Sources of Agricultural Finance

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Sources of Agricultural Finance (Sources of agricultural credit):

            Nepal is an agricultural country. About 76% of the population are engaged in agriculture occupation. Majority of Nepalese farmers are poor. Their income is insufficient even to meet their subsistence need. Therefore, they need credit (loan) to make investment in agriculture. There are two major sources of agriculture credit.

  1. Traditional/Informal sources:

From ancient times, Nepalese farmers are dependent on traditional sources of finance. Due to non-availability of other sources they have to bear high rate of interest on this source. This source includes the following sources.

    1. Friends and Relatives:

Farmers also take loan from their friends and relatives. Generally, they get such loans with or without interest.

    1. Village money lenders and landlords:

From the very beginning the village money lenders and landlords are the main source of credit to the farmers but they charge high interest on loan.

    1. Merchants and traders:

The farmers may receive credit form merchants and traders. They provide credit during the pre-harvesting season. They also charge high rate of interest.

  1. Institutional/Formal sources:

Institutional sources are legally established for the development of agricultural sector under the policy of the government. This source includes the following sources:

    1. Agriculture Development Bank(ADB):

It is regarded as the most important institution for agricultural credit. It provides short-term, medium-term and long-term credit to farmers. It provides about 80% of the total agriculture credit. It charges low rate of interest.

    1. Commercial Banks:

It is another source of institutional agriculture credit. This banks provide loan to agricultural sector under the “priority sector credit” programmed. This banks also charges low rate of interest on loans.

    1. Co-operative society:

Co-operatives are also providing loan to the farmers at low rate of interest. Its main objective is to make available cheap credit and agricultural inputs to farmers.

    1. Rural Development Bank:

This bank provides loan to the farmers for agriculture and cottage industries. It also charges low rate of interest on loan.

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