Bridging the Gap: Access to Finance and the Struggles of Agricultural Enterprises in Nepal

By Sunita Nhemaphuki

In recent years, Nepalese agriculture has been transitioning from subsistence to semi-commercial and commercial practices. With the rising demand for high-value crops and increasing interest in agribusiness, many farmers across the country have shown a willingness to become rural entrepreneurs. However, a critical bottleneck remains: access to finance that is aligned with the realities of agriculture.

A field visit to Boach, Dolakha—a region well-known for kiwi farming offers a vivid illustration of this issue. Five years ago, several banks extended agricultural loans ranging from NPR 5 to 20 lakhs to kiwi farmers in the area based on collateral value. This initiative was seen as a hopeful step toward enterprise development in rural Nepal. The farmers, encouraged by the potential of kiwi farming, invested in orchards, expecting long-term returns.

But today, many of these farmers are in distress. Several have already abandoned their orchards, unable to keep up with loan repayments, and are experiencing immense financial and emotional stress. What went wrong?

Understanding the Disconnect

While banks did provide loans, they were given in a single installment without aligning repayment schedules with the income cycle of kiwi farming—which typically requires 4–5 years before yielding returns. Farmers were expected to make monthly repayments within months of receiving the loan, even when their farms were yet to generate any income.

Moreover, the absence of business planning and advisory support further worsened the situation. Many farmers lacked experience in financial planning, and some diverted a portion of the funds to cover urgent personal needs. Without any follow-up support, guidance, or grace periods, the gap between investment and return widened. Farmers were caught in a cycle where expenses constantly outweighed income, with no buffer to rely on.

The Broader Picture in Nepal

This case is not unique to Dolakha. Across Nepal, agricultural enterprises face multiple challenges in accessing finance that is appropriate, timely, and supportive. The core issues include:

• Collateral-based lending: Most formal financial institutions rely heavily on physical collateral, which many smallholder farmers lack or cannot leverage effectively.
• Lack of enterprise-focused products: Agricultural loans are often designed like business loans for urban enterprises, ignoring the seasonal and long-gestation nature of many agricultural value chains.
• Insufficient financial literacy: Many farmers do not fully understand loan terms, repayment plans, or budgeting—leading to misuse of funds and poor financial management.
• Limited institutional support: Beyond disbursement, there is little technical assistance, mentoring, or market linkage support from banks or government agencies.

Moving Forward: What Needs to Change?

To truly empower agriculture-based enterprises in Nepal, access to finance must be reimagined:

1. Design Agriculture-Friendly Loan Products:
   Financial institutions should develop loan products that match the cash flow of specific agricultural activities. This includes grace periods, flexible repayment plans, and milestone-based disbursements.
2. Promote Business Planning:
   Business plans should be mandatory and supported through training and mentorship. Farmers must be treated as entrepreneurs, not just loan applicants.
3. Strengthen Government-Private Sector Coordination:
   Government subsidies, risk-sharing schemes, and technical extension services must be integrated with financial products to de-risk investment for both banks and farmers.
4. Encourage Blended Finance Models:
   Combining grants, soft loans, and private capital can create more sustainable financing options, especially for young and women-led agri-enterprises.
5. Build Financial Literacy:
   Farmers need regular training on budgeting, financial decision-making, and record-keeping as part of any agricultural loan program.

Conclusion

Agriculture in Nepal holds immense potential—not just for food security but for rural transformation and inclusive economic growth. However, unless financing mechanisms are tailored to the unique realities of farming, agricultural enterprises will continue to struggle. The story of kiwi farmers in Dolakha is a reminder that access to finance is not just about disbursing money but about building an ecosystem where farmers can thrive as true entrepreneurs.