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Class : 11
Unit : Economics

What are the sources of agricultural finance in Nepal?

Ans : There are two sources of Agricultural finance in Nepal. They are explained below: (i) Traditional/ Unorganized sources /Informal/ Non formal Ans:- The Sources which are not legal established under the control of Nepal Rastra Bank to provide loan are called unorganized sources of Agricultural finance. They usually charges high rate of interest. The attractions of those resources are less complicated formalities for borrowing. The following are the unorganized sources of Agricultural finance: a) Friends and relatives:- The farmers generally try to approach their friends and relatives for credit money. The farmer can get small amount of money to meet day to day requirement. Friends and relatives lend money with or without interest and security. b) Village money lenders and landlords:- From the very beginning village money lenders and landlords are the main source of short term loan and long term loan to the farmers. Generally short term loan is provided against security of standing crops and long term loan is provided against security of land, house etc. The rate of interest is high. c) Merchants and traders:- Merchant and traders provides loan to the farmers. They generally provide credit during pre- harvest season. The farmers are forced to sell their product at low price because the time for re-payment of loan is very short. (ii) Formal/ institution/ organized sources Ans:- The sources which are legally established under the control of Nepal Rastra Bank to provide loan are called organized sources of Agricultural finance. The following are the formal sources of Agricultural finance: a) Agriculture Development Bank:- This Bank was established with the objective of providing credit to agricultural sector in the country. It provide short term loan (less than 1 year), medium term loan (1 to 5 years) and long term loan (more than 5 years) to the farmers for the purchasing of agricultural inputs, equipment’s, fixed assets against the security of gold, silver, land and buildings etc. b) Rural Development Bank:- Rural Development Bank provides loan without security to the rural people. These banks focus on low income group people with the objective of increasing standard of living of poor people. The objective of bank is also to provide banking service to the targeted groups in rural area. c) Commercial Banks:- Commercial Banks are the second largest finance institution to provide agricultural credit to the farmers. There are 29 commercial banks in Nepal by the end of 2016. d) Co-operative:- Cooperatives are another important source of agricultural finance. There are 16 savings and Credit Cooperative is considered best for providing credit to small farmers.