Overall development of our country depends upon agriculture and rural sector infrastructure development. Rural sector development, in turn, depends on agriculture, and various kinds of industries, businesses and employment opportunities. Productivity of agriculture and industry is the combined result of technology being used or to be used, complimentary inputs such as irrigation, fertilizer, supply of raw materials and marketing and easy access to rural credit.
Though there were various programs operating in the past for agriculture and rural development, expected increase in production could not be realized. It is, therefore, necessary to increase the access of people to agriculture and rural credit by removing the constraints faced in the past.
Review of achievement in the Tenth Plan
Under the Plan, it was envisaged to mobilize all the banks and financial institutions involved in rural credit under a single coordinated system with the Agricultural Development Bank playing the lead role in providing agriculture credit. It was also intended that commercial banks and other development banks would be mobilized, for their participation in such credit operations. The Plan also envisaged women and the unemployed youth to use credit facilities. Besides, mobilization of Rural Self Reliance Fund (RSRF) with added long-term capital provision was expected to enable the deprived people’s access to micro finance, extending credit coverage to the maximum in rural areas through micro-finance institutions by reforming institutional structure. The program list also included gradual privatization of rural development banks, and the Nepal Rastra Bank to monitor the progress of the rural credit target.
During the Plan period, supply of agriculture’s target was by 5.5%, including credit supplied by the cooperatives. If cooperatives are excluded, the credit supply was 0.1% less than the target. Deprived sector credit ratio of 3% enforced as mandatory for the commercial banks also included credit made available to the individuals of this class going for overseas employment. Besides, the wholesale credit to the Nepal Rastra Bank licensed cooperatives and Rural Micro Finance Development Center (RMDC) and their deposits were also counted towards meeting the said mandatory credit ratio.
Problems and challenges
Priority sector credit program has been withdrawn and the agriculture and micro-credit supply modality is not yet clear. After the competitive banking system came into operation, the deposit rate is set on a downward trend. Credit investment rate has also declined. Interest rate offered by the banking sector is not positive when compared to the inflation rate and the rates offered by the banks across the border. As a result, capital flight and the flow of capital to the non-financial sector have become imminent. Corrective policy intervention in this field is a challenging task. Identification and implementation of various kinds of instruments relating to the insurance of deposit, agriculture crop, extension in livestock insurance, rural solar system and micro-insurance also remain as challenges due to the absence of an institutional set up to regulate such instruments.
To help the development of agriculture and rural sectors by enhancing access to credit, through micro-finance institutions and diversification of micro-finance instruments.
- Agriculture, rural and micro finance together will be used as an effective medium of poverty alleviation by coordinating with the targeted programs.
- The policy of mobilizing the Agriculture Development Bank as a lead institution of agriculture and rural credit will be continued.
- Banks and financial institutions will be encouraged to gradually reopen, to the extent feasible, their dislocated branches, and to start new branches in the remote and rural areas.
- Bank and Financial Institution Licensing Policy will be reviewed to develop a healthy and efficient network of banking and financial institutions for widening the coverage of agriculture, rural and micro-finance.
- Poverty Alleviation Fund’s role and its program will be reviewed and streamlined.
- Rural Self Reliance Fund will be developed as a “National Microfinance Fund”, in which the Government of Nepal, Nepal Rastra Bank, donor agencies and other organizations and individuals may deposit their money. Interest income from such deposits will be exempted from tax provision.
- National Co-operative Bank will be developed as a vehicle to supply rural and micro-credit. To achieve this, its organizational structure, program and resource management will be reviewed.
- Based on the mapping of banks, cooperative societies and non-governmental organizations active in rural and micro-financial services, an institutional coordination and follow-up mechanism will be implemented.
- Necessary standards will be implemented for regulation and supervision of rural and micro-financial institutions.
- A “National Microfinance Policy” will be issued for strengthening the micro-finance sector.