Paving the road to financial inclusion for rural workers in Nepal

In remote areas of Nepal, rural communities, and especially the most disadvantaged and marginalized groups, do not have access to formal financial services. However, the Strengthening National Rural Transport Programme took up the challenge of generating access to finance and improved livelihood opportunities for them, and succeeded in collaboration with MEGA Bank, one of Nepal’s largest commercial banks.

Article | 10 March 2022
Rita Mandal, a routine road maintenance worker from the Saptari district receives a text message on her mobile phone from Sun Rise Bank, a commercial bank in Nepal. The message states that her monthly salary of Nepalese Rupees (NPR) 14,300 (US$124) has just been deposited in her personal bank account. So, the next day, when she visits her bank’s local branch in Rajbiraj, she withdraws her monthly salary. Just a few years back, it would have been unimaginable for her, and for most of the women in her community, to have a personal bank account, and it has only been possible thanks to the Strengthening National Rural Transport Programme (SNRTP). The SNRTP Programme has been implemented in collaboration between the Department of Local Infrastructure Development and Agricultural Roads and the Ministry of Federal Affairs and Local Development, with the generous financial support of the World Bank and the technical assistance provided by the ILO.

With the objective of improving rural transport connectivity and accessibility, the SNRTP has upgraded/rehabilitated and maintained 5,500 km of rural roads and crossings in 36 districts of Nepal, while strengthening the road maintenance institutional systems and operations in the country. In addition, one of the SNRTP Programme’s largest ambitions being to foster the socio-economic inclusion of minorities of Nepal’s rural communities, the Programme achieved to create decent livelihood opportunities for many vulnerable and marginalized groups. For example, by proactively employing women in its road activities, the Programme succeeded in increasing the participation of women in its Road Maintenance Groups, which are now composed of women at 70 per cent. But the Programme did not stop there.

Access to formal financial services for Nepal’s remote road maintenance workers

From the start, the World Bank and the ILO sought a safer payment system solution for the road maintenance groups participating in this Programme. The underlying objective behind this was the willingness to prevent any corruption from handling monetary transactions related to the payment of workers’ wages. As a result, both organisations designed an intervention on digital wage payments, allowing road maintenance groups to receive their correct payment safely and easily, and ensuring that they would have an improved access to additional financial services, including saving and credit products, thus furthering the livelihood promotion agenda of the Programme.

This intervention was the result of a strong collaboration involving MEGA Bank, one of the largest commercial banks of Nepal, the Department of Local infrastructure Development and Agricultural Roads of Nepal and the ILO. The Programme provided regular wage payments to routine maintenance workers, by transferring their salaries directly to their individual bank accounts, rather than using traditional cash payments. With transparency at the core of the initiative, digital wage payments were received within 5 working days by road maintenance workers, alongside an SMS alert to inform them of the receipt of funds to their bank accounts. The opening of their bank accounts also provided them access to a cheque book and a debit card, allowing them to safely manage their money. In addition to ensuring a reduction in fiduciary risks as well as an improvement in governance and transparency of wage payments, this initiative has contributed to the financial inclusion of communities in rural areas, giving them access to formal financial services, they had never accessed before.

Building on this progress, the Programme established a range of capacity-building programmes built into the initiative with MEGA Bank to allow road maintenance workers to take good advantage of their livelihood opportunities. For example, financial education training courses were developed to improve their financial literacy levels and to help them make better financial decisions with their hard-earned money. These trainings enabled them to adequately understand and appropriately use financial products and services of various financial institutions. Accordingly, road maintenance groups were also linked with financial cooperatives, which were also there to support them navigating the formal financial sector and accessing the right financial services.

In addition to expanding the digital payment of wages for road maintenance workers and increasing their financial literacy, the initiative also provided credit linkages for micro and small entrepreneurs, willing to develop their income generating activities. The package offered included loans at competitive interest rates and flexible repayment schedules, enabling entrepreneurs to expand their businesses and create even more livelihood opportunities in the community. In addition, the initiative enabled the government’s social security payments to be transferred to each worker’s bank account, thus improving their welfare and access to social support.

Karo Devi Mandal , a widow and mother of three children, working a road maintenance worker in the Saptari district of Nepal

“I used to work in a brick factory, as a daily waged labourer in an agricultural farm and then I started to sell alcohol for the sake of my children. There was a day when we used to have a meal once every two days. We used to eat whatever was left over by my relatives. I did not have my own land and used to stay on public land along Hulaki Road. But when Hulaki Road construction work started, we became homeless.

Now, I am happy to have a job as a routine maintenance worker, earning NPR 14,300 per month (US$124). I spend NRP 5,000 per month (US$43) for my household expenses and educating my children and save all the rest. I saved NPR 300,000 (US$2,600) and purchased my own land to build my own house. We are having proper meals.

I have one cow for income generation and started saving money in the bank. Now I can lend NPR 100,000 (US$866) to my neighbour. Before, I had not known about the Bank and having a personal bank account was something beyond my imagination.

At the beginning of the initiative, the Programme got in touch with almost every bank to find a suitable partner, but most of them were not able to support the Programme’s requirements.
  • None of the banks were willing to provide road maintenance workers with access to bank accounts with zero balance, due to the fiduciary risks it involved for their institution.
  • None of the banks had branches in all of the 36 districts, in which the Programme had its road maintenance operations.
  • There was a critical lack of coordination between the various banks of the country, which did not facilitate the negotiation process between the Programme and the potential partnering banks.
Once MEGA Bank was convinced of the financial model, with a high share of risks taken at first but the potential to reach an impressive new client base throughout the country, as well as the large reputational benefits potentially coming out of the initiative, the bank accepted the Programme’s conditions and started the digital wage payment intervention. It is true that opening bank accounts with zero balance, no service charge and providing financial services to all 36 districts for over 2,700 road maintenance workers is not an attractive business proposition. But the Programme quickly assessed that there could be a win-win situation for everyone; with the public sector offering policy frameworks, knowledge and resources, and the private sector acting as a financial provider, delivering financial products and services at scale to achieve a public service outcome. And this approach resulted in very positive results, with the initiative maintained even after 5 years:
  • On average, the 2,700 road maintenance workers have annual savings of NPR 60,000 (US$519)
  • 75 per cent of the road maintenance group members received small loans from banks and financial cooperatives
  • 60 per cent of road maintenance workers engaged in different income-generating activities (e.g., farming, animal husbandry, small businesses and shops, etc.) with their family members
  • All road maintenance workers enroll their children in better schools, maintained or improved their housing arrangements and have access to a toilet
  • 30 per cent of landless road maintenance workers purchased their own land, and 20 per cent were able to build their own house, like Karo.
Innovation can often be challenging, but the rewards of this intervention are meaningful for the road maintenance workers supported by this initiative. They feel proud of having a bank account in their name, with the additional security that comes with it, as well as a facilitated access to additional financial services including savings and loans, enhancing their livelihoods and their families’.

- Written by Shailendra Kumar Jha, National Programme Coordinator of the Strengthening National Rural Transport Programme in Nepal.