behaviors or characteristics
of given beneficiaries, and describe the situation and events occurring at present. Present
researcher will used to analyze the collected data and information more accurately and
critically.

3.2 Population and Sample

The sample size will be taken from involved women in Nirdhan Utthan Laghubitta Bittiya
Sanstha Ltd and Gramin Bikas Laghubitta Bittiya Sanstha Ltd in Dhangadhi sub
municipality. Only 125 women were selected as sample for this study using simple
random sampling method.

3.3 Nature and Source of Data

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This study is based on the primary as well as secondary data. This studyis mainly based on
primary data , which is collected from the field survey using structured questionnaire ,
check list for focus group discussion and the observation method. The related secondary
data is obtained from documents, reports, journals etc, different books and bulletins of
microfinance have to use.

3.4 Data Collection Techniques

Secondary data were collected from different literatures. This study basically will based
on primary data. Primary data will collected from the different primary data collection
techniques.

Questionnaire

Questionnaire will used to get qualitative information. But some important quantitative
information is also collected the respondents of questionnaire survey are the sample
numbers and group managers of the program. Questionnaires were handed out through
delivery and collection method. Delivery and collection of questionnaires allow researcher
to confirm that the questionnaires were filled up completely and reduce the occurrence of
missing data. It facilitates the researcher to explain respondents about any queries they
may have regarding the questionnaire. This, in turn, would increase the accuracy of the
data being collected.

3.5 Data Presentation Analysis Techniques

The collected primary and secondary data have been thoroughly checked, compiled and
presented in an appropriate table to facilitate analysis and interpretation. Analyses have
been done both descriptively as well as statistically. Statistical tools such as Percentage,
Bar Diagram, Trend Analysis, etc. have been used as per the requirement and summarized
the major findings of the study. Various clear tables, figures and graphs have been used to
analyze, interpret and conclude the result of the study.

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3.6 Descriptive Statistics

Descriptive statistics is used to describe the basic features of the data in a study.
Descriptive statistics provide simple summaries about the sample and about the
observations that have been made. It measures maximum, minimum, mean and standard
deviation Descriptive analysis will carried out to accomplish the objective of the study,
and also to know the demographic and socio-economic characteristics of the sample and
their household in the study area. According to Nachmias and Nachmias, (1992)
descriptive analysis is used for categorizing and analytically summarizing the data in a
comprehensible form. It is based on the percentages and classification of the data.

Correlation Analysis

Having indicated the descriptive statistics, Pearson’s correlation coefficients are

computed. This study is finding the Pearson’s correlation coefficients among different
dependent and independent variables. The independent variables are basic needs (BN)
income (IN) employment (EM), Living Standards (LS), purchase decision (PD) and
Usage of microfinance (UM). The independent variable is Poverty (PV). The person
correlation method is used to analyze the correlation among variables. It is an expression
of the change or effect produced by the variation in certain variables, or of the ratio
between two different quantities.

Regression Model Regression Model

The main, financial indicators are IN, EM, ES, PD, SC and PV has taken as performance
variable. The equation to be estimated will be specified as under the equation which is
stated below:

PV= 0+ 1 BN1it + 1 LS1it +1 IN1it + 2EM2 it + 4PD4it +5UM5it + U it ……....(i)

Where,

PV Poverty

BN Basic Needs

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LS Living Standards

IN Income

EM Employment

UM Usage of microfinance

PD Purchase Decision

13
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