Where other banks are hardly crossing 5%, Muktinath Bikas Bank has a 30% lending in Micro and deprived sector; what makes them successful? Interview with Pradyuman Pokharel

Pradyuman Pokharel, CEO of Muktinath Bikas Bank, is one of the veterans of Nepali banking industry with around three decades of experience. Having completed his MBA from Tribhuwan University, his expertise spans Treasury, credit management, deposit management, remittance management and so on. Mr. Pokharel had joined Muktinath Bikas bank from 2016 and has been able to fulfil his responsibilities with utmost sincerity.

Muktinath Bikas Bank, as one of the National level development banks has been able to reach new heights every fiscal year. Similarly in comparative studies done among other national banks, it has been able to top with flying colors. Not just that, Muktinath Bikas Bank was also the only Developnment bank able to meet the minimum paid up capital requirement on its own. So on this back drop Rachit Agrawal, Aakriti Thakali and Krishna Khatiwada from sharesansar caught up with him. The excerpts of the interview are:

Almost 3 decades (27 years to be precise) in Banking industry, how has your journey been so far?

I started my banking career from Nabil bank as a teller and worked in various departments for 19 years. Then I joined Mega Bank in 2010 where I worked till the post of Assistant General Manager and shifted to Muktinath Bikas Bank as the Deputy CEO. So the aggregate of 27+ years in banking industry has been a spiritual undertaking for me. With each year passing by, I’ve learned more and grown more, which is anything one could ask for.

You started out with Nabil Bank, then joined Mega Bank and are now in Muktinath Bikas Bank. Generally people move from Class B to Class A bank. What was your career plan?

"We should always think big, but if you can take a small thing and then make it big then that’s even better." In Nepal, we generally make our way up and that seems normal too. But in developed countries many of the people working for big corporations leave to start on their own from the scratch. So from that viewpoint I always felt that I should join a GOOD institution and make it BIG. Big in a sense that my work would help a common individual bring financial transformation in his/her life, something that’ll bring a tangible impact.

So among the choices that I had, I chose Muktinath Bikas bank because it was a class B bank providing services equivalent to Class A (Commercial Banks), B (Development Banks) and D (Microfinance companies). In addition I could see that leading an organization like this I could bring that financial transformation in a common life.

There is a buzz in the market that development banks are facing a serious competition from commercial banks (branches of banks are spreading all over Nepal)? Won’t this be serious challenges for development bank in coming days?

Development banks are institutions that have emerged from the local level with the efforts of local people. If you see, none of the development banks have started from Kathmandu. This has a root connection and that gives a certain advantage to them. Yes there are challenges and there always will be, but we must be mindful about where we stand.

If you see the latest 11 months data produced by NRB, the market share of development banks is commendable. Of the total Rs 2660 arba deposits, development banks’ account for Rs 260 arba. Similalry of the total Rs 2348 arba lending, Rs 242 arba is from Development Banks. This shows that Development Banks account for almost 10% of the market share, and based on trends this percentage is slowly increasing. So I think there are no serious challenges that we need to panic about.

Don’t you think scope of work for development banks need to be increased since all National level development banks has capital of Rs. 2.50 arba now?

Yes, as the CEO of MNBBL and the General Secretary of DBAN, I think that the current restrictions made on development banks aren’t fair. In the past, the smaller capital size might have made us vulnerable but today it stands at a minimum of Rs 2.5 arba. Not just the capital, our management and operations have also become stronger and more systematic. The argument may come that commercial banks’ capital has also gone up to Rs 8 arba but that isn’t the point here. The point is whether or not Development Banks are capable to do these jobs, and the fact is yes we are capable.

If you look at the risk level of development banks, it is below the NRB’s specification and very close to commercial banks. Not just that we have close ties with the local level, which has helped us to understand their need and address them. So I think, rather than the capital the demarcation must be done on the basis of merit and capacity.

What are the challenges did you see in coming days for development banks of Nepal?

The first challenge that we have to face is the liquidity pressure. Right now the liquidity might have eased a bit in the market, but soon the shortage will knock at our door. This has almost become a trend and to manage this cyclical liquidity pressure is our first major challenge.

Similarly, the second challenge is to maintain coordination between the work we do and the economic goals. The Budget speech of this year has targeted an economic growth of 8%, so our fiscal planning must also be in line to achieve this goal. The investments and lending that we do must create a visible impact in terms of GDP growth and output creation.

