For many of Nepal’s farmers who contribute nearly 30% of GDP, availability of formal financial services remain inadequate or completely out of reach.
For 1.6 million farmers in Nepal, dairy farming is their main livelihood. Most of these farmers largely depend on cooperatives for financial assistance. According to ILO, it is estimated that there are more than 34,000 cooperatives in Nepal, with around 6 million rural members. As per the Finscope Study, 1,700 are dairy cooperatives with a member base starting from 200 to 2000 farmers. These cooperatives provide the best economic means for rural farmers and play a significant role in Nepal’s financial sector. UNCDF with support from DANIDA, NORAD, USAID and ILO, partnered with Prabhu Management to digitize the dairy value chain and improve financial inclusion with mobile wallets.
UNCDF identified cooperatives as a key influencers in facilitating the adoption of mobile wallets by smallholder farmers. This led to the initiation of the first digital transformation of the dairy cooperatives in Nepal. With Prabhu Management onboard as a partner, UNCDF supported the introduction of a cloud-based automated digital milk ledger to help cooperatives efficiently manage recordkeeping and their day-to-day operations. An additional cloud-based core banking solution was also offered to help cooperatives manage their savings and credit operations. This system was then integrated with a digital payment solution – a digital wallet that cooperatives could directly use to receive payments and pay farmers on their mobile.
Watch project video here
This process of digitizing started in 2017, with the pilot project launching in Kavre and Bhaktapur districts in 2018. The pilot project started with 4 cooperatives in the two districts. As of March 2020, the pilot project had reached its target with 20 dairy cooperatives digitized, nearly 5,000 dairy farmers registered in the system, and more than 1500 customers saving on their mobile wallets.
The pilot project has proven that the digitization of cooperatives is successful, sustainable, and scalable for expanding services and financial inclusion in rural Nepal. On one hand, financial institutions through digital solutions are able to reach the last mile and access an untapped customer base in rural areas. On the other hand, digital allows them to diversify their product portfolio and offer financial services to smallholder farmers along different agricultural value chains.
Digitizing the dairy value chain is now bringing farmers previously unbanked into the financial ecosystem. When farmers conduct financial transactions through their mobile wallets, they leave financial footprints which overtime reveal their income and spending patterns. This data can open up opportunities for additional financial services such as saving, credit and insurance. As a next step, UNCDF is working with its partners to develop a wallet-based digital-credit service for farmers that leverages data from the banking system deployed at the cooperatives.
With cooperatives as the cornerstone, UNCDF has tested and proven that this approach of digitizing the dairy value chain in rural Nepal is impactful and can be replicated in other agricultural value chains.
Read the full case study here.