Local small farmers have been complaining that they cannot get access to banking services as banks are concentrated in urban areas. There are more than 35 banks in Nepalgunj and Kohalpur, but not one provides services in Baghauda which is located across the Rapti River. 

Many banking outlets had moved to city core areas citing security issues during the 1996-2006 Maoist conflict. They have still not returned to rural areas due to the violent Tarai protests that have marked the past few years. 

Senior district agriculture officer Krishna Bahadur Basnet said that farmers had not been able to get banking services as banks do not go beyond city areas. He added that banks do not even accept the fixed property of farmers in rural areas as collateral for loans. 

The government has been urging farmers to use modern technology, and that requires money. “Small landholders have not been able to get loans,” he said.

Pradip Raj Poudel, director of the research department of Nepal Rastra Bank (NRB), said that credit flow in the rural sector had not been satisfactory in line with the central bank’s provision of boosting investment in the agricultural sector. 

The central bank had told commercial banks to increase their lending to the agricultural sector to at least 12 percent of their total credit disbursement by the end of fiscal 2014-15.

NRB had directed A class banks to direct 20 percent of their total loans to the primary sectors, including agriculture, energy, tourism and small industry, out of which 12 percent has to go to agriculture and energy. 

However, banks have given only 12.3 percent of their total loans to primary businesses in the last two years. “There is a need for a separate coordination mechanism to provide credit to rural farmers,” said Poudel. 

He added that banks had invested only 8.3 percent and 7.9 percent in agriculture and energy respectively. 

“Banks are reluctant to provide loans to deprived communities, farmers and productive businesses,” he said. 

NRB statistics show that banks issued loans to the farm sector at 4.5 percent interest during the last three years. 

Poudel said that farmers and entrepreneurs had been complaining of not getting concessional credit due to lack of publicity and coordination. 

Since banks and financial institutions seek to increase profits by reducing their cost of doing business, they are hesitant to operate in rural areas which adds to their overheads.  

“Small farmers come to take loans amounting to Rs200,000 to Rs300,000. However, due to the tedious paperwork, they are discouraged from borrowing money from banks,” said Shanta Bahadur Shah, manager of Nepal Bank. 

“We have an investment plan for the agricultural sector, but we have not received any loan applications for big projects.”