W hen a local milk buying centre refused to buy from Khagisara Pariyar because she was untouchable by caste, the Nepali villager did not lose heart. "I would push my way in the queue with other villagers to sell milk," said 46-year-old Pariyar. "Initially they hesitated, but now I have no problem." Besides, the hard part about running her own milk business--getting seed money to start--was already over. Two years ago she borrowed 15,000 rupees ($223) from a non-governmental organisation which offered small loans to the poor and bought a buffalo. The loan has changed life for her family of seven. Microcredit, small business loans to poor or underprivileged people denied ready access to credit, is transforming the countryside in Nepal, one of the world's 10 poorest nations with a per-capita annual income of barely $200. The new idea has challenged the long-established practice of borrowing from traditional money lenders at exorbitant terms.

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Credit Brings Change
With milk selling locally at 18 rupees (27 cents) a litre, Pariyar can earn up to 126 rupees ($1.90) a day. She now sends her smaller children to school and has bought a sewing machine for her husband, who runs a tailoring shop in the village which is located 250 km west of Kathmandu. 

Under the scheme, a replica of an innovative credit scheme pioneered by the Grameen Bank in neighbouring Bangladesh, poor women get loans without collateral for entrepreneurial and income-generating activities. The government-run Micro-Credit Project for Women, with support from the Asian Development Bank (ADB), Japan and Norway, has loaned out another $2.6 million to 21,000 women in 12 districts. The recipients of the loans are instructed on the concept of credit, and on the need to generate savings before a loan is disbursed. As members of the family, men can use the funds as well, but the borrowers have to be women. Women are preferred because they are said to be thrifty, use credit responsibly, and are careful in ensuring that they do not default on payments. Small loans ranging from 5,000 rupees ($74) to 40,000 rupees ($594) are provided for agriculture, trading and other enterprises in which they have experience, confidence and skill. The average size of a loan is 15,000 rupees ($223). Loans are mostly used to raise cattle, grow vegetables or for small-scale trading activities. For example, one woman bought a bicycle and an icebox with her loan, and now earns up to 200 rupees ($3) a day selling ice cream to schoolchildren.

Decision-Making Empowers Women
Women are organised into groups before they get loans. Each member of the group has to make compulsory savings which are either "inter-loaned" to members or used during times of illness and emergencies. "Women have become decision-makers in their families because it is they who get the loan," said Ganesh Kumar Shrestha, Deputy Chief Manager of the central Nepal Rastra Bank, which is monitoring Nepal's microfinance program. "They are more empowered, demanding and have become assertive." Radhika Tharu was beaten by her alcoholic husband in a row over a meal. The next day the group of microcredit borrowers of which she was a member assembled village elders at a nearby village and got her husband to vow not to repeat the act. "Now he is a reformed man. He has not beaten me since then," said the 25-year-old Tharu who grows vegetables on a small plot of land her family owns. Women bear the brunt of poverty in male-dominated Nepali society, doing the hardest of household chores for long hours. Traditionally, they have had no access to income or credit.

Women Make Safer Borrowers
Credit workers say the loan recovery rate is high -- usually more than 98 percent, and in some groups 100 percent -- because of close monitoring of group activities, training or motivation and the higher sense of responsibility that women display. Aid officials say that women who earn more, contribute to better nutrition, schooling and healthcare for their children. "We find their income has increased, they have been empowered and they feel much more able to control their destiny," said Brian Fawcett, a project management officer with the ADB. But critics say the approach is unsuitable for remote hilly villages without access to transport or other infrastructure, involves high risks and can prove an expensive proposition because interest rates can be as high as 25 percent. In December last year, the ADB approved a $20 million loan fund to Nepal to aid about 270,000 new households.