Nepal is richly endowed with innumerable gifts of nature, large fertile farmlands, and a wide variety of crops due to climate diversification. It is a country where a vast majority of individuals are directly or indirectly dependent on agriculture for their livelihood. Though Nepalese agriculture is characterized by low farm income, it couldn’t satisfy the needs of the country due to outdated and primitive techniques of production. Also, the fundamental cause of these problems is the inadequacy of credit facilities. The farmers are poor and so they can’t afford much money on farming. So, farming is mostly subsistence.
Sources of Farm Credit
Agriculture credit plays a significant role in agriculture development. Farmers need loans when their savings or income do not link up with their consumption and investment needs. Farm Credit has a number of sources. The type of credit available for agriculture is based on the needs of individuals, groups, or companies. The credit facilities are obtained from institutional and non-institutional sources.
Institutional sources is a formal source provided by farmer’s cooperatives, agriculture Bank, Commercial Bank, and another depository financial cooperation. Non-institutional sources include financial assistance from friends, family, relatives, farmer’s groups, or other money lenders.
Agriculture Credit Policies in Nepal
Nepalese farmers carry out their agricultural activities mostly for subsistence purposes. Recent studies show that the credit flow or the rate of investment in the agricultural sector is less than in other economic sectors. Nepal’s agricultural development strategy 2015-2035 is the central document that provides a ground plan for the development of agriculture in our country. This has aimed to increase food and nutrition security, poverty reduction competitiveness, higher and more equitable income of rural households and strengthened farmer’s rights. In 2017, Nepal Rastra Bank (NRB) adopted a priority sector lending program (PSLP). This program mandates bank and financial institutions to allocate 10% of their loan portfolio to the agricultural sector at a subsidized interest rate of 5%. This program encourages the adequate flow of loan to the productive sectors to ensure economic dynamism and stability in the country. For the development of the nation, the agricultural sector must be uplifted.
Importance /Contribution of Cooperatives
Farmer decisions to invest and manufacture are closely influenced by access to financial contrivances. If the available financial tools don’t correspond to farmer’s needs they may be discouraged to take on new technologies, purchasing agricultural input, or make other choices that enhance the efficiency of their business. The shift from subsistence to commercial agriculture production requires funds. Cooperatives have assisted to expand the prevailing farms by providing enough finance at affordable interest rates. The credit functions as a catalyst in carrying out various agricultural projects. At the moment, the majority of the farmers always have timely access to credit financing in Nepal. Financial institutions help in boosting technical change in the present age. It has helped prospective farmers to secure farm machinery and equipment. The cooperatives also aid in production intensification. In this manner, it has helped farmers particularly small scale farmers who produce at subsistence level to extend their business by fulfilling their urgent need for cash.
Future prospects
The role of agriculture in development is huge. Agriculture is not only essential for food production but also for the production of raw materials of various sectors, examples of which are clothing, pharmaceutical, furniture, etc. Advancement in agriculture is an urgent requirement for the welfare of the state. In Nepal, farmer’s cooperatives are flourishing especially in the agriculture marketing field. So, we can be optimistic that the banking system will break new ground when fully operational in the concerns of agriculture.
Constraints Faced by Farmers and Financial Institutions
There are some challenges that both farmers and cooperatives encounter with .The low academic background of some farmers make it difficult for them to get information about existing credit facilities and procedures involved in getting loans. Most farmers lack collateral since the majority of them don’t have legal documents for land ownership. Also, there are too many risks in farming. There’s a risk of crop failure as a result of disease and pests. Prices of products may fall after harvest. Moreover, misinterpretation of objectives of governments and financial institutions are also seen e.g. when a bonus is granted, it is not well utilized as they often believe such to be a gift. High interest rates are also another factor that pushes the farmers from even considering bank loans and so food production remains on a small-scale level. There is also the problem of transportation, which affects the marketability of products in the market.
Conclusion
In Nepal, agriculture hasn’t been able to meet its full objectives and improper funding has been identified as its major problem. The effective contribution of agriculture lies in increasing the hectares under farmer management. The subsistence farming system should be replaced by commercial farming with improved farm management and adoption of improved technologies in agriculture. This can be facilitated if the banks could enhance the larger flow of funds to agriculture.
