Agriculture remains the backbone of Nepal's economy, employing over 60% of the population and contributing approximately 25% to the national GDP. Recognizing the sector's significance, the Government of Nepal has implemented various programs to provide financial assistance to farmers through agricultural loans and subsidies. This guide offers an in-depth look at these initiatives, aiming to empower farmers with the knowledge to access and utilize available resources effectively.
Recent Budget in Agricultural Sector
In recent budget speech 2082/83, Rs 57.48 billion has been allocated for the Ministry of Agriculture and Livestock Development which primarily focuses on programs ranging from fertilizer subsidies and promotion of organic farming to pilot projects for controlling wild animals harmful to agriculture. It has given more priority to insurance for the agriculture, commercialization and mechanizing agriculture of sectors, adopting control measures to reduce the losses caused by monkeys, wild boars and nilgai, provide cheap loans at three percent interest and within the next financial year, five lakh families will be provided with land owner registration certificate after collecting and verifying the cost which will be more beneficial for starting professional agriculture in Nepal.
Concept of Agricultural Loan
Agricultural loans are financial instruments designed to support farmers in various aspects of farming, including land acquisition, equipment purchase, crop cultivation, and livestock rearing. These loans are offered by several financial institutions in Nepal, often with government-backed subsidies to make them more accessible and affordable.
It is the type of loan that is used for undertaking various agricultural/allied activities for production (credit required for raising crops, short term credit for allied agricultural activities) / investment and other activities as define by NRB to meet the credit and consumption requirements of the farmers.
Many banks and financial institution is committed to the dreams of farmers by understanding the responsibilities of turning the dreams into reality. They focus on commercialization of agriculture sectors as Government of Nepal has been providing prime focus on rising commercialization of agriculture production/ processing. They have introduced Agriculture products to scale up and diversify the business. Various funded and non-funded credit facilities will be provided to the firm/business entities involved in commercial agriculture farming.
Types of Agricultural Lending Sub-sectors in Nepal
- Livestock Farming: Cattle (Cow, buffalo, pig, goat, sheep), poultry (Broilers, layers, ostrich, kaliz)
- Processing: Dairy, slaughter houses, meat processors, and others
- Food Crops: Paddy, wheat, maize, millet, oilseeds, pulses and others
- Vegetables Farming: Seasonal, off- seasonal, Tunnel, Hi-tech and others
- Cash Crops: Tea, Coffee, Sugarcane, Cardamom, Apple, Kiwi, Banana, mushroom and others
- Floriculture: Cut flower, Rose, Orchids, Ornamental plants and others
- Aquaculture/Fishery: Fish, Nursury, Hetchary, Bio-flocks and others
- Apiculture/Bee keeping: Cerana and mellifera, processing of honey etc
- Special crops: Seed production, spices, herbs, walnut etc
- Agricultural Mechanization: Transplanter, Broadcaster, Tractor, Riper, Thresher and other Agriculture Machineries
- Irrigation and irrigation equipments (all culverts, canals, hand pump, captive generator, roar pump), pipelines, pumps etc.
Government & Subsidized Schemes
To alleviate financial burdens and encourage agricultural development, the Government of Nepal has introduced several subsidy programs:
1. Interest Subsidy on Agricultural Loans
The government provides interest subsidies to make agricultural loans more affordable to all the farmers who are involving in farming traditionally or as a profession.
Subsidy Rates: In the past, women received 6% of the subsidies, while general borrowers received up to 5%. However, these rates have been lowered recently to 3-4% for women and 2-3% for general borrowers.
Loan Caps: To target small-scale farmers, the maximum loan amount eligible for subsidies has been changed; the present caps are approximately Rs. 500,000.
2. Agriculture Sector Development Programme (ASDP)
ASDP is a government initiative supported by the International Fund for Agricultural Development (IFAD), aiming to reduce poverty and food insecurity in the hill and mountain areas of Karnali Province. The program focuses on:
- Providing financial and technical support to smallholders or doing farming for the self sufficiency.
- Enhancing value chains for high-value agricultural products.
- Improving infrastructure and market access for the people as welll as the products.
3. Subsidies for Specialized Agricultural Activities
The government offers targeted subsidies for specific agricultural sectors:
Fish Farming: Financial provision for pond construction, equipment procurement, and technical support and many other activities related to fish farming.
Organic Farming: Subsidies for inputs, certification, and production volume to promote sustainable practices and make the farming as a longer term profession.
Key Features of Agricultural Loan
Amount of Loan: Depending on the requirements, you can avail of a variable sum of money depending upon pledged assets and credit worthiness.
Collateral requirement: Collateral requirements for agricultural loans vary based on the lending institution, loan amount, and the borrower's profile.
Repayment Period: Ranges from 1 to 5 years depending upon the agricultural activity and repayment can be done on the basis of monthly installments.
Penalties: You need to pay certain amount of money as a penalties/charge as per the rules and regulations of the bank if there is delay in loan payment.
Interest rate: It can be fixed or floating, typically between Base Rate + Premium as per prescribed by Nepal Rastra Bank, influenced by your creditworthiness, relationship with the bank, and product type. The base rate is the rate of interest decided by the Central Bank of Nepal and particular bank can add premium on base rate depending upon their policies.
End-Use Restrictions: Allocate funds strictly to commercial agricultural farming /activities.
Steps for Processing the Agricultural Loan
Step 1: Visit multiple banks to know about the terms and conditions about the loan and choose the best one according to your comfort and requirement.
Step 2: After choosing the bank, you need to apply for the loan giving all the details and reasoning for the loan application.
Step 3: Submit all the required documentation along with asset valuation report.
(You must submit all the document at once so that you don’t have to visit the bank very often and your loan processing will be completed within 7 working days depending upon the bank rules and regulations.)
Step 4: After all the documentation done from your side and approval from bank, you need to visit the bank for signing the legal document upon the call from the bank and you need to pay the service charge for the loan processing according to the policy of the banks.
Step 5: After signing the document, the documents signed by you is verified from bank side and after verifying all the documents the loan is sanctioned and disbursed to you fully or partially as per decided in the beginning of the application of loan.
Eligibility Criteria for Agricultural Loan Processing in Nepal
- Individual farmers or group of farmers or intending borrower having aptitude/adequate experience together with minimum land holding as required in terms of bank guidelines.
- Should be actively involved in agricultural activities or agribusiness.
- Applicant must be Nepali citizen of age not less than 18 years old.
- You must provide valid and clear reasons for taking the Agricultural loan to speed up your approval process.
Documents Required for Agricultural Loan
- Citizenship and photo of all the persons involved in loan processing
- Details of the guarantors
- Income source documents
- Map of the applicant's residence and the property to be purchased.
- Title deed of the related properties.
- Building completion certificate in case of purchase of land and building.
- Payment receipt of latest land revenue
- Four boundaries certificate of the proposes collateral security
- Blue print of land
- Trace map of land
- Other related document as necessary or asked by bank or financial institution
Common Pitfalls & How to Avoid Them
The following are the common mistakes while applying for Agricultural Loans.
- Incomplete documentation leading to repeated follow-ups
- Ignoring fine print on interest subsidies
- Overestimating agricultural outcome
- Weak Agricultural business plan.
- Failing to plan repayments aligned with revenue cycles
By following these steps and leveraging the right mix of loan products and government support, farmers in Nepal can secure agricultural funds that fuels growth, smooth cash-flow challenges, and lays the foundation for long-term success. So, these are the basic things and steps you need to know while processing for the Agricultural loan in Nepal and we hope this helps you throughout the process.
And if you have any queries related to Agricultural loan in Nepal, contact us and we will answer your question.