Agricultural Finance in Nepal

Agricultural finance refers to the management of resources required in the agricultural sector.

Any individual or farmer resorts to taking loans or assistance when their income is insufficient for investment and consumption.

In Nepal, various methods are in practice for managing agricultural finance.

Sources of Agriculture Finance

The sources of agricultural finance in Nepal are both organized and unorganized. 

These sources are presented as follows:

(a) Organized Sources: 

In Nepal, the demand for agricultural loans has increased for the development of the agricultural sector.

Various institutions have been established to provide loans from organized sources for the modernization and commercialization of agriculture, while in rural areas, unorganized methods are still more prevalent.

1. Agricultural Development Bank: The Agricultural Development Bank was established in 2024 BS with the objective of increasing production and productivity in the agricultural sector for the development of the agricultural sector in Nepal. This is the largest institution for investing in the development of the agricultural sector. It has branches in various places across the country. This bank is also providing financial assistance to the poverty alleviation program through the Small Farmer Development Project.

2. Commercial Banks: After the Agricultural Development Bank, commercial banks are the major investors in the development of the agricultural sector in Nepal. Currently, there are 28 commercial banks in operation with numerous branches in various parts of the country. These banks invest a certain percentage of their loans in the agricultural sector as per the directives of Nepal Rastra Bank.

3. Microfinance Institutions: Various types of microfinance institutions have been established in different regions of Nepal. The establishment of such institutions in rural areas has facilitated the flow of loans for investment in the agricultural sector.

4. Cooperative Institutions: Various types of cooperative institutions have been established and are operating in different parts of the country in Nepal. Such cooperatives are formed by farmers in villages. These institutions provide small-scale loans for investment in the agricultural sector.

(b) Unorganized Sources:

1. Moneylenders: Since long ago, poor farmers in rural areas of Nepal have been taking loans from local moneylenders to meet their needs. This practice still continues. They provide short-term and long-term loans to farmers. However, the interest rate on such loans is high. Consequently, farmers are often forced to repay the principal along with the interest, sometimes even having to hand over their land.

2. Traders: Farmers in rural areas of Nepal also take loans from local traders as per their needs. These traders also help farmers with the aim of buying their crops at low prices and selling them at higher prices. They also collect interest from farmers. Farmers have been facing many problems due to this.

3. Relatives and Friends: Farmers also have the practice of borrowing or taking help from their relatives and friends for short periods at low interest rates or without interest. This is also a source of agricultural finance.

(c) Problems of Agricultural Finance:

In Nepal, farmers and agricultural entrepreneurs have not been able to access easy and affordable loans at the time of need for the development of the agricultural sector. Similarly, due to the need to pay high interest rates, even large entrepreneurs have not been attracted to invest. 

The service facilities provided by banks are also slow and cumbersome, and the interest rates charged by moneylenders, traders, and relatives have caused many problems in agricultural finance.

(d) Solutions to the Problems of Agricultural Finance:

To solve the problems seen in agricultural finance, arrangements should be made for institutions providing agricultural loans to be present in every rural municipality and municipality in an easy and accessible manner. Loans should be made available through the banking system in an easy and simple process. 

Local cooperatives should be made more efficient and encouraged to invest in the agricultural sector. The assistance provided in agriculture will help modernize and commercialize agriculture.