Paper

Value Chain Finance and Nepal: Perspectives and Insights

Linking formal financial institutions with value chain finance
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This paper examines gaps in Nepal’s value chain financing, with a focus on agricultural value chains. It compares value chain finance as it is currently practised in Nepal with global good practices.

Value chain finance approaches move people who typically use only informal finance into safer financial institutions. They enhance financial literacy, preserve wealth and allow financial inputs to be used for productive purposes. Study findings reveal that there is no single best value chain finance approach. Other findings include:

  • Direct, indirect and mixed approaches could all be effective depending on the situation;
  • Introduction of formal financial intermediaries is a promising development;
  • Creation of a value chain lending methodology that would persuade formal financial institutions to enter the rural market is important.

Finally, formal financial institutions could mitigate value chain finance risks by thoroughly evaluating the viability of financing opportunities, and bringing together value chain actors to forge market linkages. They could design custom products based on the producers’ needs for finance and ensure that the process is mutually beneficial for all value chain actors.