Nepal: Small Farmer Development Project (SFDP

Phase I and II)

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Objectives
Phase I of SFDP was designed to assist small farmers and the landless rural poor in increasing their incomes and standards
of living, and to promote self-help and self-reliance through:

building up the institutional base for organizing the disadvantaged rural poor into small-farmer groups around
common economic activities and/or production resources;

providing supervised credit to enable these groups to undertake a range of income-generating activities; and

providing training and technical assistance to ensure effective utilization of facilities provided by the project.

Phase II was designed to intensify and expand the activities of Phase I.

Activities
The main components under Phase I of the project were of three types:

Provision of credit for livestock-related economic activities. The project

was to extend credit lines through the Agricultural Development Bank of Nepal
(ADBN) to small farmer groups or individual small farmers within the smallfarmer groups for the purchase of milk buffalo, buffalo heifers, bullocks and
bullock carts, goats, sheep and sows.

Provision of training for small farmers and small farmer groups. Training was to be provided in areas such as
planning group activities, bookkeeping, livestock development and agro-processing activities.

Provision of technical assistance for institutional capacity-building. A livestock-insurance specialist was to

spend three person-months examining the viability and assisting in the establishment of a livestock-insurance
scheme.

Phase II of the project consisted of two main components:

Provision of credit for livestock production. Credit was to be provided to improve the productivity of buffalo and
goats and, in the case of farmers with very little or no land, for animals to hire out for draught and transportation.

Provision of technical assistance for institutional capacity-building. The project was to support training,
establishment of subproject offices and formation of small-farmer groups.

Outcome
Phase I

Significant numbers of small farmers were provided with access to institutional credit; disbursement of credit for livestock
activities exceeded targets by 21%. A study carried out by the Agricultural Projects Service Centre indicates that income
from livestock rose considerably in some project areas as a result of increased sales of milk and milk products. One of the
factors that played a role in raising market demand was the restriction of imports of subsidized powdered milk from the
European Union, which created new incentives and improved prices for Nepalese milk producers. The consequent
establishment of a milk-collection system through the state-owned Dairy Development Corporation improved farmers market
access and linked them to urban milk consumers.
Project credit provided beneficiaries with the opportunity to take advantage of rising market demand. Draught bullocks
purchased under the project gave beneficiaries flexibility at land-preparation times and allowed timely planting of crops.
Other beneficiaries were able to upgrade their transport businesses by acquiring bullock carts with rubber tyres and superior
load-carrying capacity.
A significant unplanned achievement was the participation of poor rural women in development activities through the
creation of womens groups. These groups enhanced womens roles and status by increasing their incomes and economic
independence.
Phase II
The project was successful in providing financial assistance to small-farmer group members and in encouraging them to
save. The introduction of income criteria for credit eligibility paved the way for the inclusion of landless labourers and village
artisans as members of small-farmer groups. About 40% of the credit was allocated to livestock, but credit was not
associated with sustained adoption of improved livestock breeds, as intended at appraisal. Moreover, feed and fodder
management did not improve over the project period.
The womens group organizers were a significant factor in increasing womens involvement in the project. The most common
purpose of loans to women was livestock rearing, which accounted for 37% of the total. A common economic activity
undertaken by women was the breeding of goats, buffalo, poultry and pigs.
Organizations and people
Government agencies involved in the delivery of services to livestock producers in Nepal were found to be
generally weak. The Department of Agriculture and the Department of Livestock Development and Health
suffered from inadequate numbers of staff and inadequate training. Field staff and extension services had
few incentives. Such limitations handicapped the ability of these agencies to support livestock development.
Planned

Achieved

To form small-farmer groups and recruit project

support staff, including group organizers and
assistant group organizers. The strategy involved
organizing small farmers and landless labourers
into groups based on common economic activities
and production resources so that they could benefit
from the larger scale of operations and access to
credit. Under Phase II, 5 810 small-farmer groups
with a total of 58 100 members were to be formed,
200 subproject offices were to be established and
staffed and 30 womens group organizers were to
be recruited.

By 1989, 4 667 small-farmer groups with 42 345

members had been formed. By the end of Phase II, 6
954 groups with more than 47 455 members had been
formed. At project completion, 323 ADBN staff had
been selected and trained as group organizers.
Although not provided for at Phase I appraisal, 532
womens groups with 4 271 members were formed
and received training in goat and buffalo husbandry.
By 1991, 89 womens group organizers had been
recruited and 1 978 womens groups had been
formed, with 16 351 members.

To establish four regional training centres and

provide training including livestock development for

The four regional training centres were established at

Letang, Biratnagar, Anandaban and Napalganj; 30 176
beneficiaries received training in 42 subjects including

small-farmer group members, group organizers,

assistant group organizers and womens group
organizers. In Phase II, five regional training
centres were to be constructed or rehabilitated.

group concepts, group savings and livestock

development. Under Phase II, 594 group organizers or
assistants and 257 womens group organizers
received training; 5 043 beneficiaries participated in
workshops/seminars on livestock development; 6 257
completed training in agricultural and livestock
development and 4 384 in organization and
management of small-farmer groups. In Phase II, five
rural training centres were established in Morang,
Banke, Kailali, Rupandeli and Chitwan.

Risk management
Buffalo raising is associated with high risks and high initial costs. A possible solution was to establish a
livestock-insurance scheme, with the aim of protecting small farmers against the risks.
Planned

Achieved

To support a feasibility study into the

proposed livestock-insurance
scheme and launch it on a pilot basis
in eight subproject offices.

