Value Chain Development Fund: An Approach to Improving Rural Poor's Access to Financial Services
Posted on: 3/21/2017
By: Vijay Kumar Gurung, LI-BIRD
The rural population of Nepal especially those in the remote mid and high hills of Nepal lack financial access due to hurdles such as geography, infrastructure, scattered population, and lack of marketable collateral, skilled human resources and security. This chronic problem can be solved by introducing self-help groups, cooperatives, banks and financial institutions to them. Establishing contact points i.e. branch of a bank in those places is a challenge because it’s near to impossible to run a profitable business model for the banks.
For any development programme, the biggest question lies in the sustainability of an intervention after the programme is phased out. Involvement of a private sector can play a catalytic role in sustaining intervention. But as mentioned earlier, involving private sector especially bank and financial institutions (BFI) is a difficult proposition. To overcome the difficulties faced by BFIs in such cases, Local Initiatives for Biodiversity, Research and Development (LI-BIRD) has developed Value Chain Development Fund (VCDF) model. In the model, LI-BIRD first selects the value chain commodities through participatory approach, and develops various intervention strategies. One of the major interventions is in the field of financial access, for which it has set aside NPR 1 million which will be used as collateral against which BFIs disburse collateral-free loan at least three times the deposited amount to target beneficiaries. The amount will be in custody of District Chamber of Commerce and Industries (DCCI) and will be governed by VCDF committee in which district level stakeholders such as District Agricultural Development Office (DADO), District Livestock Service Office (DLSO) and Cottage and Small Industries Development Board (CSIDB) will be the members of the committee.
LI-BIRD has been implementing the project ‘Improving the Livelihoods of Marginalized Groups in Salyan District’, which is financially supported by BMZ/Welthungerhilfe (WHH), from November 2015 to 31 December 2018. The project is implemented jointly by three organizations, namely RRN Nepal, LI-BIRD and Aasaman Nepal in eight VDCs of Salyan District: Kaprechour, Kalimate Kalche, Kalimati Rampur, Laxmipur, Kavre, Kubendedah, Nigalchula and Majhkada. The overall objective of the project is to ensure that food and nutrition security has been substantially improved through enhanced livelihoods. The project aims to increase the agriculture productivity and income through sustainable integrated farming systems and value chain development, and empower communities and help them become aware on right to food issues.
On 10 March 2017, a tripartite signing ceremony between MSMBSL, LI-BIRD and DCCI Salyan was organized at LI-BIRD Programme Coordination Office. Photo: Mahesh Shrestha, LI-BIRD.
In the project, LI-BIRD is responsible for developing value chains of five commodities, namely fresh vegetables, ginger, turmeric, goats and timur (Sichuan pepper) serving 1,500 households and piloting financing models for 200 households. In the process, it has identified Mahila Sahayatra Microfinance Bittiya Sanstha Limited (MSMBSL), a ‘D’ class category bank which has shown interest to forge partnership, with its goal most compatible to the project aim. To cement a working partnership, a memorandum of understanding (MoU) has been prepared keeping in view the win-win partnership for the parties involved in VCDF. On 10 March 2017, a tripartite agreement has been officially signed by MSMBSL, LI-BIRD and DCCI, Salyan at LI-BIRD Programme Coordination Office (PCO), Lalitpur, Nepal.
During the signing ceremony, Dr. Balaram Thapa, Executive Director of LI-BIRD, explained the concept of VCDF to the participants, and highlighted that VCDF is a private sector led, managed and financed model, where formal and semi-formal sector actors provide necessary investments to transform livelihoods of rural population. He also emphasized on the involvement of private sector for lasting impact on the beneficiaries. Mr. Govinda Bahadur Raut, Head of Microfinance Department at Muktinath Bikas Bank Limited, shared his organization’s experience of VCDF. He updated the forum regarding current status of VCDF in Parbat, Baglung and Myagdi Districts where under the Multi Stakeholder Forestry Programme (MSFP), LI-BIRD had piloted the VCDF concept. He said that in total they had disbursed NPR 1.8 Million to Community Forestry User Group members, and the repayment status as of now stands at NPR 650K. He shared that he was satisfied with the result as there were no default on loan.
Sharing optimism about future results, Ms. Sumitra Manandhar Gurung, Chief Executive Officer of MSMBSL, explained the vision and mission of MSMBL, and how the whole VCDF concept is compatible to the overall goal of the bank. Ms. Seema Luitel, Programme Manager of WHH Nepal, congratulated all the parties, and promised her organization’s full support for successful implementation of VCDF in Salyan. Mr. Sudan Shrestha, President of DCCI, Salyan, expressed full support of his organization for successful implementation of VCDF in Salyan. He also expressed concern regarding duplication among the microfinance clients, and suggested the need to provide value adding services like technical inputs to customers and employees. Wrapping up the ceremony in her closing remarks, Ms. Bijaya K.C., Chairperson of MSMBL, congratulated all the parties involved in VCDF Salyan, and wished for its successful implementation.
For further information about VCDF, please click here