Sahaj Facilitates Agri-SMEs' Access to Finance in the Koshi Province

Sustainable agriculture
Small and medium-sized enterprises (SMEs) contribute 22 percent to the GDP, employing approximately 1.7 million people (Rastra Bank, 2020/21) in Nepal. However, many SMEs, including those in agriculture (Agri-SMEs), encounter challenges in accessing affordable formal financial services. Studies reveal a credit gap of NPR 400 billion for SMEs in Nepal, indicating a disconnect between demand and supply. Agri-SMEs face difficulties related to demonstrating creditworthiness, high collateral requirements, and limited experience with formal financing. Banks are hesitant to lend to them due to perceived risks and increased transaction costs. This gap underscores the need for improved financial intermediation by banks and financial institutions.

Sahaj aims to support SMEs achieve equitable growth and improve the private sector-led environment that makes SMEs appealing investment prospects for banks as well as other enterprises. Even when funding is available, there are gaps between SMEs' capacities and the risk/return criteria that are acceptable to banks. Cooperation with banks and SMEs is essential to guarantee that the supply and demand of funding are in line. In 2022, Sahaj partnered with Nabil Bank to enhance the bank's capacity to meet the borrowing requirements of agricultural small and medium-sized enterprises (Agri-SMEs) of Koshi Province. This collaboration aimed to streamline financial services, allowing the bank to offer innovative and improved products to increase participation by Agri-SMEs in loan programs. As a part of this partnership, Nabil Bank conducted financial literacy training for Agri-SMEs in the Koshi province.

"The financial literacy training helped me learn about agricultural loans offered by banks and the significance of accessing credit through the formal financial institution"
Tej Bahadur Pandey, Owner of Sunrise Dugdha Dairy Udhyog in Illam, Nabil Bank’s loan client, participant of the financial literacy training 

Long turn-around times were also one of the discouraging factors for agri-businesses to access loans from banks. Nabil has always been at the forefront of technological advancements that enhance its service delivery. Digitisation of key bank processes which reduces the turn-around-time (TAT) for loan disbursals was one of the activities of the partnership with the bank.

Tej Bahadur further shared that he also came to know about the loans provided by the Bank for Agri-SMEs. Subsequently, he applied for a loan and secured an NPR 2.5 million loan, with a quick processing time of approximately 1 week. He invested this sum to expand his dairy operations, incorporating machinery to enhance efficiency and product quality. This expansion led to an increase in daily milk collection, growing from 1200 to 1600 liters per day compared to the previous year. His dairy business achieved remarkable growth with a 30% increase in sales. As sales improved, Tej also added 5 more farmers to his network, reaching a total of 60. With a dedicated staff of 3 and an additional 6 personnel for transportation, Tej Bahadur's dairy business continues to thrive.

Tej Bahadur Pandey and his employees stand proudly outside Sunrise Dairy

Similarly, Hira Prasad Neupane, Chairperson of Surya Agro applied for a loan from Nabil Bank as he needed financial support to expand his business.  The loan was approved within approximately 1 week, and he received a Letter of Credit (LC), to procure machinery to produce high-quality maize products.

He was able to add machines and expand the product range to include rice, flour, chyakhla (maize grits), suji, and raw materials for packaged snacks.

As per the bank officials, the TAT has been reduced to 5 days from 7-10 days. Such a form of enhanced service delivery has allowed the bank to disburse a total of 224 Agri-loans in Koshi Province amounting to NPR 854 million from November 2021 to May 2023.

Access to finance for Agri-SMEs enables them to invest in modern equipment and sustainable practices, resulting in increased production, quality, efficiency, and income. This, in turn, empowers local farmers, creates jobs, and contributes to commercialisation, ultimately fostering economic growth and prosperity within the community.

Sahaj is an SDC project implemented by a consortium of Swisscontact (as the lead agency) and CEAPRED.

Sustainable agriculture
Sahaj - Nepal Agricultural Market Development Programme
In 2017, agriculture contributed around 27.04 per cent to Nepal's GDP. Agriculture is a major source of livelihood in the country. However, the agriculture sector is still in a nascent stage as far as technology and modern cultivation methods are concerned. Agriculture mainly engages smallholder farmers who continue to use traditional methods of...