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Issues and Challenges of Agriculture vs. Rural Finance in Nepal: Involvement of Nepal Rastra Bank Paper Prepared for 62 nd Excom Meeting/Seminar Organised by APRACA, Bangkok February 26 – March 1, 2013 Prepare and Presented by: Hon'ble Deputy Governor Mr. Gopal Prasad Kaphle,
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Agriculture vs. Rural Finance in Nepal:
Involvement of Nepal Rastra Bank
Paper Prepared for 62nd Excom Meeting/Seminar
Organised by APRACA, Bangkok
February 26 – March 1, 2013
Prepare and Presented by:
Hon'ble Deputy Governor
Mr. Gopal Prasad Kaphle,
Director, Dr. Bama Dev Sigdel
Nepal Rastra Bank
Poverty is high in rural economy due to poor agriculture production, less access of finance, slow pace of social inclusion, less access of basic infrastructure, less access of market, primitive farming practices, less provision of agriculture inputs during cultivation season.
Nepalese agriculture still remains heavily dependent on rainfall for irrigation as the required infrastructure for irrigation are yet to be built. Such over dependence on monsoon (rainfall) has adverse effects on the consistency of agriculture crop production. Similarly, lack of proper collection and storage houses for agricultural products is another hurdle for satisfiable growth of agriculture sector.
Climate change throughout the world has also adverse effect on Nepalese agriculture sector. Increase in temperature and C02 is also threatening Nepal particularly on the production of major crops as rice, wheat, maize, etc. Nepal is witnessing food insecurity situation in nearly 45 districts.
The activity of RSRF has spread in 64 districts of Nepal and some 35 plus thousand households have been benefited from RSRF's credit facilities. Some Rs. 40 million has been invested through RSRF's credit facilities to Cooperatives and FINGOs worked in rural areas.
NRB induced Deprived Sector Credit Programme in 1990. Under this programme, Commercial Banks of Nepal were requested to allocate 3 percent of their total loans and advances for the hardcore poor households. Recently, Nepal Rastra Bank has urged banks to invest at least ten percent in productive sectors as; agriculture, energy and rural vs. small industries of their total loan portfolio and has also urged them to upgrade this selling up to 20 percent within three years period, i.e., by 2015.
Sana Kishan Bikas Bank Ltd. (SKBBL) and First Microfinance Development Bank Ltd. (FMFDBL) were also established in 2001 and 2009 respectively.
Nepal Rastra bank is involved with the Raising Income of Small and Medium Farmer's Project sponsored by Asian Development Bank, Manila. This project commenced in 2011 and supported to end by 2016. The objectives of this project is to involve small and medium farmers of Mid Western and Far Western Development Regions on the production and marketing of high value agricultural products, marketing and thereby raise their income gradually.
Some 36847 rural households have benefited from RSRF's activities and these activities have spread in 62 districts of Nepal.
A rural financial activity in Nepal is generally divided into two categories: formal and informal. The formal sector comprises of commercial banks, development banks, microfinance development banks, cooperatives operating under the limited banking licenses from Nepal Rastra Bank, saving and credit cooperatives, small farmers cooperatives and financial NGOs.
Despite the efforts in the past by Government of Nepal, Nepal Rastra Bank and Financial Stakeholders, the outreach of finance is not that much sufficient and covered all regions of Nepal.
The outreach of financial institutions on savings and investment have remained at 21.2 percent and 29.3 percent respectively, this means some 5.6 million Nepali people are bound with Nepali financial market.
Recently, Nepal Rastra Bank assessed the access of finance situation relying on secondary data; revealed that some 38 percent of the Nepali population are covered by formal financial institution's activities. This means 62 percent Nepali population are still relying informal sector on financial activities.
Most of the commercial bank's activities have found to be concentrated in and around accessible regions while other regions as Mid Western and Far Western Development Regions have failed to possess more branches and activities of Commercial Banks, Development Banks and Finance Companies. Such vacuums of finance have been mitigated by microfinance development banks, cooperatives, financial NGOs and self-help groups (Shags).
Microfinance institutions are coy to involve there. In such circumstances; local cooperatives, FINGOs and self-help groups (SHGs) could break this barrier and work on the front of financial access for rural poor households on the front of economic betterment.
Microfinance institutions have not been able to reach the extreme poor in remote areas of Nepal due to lack of proper transportation and communication infrastructure. They are clustered in accessible parts of hills, terai and urban areas. People in rural areas of Nepal have access to 30 percent of the roads compared to these in terai region that have access to 60 percent of roads.
Women centric microfinance programmes are more viable in rural areas. Rural women are trustworthy, honest and farsighted in comparison to male counterpart.
A study CMI in Nepal reveals that lack of knowledge and skills were pointed out as the most important obstacle to do business both by people in and outside of microbusiness in Nepal. Hence, in order to enable rural poor people, group, households to diversify and grapse profitable investment opportunities, targeted basic micro business training programmes would be the viable policy intervention.
It is confess that Cooperatives, FINGOs and SHGs are the best carrier of rural finance activities particularly in remote/rural areas. They are involved with saving, credit, remittance; etc., activities on behalf of poor rural households. The vacuum of financial institutions as: commercial banks, development banks has been mitigated by such institutions.
There are 24 microfinance development banks, 16 registered cooperatives, 33 financial NGOs, some 700 plus cooperatives affiliated with RSRF are functioning in rural areas on behalf of poor households on the front of microfinance; have been benefiting from Nepal Rastra Bank through the support of finance, consoling and advocacies.
This policy has further urged the banks and financial institutions to open their branches in remote/rural areas. Some incentive packages as; provision of credit of up to Rs.15 crores to the financial institutions or their branches with no interest rate usually work for remote areas is also provisioned.
Nepal Rastra Bank is also involved with rural credit survey so as to better know the access of finance situation, credit demand and supply status, and thereby yield policy feedback to the Government of Nepal, Nepali Financial Institutions and Microfinance Institutions so as to work further jointly with policies on the front of rural finance in Nepal in coming year.