Access to Credit by Resource-poor Made Easy by Value Chain Development Fund (VCDF)

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August 2019


The paper summarizes an innovative rural financing model piloted to promote value chain development interventions targeted to ultra-poor women groups for their economic empowerment in Salyan district of Nepal. The work was financed by BMZ and Welthungerhilfe (WHH) Nepal and implemented by Local Initiatives for Biodiversity, Research and Development (LI-BIRD). Engagement of private sector, especially financial institutions without direct subsidy or de-risking mechanism, in development sector is not a common practice. Value Chain Development Fund (VCDF) is the model developed by LI-BIRD to overcome the difficulties faced by private sector in their involvement in value chain development programmes. In VCDF model the project set aside NPR 1 million which is used as collateral against which Banking and Financial Institutions (BFIs) disburse collateral-free loan at least three times the deposited amount to target beneficiaries. However, our experience in Salyan district indicates that BFIs really do not require de-risking mechanism, what they need Access to Credit by Resource-poor Made Easy by Value Chain Development Fund (VCDF) 2 in initial phase is information about functional farmers’ groups, links to these groups, travel and incidental expenses and, if possible, some office operating expenses to offset initial investment cost while moving into remote areas. Partnership with private sector, namely Mahila Sahayatra Microfinance Bittya Sanstha Limited (MSMBSL), resulted in 552 women accessing credit worth over NPR 30 million within one and a half year, directly investing in goat value chain (54.5%), vegetables cultivation (3.2%) and others (42.3%). In terms of growth of income after having financial access show significant income increase across the sectors, goat farming (139%), vegetable cultivation (150%), and other sectors (212%).