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A Decade of Pro Poor Institution Building in Nepal – Innovations and Lessons Learned from Small Farmer Cooperatives Ltd.

Topic : Community-based Finance, Microfinance

In 1975, the Agricultural Development Bank of Nepal (ADBN) started to form joint liability groups of small farmers through its Sub-Project Offices (SPOs). Twelve years later, the ADBN introduced an action research Institutional Development Programme (IDP) with the support of GTZ. In 1993, as a result of the IDP, the first four SPOs were transformed into Small Farmer Cooperatives Ltd.

The Small Farmer Cooperatives Ltd. (SFCLs) is the largest provider of microfinance services in Nepal, alongside Grameen – it is estimated that by 2007 the SFCLs will reach out to close to one million people. A SFCL is defined as a multi-service cooperative designed to deliver primarily financial, but also non-financial services to its members in rural areas. SFCLs are civil society organisations that pool their joint resources to meet basic needs and defend their members’ interests. They are member owned and controlled and have an open membership policy towards “poor” farmers.

The purpose of this paper is to present details of the most significant innovations that have emerged from the SFCL system. The paper also attempts to outline the most important lessons learnt from a decade of institution building efforts in rural Nepal. While the experiences, insights and lessons learned are from Nepal, the overall conclusions may be of interest to readers with respect to other countries too.

Following an introduction, the second chapter gives a brief history of the SFCL system. Chapter three presents the three prerequisites of a successful MF programme: a systems approach, vision and ownership. The next chapter outlines four major innovations that emerged over time from the SFCL system, with the following chapter identifying some of the lessons learned from the SFCL for MF practitioners and scholars beyond Nepal. The penultimate chapter deals with the visible impact of SFCLs on the village level and addresses the adverse effects of the armed conflict on the ongoing operations of the cooperatives. The conclusion sums up the main points.