Navigating Barriers and Prospects: Microfinance in Nepal’s Underserved Karnali Region

Abstract

This study aims to explore the issues and potential of the entrepreneurship microfinance in the financially deprived region of Karnali, Nepal, with the goal of evaluating the effectiveness of microfinance in poverty eradication and economic development in the study area. The research design was mixed methods (quantitative survey and qualitative interviews). A total number of 445 clients of microfinance were targeted for this survey, from which 207 valid responses were analysed. Purposive sampling was used to interview selected stakeholders, including local leaders and representatives from microfinance institutions. Descriptive statistics were applied to analyse quantitative data and thematic analysis was applied to analyse qualitative data. The results point to a number of recurring issues, such as low financial literacy, geographic isolation, service outreach, high operational costs, and institutional sustainability challenges. Concurrently, the report highlights key areas of opportunity for enhancing the effectiveness and efficiency of microfinance, including community-based approaches, digital financial services, local financial products, and policy support. The results highlight the need for adapting microfinance approaches to be context-specific and to reflect the socio-economic and geographical characteristics of the Karnali region. The study offers practical suggestions to policy makers and microfinance institutions for boosting financial inclusion, improving institutional resilience and fostering sustainable economic development in rural communities in the margins.