The third challenge is in terms of Human capital. After the increment of our capital and establishment of local level bodies, branch expansion has been going on a full fledge. However the banks, especially development banks are having hard time finding qualified HR willing to move to local branches.

The operational risk holds the place of fourth challenge. As the branches are increasing, so is the magnitude of our business. The credit risks are well managed under the supervision of NRB by creation of various provisions but we are still exposed to operational risk. So operational risk management requires a very strong internal control system, which still needs improvement in case of development bank.

The fifth challenge is Information Technology (IT) related. The commercial banks are using softwares of global standard but development banks haven’t reached there yet. So improving the standard of our Core banking software and External support system is very important.

Government of Nepal has targeted a double digit economic growth in coming 5 years, how development banks can help achieve this target by mobilizing investment in the economy?

That is a very insightful question so again referring to the 11 months data of NRB, the size of our GDP is Rs 30 kharba, where we import Rs 2.5 arba worth of rice, Rs 92 crore worth of vegetables and Rs 50 crore worth of fruits every month. Considering such heavy import dependence the first thing we can do as banks is to focus our lending and investments in productive sector like agriculture.

Similarly the second sector with enormous prospects is Tourism. So we can finance small hotels and restaurants, which can bring positive developments in Micro level. Even better than tourism we can capitalize on eco-tourism, where foreigners will visit us not just for the sceneries but also our organic environment and lifestyle.

Apart of agriculture and tourism, Hydropower also has a lot of potential. Yes the investment requirement is huge, but we also have micro-hydro producing small amount of electricity. Given the countless rivers of our country in everyplace, funding micro-hydro project is also an avenue for development banks.

What’s your view on currently released monetary policy by Nepal Rastra Bank?

Analyzing it in a broader view, the Monetary Policy of this year is good enough. The relaxation of CRR and SLR has definitely increased the availability of the investable funds. However, the amount of loanable fund is same as there are no changes in the CCD ratio.

I think it would have been better if few pro-development initiatives were introduced like schemes focused on agriculture.

When do you think the current interest level which considered to be very high will start falling and stabilize?

I think the interest rates will slowly come down. As you might have also observed, the banks are decreasing their rates on lending along with the deposit rates on saving and fixed deposits. The major reason why we are prone to cyclical liquidity pressures is the small size of liquidity surplus in our market. If we look at it closely, the liquidity surplus might be around Rs 60-70 arba only. So when fluctuations of Rs 30-40 arba happens that immediately affects the market.

However I’ve been watching the trends, I think the rates are going to come down in near future.

What makes Muktinath Bikas Bank stand out? What makes MNBBL leader in the development bank sector?

Muktinath Bikas Bank is able to stand out because of its work culture and its people. I call it our USP – Unique selling proposition. All of us work with a vision to deliver results to our stakeholders in terms of income and value. Our stakeholders are our 1. Customers 2. Shareholders 3. Regulators 4. Communities 5. People (staff), so every action we take and every venture we initiate are conceived with the attention to the welfare of all our stakeholders and I believe that is what makes us stand out.

“Our USP – Unique Selling Proposition – is our people and the work culture that we adhere to.”

Apart from that, our performance also indicate how we stand out. If you’re into numbers like me then you can see that of the total exposure/lending of Muktinath Bikas Bank 30% is directed towards the Micro sector, which as per NRB’s mandate is only 5%. This is a very big achievement and that is what matters the most to me. Similarly we also have core beliefs that we follow like our religious scripts. Some of them are:

“Janata bank maa haina, bank Janata maa jaanu pardacha” – Bank should go to people instead of people coming to bank

“Ek byakti ek bachat khata, ek pariwar ek safal udhyami” – One person one saving account, one family one successful entrepreneur.

“Desh Bikas ko aadhar, krishi maa byawasaik sudhar” – commercial improvement in agriculture, foundation for country’s development

“kamayera matra haina, bachat garera dhani vainxa” – Only earning won’t make you rich, saving will.

“Bidhyarthi maa bittiya sachhartha, aaja ko aawashyakta” – Financial literacy among students is the need of today

“Gaau gaau ma laghubitta failyaau, garibi ra bipannata hatawau” – Spreading microfinance to all villages to eliminate poverty and deprivation

So these are our beliefs and the foundation for our work culture which makes us stand out.

At the time of serious shortage of loanable fund in the market since last 2 Fiscal year, how was your company is able to cope with this problem and expand business easily?