Consultants hired to carry out the feasibility study and develop a

livestock-insurance scheme recommended a group scheme based
on a 10% premium. At project completion, the scheme was under
trial at Mahendranager, where it was popular and livestock mortality
had been checked.

To facilitate establishment of a group

savings scheme with the objective of
making small-farmer group members
self-reliant.

The group savings scheme grew from NPR 4.5 million in 1986-1987
to NPR 14.5 million at the end of 1991.

Access to inputs and infrastructure

One of the weaknesses in the Nepalese development process was lack of institutional arrangements for
delivering services. This is exemplified by the inadequacy of credit for small farmers. Most agricultural credit
for small farmers provided by financial institutions actually goes to large farmers. Nepal lacks the institutional
infrastructure for delivery of the credit services needed to boost farmers production and incomes. High initial
costs mean that small farmers cannot afford to purchase a pair of bullocks out of their own resources.
In Phase II, the livestock component targeted only those districts that had the potential for livestock
production, including support services and access to stable markets. Applicants for livestock credit were
required to follow guidelines and undergo training. They were encouraged to plant fodder trees and grow
forage. Only animals certified as being in good health could be purchased. Preconditions for granting loans
for livestock development included:

possession of fundamental livestock-management skills;

adequate on-farm feed resources and agreement to develop these further; and

contribution to a small-farmer group emergency fund to underwrite loss of buffalo.

Planned

Achieved

To provide loans for activities identified by groups and

their members on a group guarantee basis requiring

Group solidarity was weakened by the banks

demand for individual collateral in addition to the

no other collateral or security. In cases of default by

one member, the group was to be collectively
responsible; no further loans would be advanced until
the default was remedied. Part of the income
generated by the group was to be transferred to a
group savings fund to provide for members
consumption loans, or other purposes according to
group decisions, reducing dependence on private
borrowing at high rates.
In Phase I, to provide credit to purchase:

4 800 milk buffalo of local breeds;

300 pairs of buffalo heifers;

3 700 goat units of four does and one buck

(18 500 animals);

1 400 sheep units of five sheep each (7 000

animals);

group guarantee. Repayment became problematic,

because group liability was not introduced and
groups did not impose enough social pressure for
repayment.
Under Phase I, farmers were able to purchase:

8 318 milk buffalo;

3 174 buffalo heifers;

16 691 goats;

1 845 sheep;

3 983 pigs;

13 281 pairs of draft bullocks; and

1 241 bullock carts.

8 380 buffalo; and

Lack of extension and training compromised

productivity, however. As pig raising was a relatively
new activity in Nepal, small farmers had little
understanding of housing, feeding and husbandry
requirements; the advice they received was
generally poor. Among the smallest farmers,
introduction mortalities for milk buffalo were about
10-15%; of the buffalo purchased, 10-15% failed to
get back in calf and 20-25% contracted mastitis. In
some cases, buffalo were provided in areas with
underdeveloped milk markets and low milk prices,
making credit repayment difficult.

10 424 goats.

Under Phase II, farmers were able to purchase:

300 sows;

3 000 bullocks for farmers in the Hills and 4

600 bullocks in the Terai; and

500 bullock carts.

In Phase II, to provide credit to purchase:

18 679 buffalo; and

39 705 goats.

Lessons learned

It is important to provide small farmers with adequate training and extension services in livestock production. They
must have full access to feed resources and animal health services and should possess adequate experience in
animal husbandry. Limitations in these areas result in high mortality rates and low productivity.

Buffalo milk-cows are a risky investment for poor small farmers because of high maintenance requirements.
Considerable proportions of farm resources in terms of labour, fodder production and finance are required to
maintain the buffalo at productive levels sufficient to allow repayment of credit. If milk prices are not high enough to
give an adequate return, or animals die, contract serious diseases or do not get back in calf, milk buffalo are a nonviable investment.

The introduction of improved exotic breeds in areas where veterinary services are limited or non-existent is likely to
result in high mortality because of inability to adapt to local feed and disease conditions.

Any large increase in numbers of livestock that depend on forest and public lands for fodder will require careful
monitoring to control environmental degradation.

For the small farmer undertaking new activities with the help of credit, risk is reduced through emphasis on training
and extension activities.

Promotion of individual investment as opposed to group investment around common activities or production
resources may hamper development of a spirit of collective self-reliance.

Broad credit eligibility criteria may compromise an intended focus on small farmers, weakening group cohesion
and reducing the benefits gained by the poorest farmers.

Poor farmers may be reluctant to accept responsibility for their group members debts. Sound assessment of the
credit-worthiness of borrowers is an essential component in extending credit to the poor on a sustainable basis.

Timely loan repayment depends on a sufficient number of project staff with adequate resources performing regular
field visits and monitoring defaulters.

Project information
Total cost: USD 16.1 million (Phase I) and USD24.4 million (Phase II). Livestock cost (as percentage of total): N/a.
Duration: The first phase of the project was to be implemented over a period of five years from 1981 to 1986. The second
phase started in 1986 and was closed in 1992.
Area: Phase I of the project was located in 31 of the 75 districts of Nepal, 19 in the Hill region and 12 in the Terai region
plains. In Phase II, the project area was extended to include a further 12 districts.
Beneficiaries: Phase I of the Small Farmer Development Project (SFDP) aimed to target about 50 000 small-farmer
households; Phase II was to benefit about 58 100 small-farmer households. In Phase I, farmers with smallholdings and high
incomes were eligible for credit under the project. The SFDP Phase II eligibility criteria were based on per capita income in
order to overcome limitations connected with coverage in Phase I.