Covid, Women, and Debt in Nepal

Published on September 1, 2021

As Nepal reels from yet another wave of Covid-19—this time brought on by the delta variant—its disproportionate impact on women has become increasingly apparent. Along with the social inequalities underscored by the pandemic, including persistent gender-based violence and the unequal burden of household labor, the economic consequences for Nepali women and their families have been severe.

recent study by the Himalayan Climate Initiative (HCI), in partnership with The Asia Foundation, polled 401 women and 51 private-sector firms in Nepal. It found that 41 percent of the female respondents had lost their jobs in the pandemic, and 88 percent had lost income. Thirty-eight percent had been left with no source of family income whatsoever.

Of the estimated three million women in Nepal’s labor market, roughly 91 percent are employed in the informal sector or in service-oriented jobs such as salons, massage parlors, and domestic service. Roughly two-thirds of the 73,000 employees in private households are women, who are often also the sole breadwinners of their families. A rapid study published by the Home Workers’ Trade Union of Nepal in late 2020 showed that the pandemic and lockdowns had left more than 85 percent of these domestic workers unemployed and without a safety net.

Informal loans and ballooning debt

Many small and medium enterprises (SMEs), where Nepali women are predominantly employed, are struggling to reopen due to strained resources and the inability to pay outstanding financial obligations. Around 13 percent of SMEs in Nepal are either fully or partially owned by women. The Federation of Women Entrepreneurs’ Associations of Nepal (FWEAN) estimates that around 15 percent of women-run business have completely collapsed since pandemic.

Against this backdrop, formal lending through banking and financial institutions has grown significantly among women. Nepal’s central bank, the Nepal Rastra Bank (NRB), reported a nearly sevenfold increase in the value of outstanding loans to women, from four billion Nepali rupees in July of 2020 to 27 billion in early 2021. The number of women entrepreneurs taking loans also increased, from 7,000 to 30,000. Another report covering roughly the same time period found that loans to woman entrepreneurs had surged to Rs44.66 billion (US$373 million) in mid-June 2021 from a mere Rs4.35 billion (US$36 million) a year earlier. More so than even the documented rise in debt for rebuilding homes and livelihoods after the 2015 earthquake, rising levels of debt among vulnerable groups, and the growing danger of default in the volatile pandemic economy, are raising serious concerns.

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Fortunately, NRB’s 2021–2022 monetary policy has continued the previous year’s liberal approach to supporting priority areas of the economy, including SMEs. It has brought relief to borrowers and small businesses hurt by the pandemic by extending the deadline for loan repayment and offering various beneficial loan schemes, including loans to women entrepreneurs of up to Rs2 million. Apart from business loans, the monetary policy seeks to promote self-employment and provides for tourism-sector workers who have lost their jobs during the pandemic to receive loans up to Rs1.5 million. The availability of these loans will be limited, however, because only 39 percent of businesses in the tourism sector are formally registered, and the majority of women in tourism-related work are still recruited in the informal sector and are not even considered part of the tourism industry.

Women working in the informal sector have been particularly hard hit. (Photo: Arnav Upadhyay / The Asia Foundation)

In addition to their relative lack of access and their inability to improve their financial awareness, women are discouraged from applying for loans by Nepal’s rigid formal lending rules. Despite a significant rise in the number of women who have opened accounts in banks and other financial institutions, most of Nepal’s banks continue to require collateral, a problem confronting women borrowers worldwide. As Executive Director Anamika Singh Bhandari of the FWEAN points out, “most banks [still] look for collateral when making loans, and many women do not have assets in their own name, so they always have to rely on male members of the family. When this kind of support is not provided from home, it discourages women from applying for loans.”

HCI’s study shows that women have increasingly relied on informal lending to meet their everyday needs. Some 42 percent of the women surveyed by HCI reported that they had borrowed money from an informal lender, where interest rates are usually higher than formal institutions. In a 2019 study of earthquake-affected households, The Asia Foundation documented a surge in lending three to five years after the earthquake, primarily from informal and microfinance operations with semi-predatory lending practices that shamed or badgered borrowers to make payments they often could not afford. During the pandemic, the HCI study shows, 42 percent of women who borrowed to cover the cost of living are looking for interest waivers on their loans.

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Nepali women and the many SMEs under their proprietorship have already been severely impacted by the pandemic, and the prospect that Nepal’s economy will soon return to pre-Covid health is uncertain. Following the lead of the NRB’s economic stimulus policies, more banks must adopt liberal microfinance policies for SMEs by offering new financial instruments or relaxed credit facilities. In particular, they must move to alternative loans that do not require collateral from women. To further encourage formal lending, banks should promote financial literacy for women as a part of their corporate social responsibilities mandated by the NRB, and they must support the development more broadly of financial instruments more accessible to women outside of urban areas or with lower educational attainment. With its lower interest rates and less onerous repayment periods, formal lending must be encouraged to ease the financial burden on women entrepreneurs.

The pandemic has been a major setback for women, both socially and economically. Nepali women remain the backbone of the economy, and for that economy to recover from the pandemic, the government and financial institutions must pursue far-reaching changes to give women equal access to economic services.

 Originally published on Arnav Upadhyay is a (former) consultant and Sumina Karki is the Inclusive Governance Lead for The Asia Foundation in Nepal. The views and opinions expressed here are those of the authors, not The Asia Foundation’s.