The secret mantra here is assets-liability management. With proper strategy in place to manage our assets & liabilities and the risks associated with it, we were able to not just withstand the shortage but also advance credit in that period. So every day micro or large, we have been continuously advancing our credit portfolio. Not just in Muktinath Bikas Bank, if you see in the entire development bank sector there wasn’t much problem in the funds’ inflow and outflow. I think the prime reason here is the nature of deposit composition. Development banks are the institutions that have emerged from the ground level, and their deposit and credit portfolio also comprises of small savers and borrower. Thus withdrawal of one saver or default by one lender has significantly lower impact unlike in commercial bank.

“There is not a single day that we’ve stopped lending in spite of the shortage of loanable funds in the system”

Most of the national level development banks right now have met their capital requirement through M&A, but MNBBL was able to do own its own. Whatever M&A happened was also insignificant. So what was your core strength?

The answer here is very obvious actually. Muktinath Bikas Bank has had a very good history of performance indicators from the very beginning. The returns are good, the business is also going well and gradually expanding. So when the business is gradually expanding, we also have to increase our capital on that proportion in order to meet the Capital Adequacy Ratio (CAR) as mandated by the NRB. Thus our capital increased in an obvious simultaneously with the magnitude of our operations. Therefore whatever growth that we’ve achieved is organic and because of that we never felt the need to merge or acquire any other institution. In addition to that our corporate governance and the strong management team has been a plus point for us.

“I’m an ardent table tennis player, so playing my standard changes according to the standard of my opponent and I think that applies everywhere. So when we start doing better that creates a chain reaction in the entire industry, making everyone better”

Muktinath Bikas Bank has been recently taking freshers right out of the colleges. Doesn’t it create extra cost because of training and a flatter learning curve?

I think this will create a positive impact in our bank and I believe other institutions should also do it. We are hiring fresh brilliant mind right out of the college so that new ideas can pour in and the vigor will be the plus point. Similarly by taking in the financially deprived students, they can skip the torture of loitering months to find a job. Not only that we also provide educational loans if they want to continue their study. So through this we’ll be able to create a win-win situation for bank as well as the freshers joining us.

Similarly as far as the learning curve is concerned I think it is going to be steeper, this is because we are going to take intelligent and hardworking students and priority is given to the toppers. The basic logic is those who are intelligent and knows the value of hard work will learn faster than others. The productivity will also be higher, so rather than increased cost I think we’ll be saving some actually.

Can Investors expect handsome return in coming fiscal years? How much dividend can they expect?

This is outside my domain and jurisdiction. The Board will decide on the returns, but I think it’s fair to expect handsome dividend this year too.

Microfinance

What is the specialty of MNBBL’s Microfinance?

The service that we provide is simple micro financing, but our specialty is the STRUCTURE. For example when you’re building a house, the taller the building is going to be, the deeper the foundation should be. So that is the philosophy we applied here too. Muktinath Bikas Bank was established with the vision of our former CEO Mr. Bharat Raj Dhakal and the entire organization has stuck to that culture strengthening the foundation of our structure and our work culture.

Muktinath Bank is the only bank that has established a sturdy team equivalent to the modern banking team for Micro banking too. If you see, in each one of our branch there are two team. One catering to Modern banking services and other catering to Small and micro banking services.

“I believe for anything to be sustainable structure plays a significant role. The stronger the foundation, the sturdier the building will be and same goes with us too.”

Monitoring is very important when it comes to Micro banking. The credit portfolio comprises of various small loans, so time and again close monitoring is required – and I’m proud to say that we’ve been able to do that. Similarly, we have commitment in Micro sector from top to bottom, which has facilitated equal attention to this sector too.

Since a separate financial report of Microfinance isn’t produced can you please state its contribution on the big picture?

In terms of business Microfinance sector has 30% contribution. Of the Rs 100 we receive from depositors, Rs 80 is loanable and out of that 30% or Rs 24 goes to Micro sector.

Final Note:

I have always believed that we should always treat ourselves naturally and to achieve anything we have to remain calm. When we are calm, we can understand things better, we can analyze it better and we also become creative and happy. Once he’s happy, he spreads that happiness to others and develops a positive vibe. So when that person starts a business that too starts to spread positive message out to the community. If you look into any successful individual, I think that you’ll always find this as one of the fundamental factors that led to his success.

I’m a spiritual person, so I look at things this way. The general things you’ll hear in the market are, “You find the gap between demand and supply and cater to it” but to cater to that gap one should at first have that capability. The hard skills and the knowledge are cosmetic treatments, that we learn but the inner calmness is natural. Without being calm, s/he won’t be able to fully utilize their capabilities and that makes all the difference.