Challenge
Nepal has been slow to recover from a devastating earthquake in 2015. Providing financing to unleash the capacity of small businesses and smallholder farmers is one key to recovery. Nepal faces significant development hurdles, marked by its ranking as 46th of 50 in the Indo-Pacific for GDP per capita. The disastrous earthquake in April 2015 exacerbated these challenges, claiming nearly 9,000 lives, demolishing cities and villages, and rendering hundreds of thousands homeless. The economic toll from this earthquake was staggering, with losses estimated at about 50 percent of Nepal's GDP, plunging per capita economic output to below that of Afghanistan. Nearly a decade after the disaster, Nepal's recovery remains sluggish, hindered by a lack of internal resources and heavy reliance on external aid.
The ramifications extend to Nepal’s micro, small, and medium-sized enterprises (MSMEs), which include over 900,000 entities. Nepal’s MSMEs face acute financing challenges, with 40 percent citing access to finance as a major growth barrier, according to the Asian Development Bank.
Solution and Impact
With the support of USAID/Nepal, a DFC loan portfolio guaranty of up to $5 million has been instrumental in enabling Laxmi Sunrise Bank to expand its lending to small and medium-sized enterprises (SMEs) and farmers in Nepal. This guaranty facilitated the bank’s ability to offer loans under more favorable terms, to include less stringent requirements for collateral, and the launch of an agriculture lending program targeting areas ravaged by the 2015 earthquake.
Sukraraj Timilsina, who worked overseas for many years before returning to Nepal with the hope of starting his own farm in Pokhara, is one of the initiative’s success stories. Supported by a loan from Laxmi Sunrise Bank, Sukraraj and his wife, Shiva, leased land for livestock and vegetable farming and acquired a small tractor.
The Timilsina farm is a family affair. Sukraraj works alongside his wife and father and has hired two additional workers for planting and harvesting. His produce is sold at the local market, providing a steady income. Sukraraj plans to improve his family’s living situation by moving out of their small rental into a larger, owned home.
Building on the success of the initial guaranty, DFC expanded its commitment in 2022 with a follow-on $5 million loan portfolio guaranty and a $45 million direct loan to Laxmi Sunrise Bank. This expanded support aims to further empower SMEs, microenterprises, and individuals in the agriculture, agribusiness, and food security sectors, placing a special emphasis on women borrowers, thereby reinforcing the initiative’s impact on Nepal’s economic recovery and development.