With more than 66 per cent of Nepalese dependent on agriculture, the introduction of digital financial services (DFS) offerings in the agriculture sector became essential for not only expanding the ecosystem of DFS but also to ensure progressive growth of access to finance in rural areas.

The UNCDF partnership with Prabhu Management on dairy digitalization is a prime example of an innovative and sustainable solution in the value chain benefiting various stakeholders in rural areas who were previously deprived of accessible financial services. It serves as an excellent model for digitalization of other value chains in the agriculture sector, offering rich insights and learnings for reaching out to small-holder farmers and rural entrepreneurs.

Dairy is one of the main livelihoods for Nepal’s farmers. According to the Food and Agriculture Organization (FAO), more than 1.6 million farmers are engaged in the sector contributing to 9 per cent of the national GDP. On average, 92 million liters of milk or approximately 60 per cent of the country’s milk is processed through an organized sector and distributed through one of the largest dairy corporations, Dairy Development Corporation, while the rest is processed through private sector dairy companies. The market size of the organized milk supply chain is NPR 26 billion (US$216 million1 ) and dairy companies in Nepal have invested around NPR 15 billion (US$124 million) in infrastructure and supply chains.

Dairy cooperatives are the backbone of the sector and are catalysts in the development of the dairy value chain. They play a significant role in the collection and selling of raw milk from the farmers to Dairy Development Corporation and private dairies. There are more than 1,700 dairy cooperatives in the country with a member count ranging from 200 to 2,000 farmers. In terms of employment, an estimated 20,000 individuals are employed in dairy cooperatives across the country. On average, a dairy cooperative collects 48,000 liters of milk per year and pays NPR 1.56 million (US$12,945) per year to farmer members. An average farmer earns NPR 31,238 per year (US$260) from dairy2 . This earning has increased for farmers who now sell milk for a total of NRP 52 per liter (US$0.043/liter)3 as compared to NPR 32 per liter (US$0.27/liter) in 2016.

In 2017, UNCDF conducted a study to assess the scope for digitalization of the dairy value chain in Nepal considering the challenges related to acceptance of digital financial services in the value chain.

Based on the study outcomes, UNCDF co-created a dairy value chain digitalization project in Nepal in partnership with Prabhu Management. Prabhu Management is a digital financial service provider offering mobile wallets and payment portals. It currently has a network of around 16,000 agents with 4,000 from mostly rural credit cooperatives, which provides a well-established distribution infrastructure in rural markets in Nepal.

Timeline:

Results:

Learnings:

• It is critical to offer an end to end digital transformation solution for aggregators rather than only digitalizing the payments process.
• Marketing along with product ambassadors with the right incentive gets newcomers to adopt digital services.
• Investment on creating an eco-system that includes agents and merchants is important to provide an incentive for farmers to receive digital payments.
• It is critical to map the power dynamics in the community to assess who can influence the farmer’s decision making related to financial services.
• It is essential to offer digital literacy and financial literacy to enhance the capabilities of different stakeholders in the community.
• It is critical to expand financial service offerings to include other products beyond savings.
• Integration of Digital Financial Services (DFS) in the existing livelihood systems is a means to enhance financial inclusion at multiple fronts.
• Generally, smallholder farmers or rural entrepreneurs have multiple sources of income, one as a bridge finance to cater to regular expenses and others as windfall income mainly from crop harvest.

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