1. Introduction

Despite ongoing development efforts, poverty remains rampant in Nepal with approximately 31% of the population living below the poverty line. The incidence of poverty is highest in remote and rural areas.

Microfinance has been one of the few effective tools for poverty reduction over the past years. Through the creation of sound microfinance institutions and systems, poor people can safely deposit money and accumulate funds for future investments or emergencies as well as access loans for productive purposes leading to higher incomes. Additionally, microfinance produces an impact in other areas including good governance, participation in the political processes, women empowerment, social inclusion, and conflict transformation.

Currently, more than 1.6 million individuals in the rural population have access to microfinance services. This figure represents approximately 8% of the population and approximately 26% of the people living below the poverty line. In order to obtain more effective statistics and further diminish poverty, the outreach of sustainable and sound microfinance institutions to the rural and urban poor must be increased.

With the conclusion of Microfinance Summit 2008 and the 7th National Steering Committee held on September 11th, 2009, new issues in the microfinance sector have been identified and will be addressed in the upcoming Microfinance Summit 2010. These issues include:

• How to increase funding for the microfinance sector so as to improve client retention for microfinance services while simultaneously improving the livelihood of existing clients with entrepreneurial skills;
• How to make microfinance more inclusive towards excluded groups, the formal financial sector, and the macroeconomic framework of Nepal;
• How to properly govern Microfinance institutions so that they can not only reach their intended target markets in rural areas, but also provide them with sustainable microfinance practices;
• How to eradicate the burdens of poverty such as a lack of access to healthcare and education through the incorporation of savings and insurance schemes with microfinance practices;
• How to improve credit schemes and creating a model for value chain finance in microfinance in cooperation with commercial banks so as to improve the sustainability of the microfinance sector.