The Asian Development Bank (ADB) has approved a $50 million loan for a project that will improve the livelihoods and increase incomes of small farmers in Nepal by helping them in the financing, development, and operations of rural enterprises.
“Rural enterprises have a huge potential in contributing to the economy of Nepal, but this potential has to be realized by providing them with the necessary boost they need, both financially and technically,” said ADB Senior Portfolio Management Specialist Ms. Mayumi Ozaki. “The ADB project will help provide much-needed financing to subsistence farmers, through the Small Farmers Development Bank (SFDB), so they can develop their enterprises and improve their livelihoods.”
Agriculture plays a significant role in Nepal’s economy, contributing about 27% of the country’s gross domestic product and employing about 70% of the population. However, the sector is largely subsistence in nature, with a heavy focus on primary production of crops and livestock, which is not enough to move rural households out of poverty. Shifting from current subsistence agricultural production to value-adding rural enterprises can help rural households improve their income stream.
The Rural Enterprise Financing Project will help improve rural enterprises’ and cooperatives’ access to finance, addressing the low appetite of formal financial institutions in financing rural enterprises given that only about a quarter of banks’ total loan portfolios go to micro, small, and medium-sized enterprises. This aversion to rural enterprise financing stems from banks’ limited rural outreach; limited knowledge and risk assessment capacity in rural enterprise financing; and rural enterprises’ difficulty in securing valid loan collateral.
ADB’s assistance will help develop and finance at least 50 collective enterprises—which include commercial farming, milk collection centers, mustard oil mills, rice mills, as well as seed and tea processing factories—with value chain development and business facilitation support. This will be coursed through SFDB, which will make loans of up to NRs20 million ($175,132) to a collective enterprise with shareholders comprised of at least 40% women.
The project, meanwhile, will support about 500 individual small farmers, at least 30% being women, who are willing to start or expand their individual enterprises, with loans of up to NRs5 million. The project will also provide technical support including capacity building in finance, business appraisal, due diligence, risk assessment, financial management, and safeguards.
ADB will also provide grants of $500,000 from the Technical Assistance Special Fund and $250,000 from the Financial Sector Development Partnership Special Fund for the project, which is due for completion in mid-2025.