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Rural Enterprise Financing Project

An agreement has been signed on 10th December 2019 between Nepal Government, Asian Development Bank and SKBBL for Rural Enterprise Financing Project (REFP) to provide a subsidized loan of NRs 5.65 billion. The project aims to develop commercialized agriculture by developing at least 50 collective enterprises and 500 individual enterprises.

Introduction

The Government of Nepal (the GoN) has entered into a loan agreement with the Asian Development Bank (the ADB) to borrow USD 50 million on 10th December 2019 for the implementation of the Rural Enterprise Financing (REF) Project. Sana Kisan Bikas Laghubitta Bittiya Sanstha Ltd. (in English, Small Farmer Development Bank- SFDB) is the Implementing Agency (IA) and Financial Sector Management and Corporation Coordination Division (FSMCCD) Ministry of Finance is the Executing Agency (EA) for the Project.

A five-member Project Steering Committee headed by the Secretary Ministry of Finance has been formed to monitor and supervise project implementation and provide guidance on major project implementation issues.


Target of the project

The main objective of the REF project is to increase the incomes of small farmers by engaging them in rural enterprises and commercial agricultural activities. The project finances rural enterprises through SFDB and Small Farmers Agriculture Cooperative (SFAC). The project is also supporting to enhance SFDB’s and SFAC’s rural enterprise financing capacity as well as value chain development, and business facilitation support for small farmers, especially women. The project will have the following outcome:

i. Collective enterprises developed and financed

The project plans to develop and finance at least 50 collective enterprises with value chain development and business facilitation support. Typically, collective enterprise includes tea processing factories, rice mills, dairy processing, mustard oil mills, commercial farming and other enterprises in the agricultural value chains. For each collective enterprise, either SFAC or a group of SFAC members will be shareholders, at least 40% of shareholders should be women.

ii. Individual enterprises promoted and financed

The project is supporting SFAC members who are willing to start or expand their individual enterprises. Typical individual enterprises include commercial and livestock farming, agriculture produce collection, processing and marketing. The project aims to finance about 500 individual enterprises including start-ups, of which at least 30% will be women-initiated enterprises. SFDB is providing value chain development and business facilitation support for individual enterprises especially promoted by women. 

iii. Rural enterprise financing capacity enhanced

The project is supporting SFDB and SFACs enterprise financing skills, especially in business plan development and appraisal, due diligence, risk management, financial management, and safeguards. The project has also supported SFDB to develop collective and individual enterprises financing operational policies and guidelines as well as assist in business identification, appraisal, and monitoring of the REF loan portfolio. 

Beneficiaries

The project beneficiaries are smallholder farmer members of SFACs. Those smallholder farmers are availing micro-credit facilities from SFACs. The project is providing technical support to smallholder farmers for entrepreneurship development and to start/or upgrade small enterprises with a credit facility up to NPR 5 million. The project is also supporting to development of collective enterprises promoted by SFAC and or members with credit facilities up to NPR 20 million.  

Loan Products

The project has designed loan products with the objective of entrepreneurship development of smallholder farmers engaged in various kinds of agricultural activities. The following loans are provided through SFACs to its members:

i. Individual enterprise loan
Loan to enterprises engaged in agricultural activities owned by the member of SFAC.

ii. Collective enterprise loan
Loan to enterprises engaged in agricultural activities promoted by SFAC and or members of SFAC. 

The terms and conditions of individual and collective enterprises loans are as follows:

Particulars Individual Enterprise Loan Collective Enterprise Loan
Types of loan facilities (i) Fixed Capital Loan
(ii)Working Capital Loan
(i)Fixed Capital Loan
(ii)Working Capital Loan
Loan tenure of fixed capital loan 5 years with up to 1 year grace period 7 years with up to 2 years grace period
Loan tenure of working capital loan Maximum 1 year (required to renew every year) Maximum 1 year (required to renew every year)
Loan limit From NPR 0.5 million to NPR 5 million Maximum NPR 20 million
Interest rate to SFAC 6.5 % p.a. 6.5% p.a.
Interest rate from SFAC to the borrower 8 % p.a. (maximum) 6.5% plus premium charged by SFAC
Interest payment Monthly Monthly
Principal repayment Quarterly Quarterly
Collateral Required Required
Eligible enterprise Micro or small enterprise promoted by the member of SFAC. These enterprises should be engaged in the production, processing, and marketing of agricultural products. Enterprise promoted by SFAC or member of SFAC. These enterprises should be engaged in the production processing and marketing of agricultural products.

Lending Process

SFDB has developed the following process to select and sanction loans to enterprises under this project:

The project has designed loan products with the objective of entrepreneurship development of smallholder farmers engaged in various kinds of agricultural activities. The following loans are provided through SFACs to its members:

i. SFACs shall fulfil eligibility criteria to participate in the REF project.

ii. SFAC members who are engaged in agricultural activities shall apply to SFAC for the REF Loan with a business plan and other required details.

iii. Eligible SFACs will select individual and collective enterprises among its members who are engaged in agricultural activities on the basis of business plans and past track records. 

iv. SFACs shall refer the detail of selected enterprises to Area Offices of SFDB.

v. Area Offices shall evaluate the business plan and assess loan requirement of enterprise on the basis of supporting documents and site visit of the proposed enterprise. 

vi. Area Offices shall select eligible enterprises with loan amounts (fixed capital and working capital loan) that can be sanctioned to the enterprise and intimate respective SFAC to start a formal process to sanction the loan.

vii. SFAC has to start a formal process to sanction the loan and submit the loan application with required details to Area Offices.

viii. Area Office shall verify submitted documents and sanction the loan. The sanctioned loan amount shall be disbursed to SFAC which is eventually provided to individual and collective enterprises.

Project Progress (As of December 2021)

Loan Category No. of Loan Total Loan Amount (NPR)
Individual Enterprise Loan 193 480,520,000
Collective Enterprise Loan 15 242,700,000
Total 208 723,220,000

Projects Finance by the REF Project

Glimpses of enterprises finance by the project