Birendranagar, Surkhet | 5 July 2026 – In a major step towards strengthening inclusive agricultural finance in Nepal, nine local governments from Karnali, Sudurpashchim and Bagmati Provinces today signed agreements with the Deposit & Credit Guarantee Fund (DCGF) to establish a ring-fenced Agriculture Credit Guarantee Fund that will expand access to credit for smallholder farmers, cooperatives and agri-entrepreneurs in some of the country's most underserved areas.

The signing ceremony marks the official launch of a new Ring-fenced Agriculture Credit Guarantee Scheme (Agri-CGS), developed by DCGF with the technical support of the United Nations Development Programme (UNDP).  This initiative is a part of the United Nations Joint Programme on Innovative Financial Solutions for Local Food Systems Transformation in Nepal, implemented by the UNDP in collaboration with FAO and WFP and UNCDF.

Despite Nepal's significant progress in reducing poverty and advancing human development over the past three decades, disparities remain pronounced. Karnali and Sudurpashchim Provinces continue to face persistent challenges, including food insecurity, limited economic opportunities, low levels of agricultural commercialization and industrialization, climate-related shocks, and high rates of outmigration.

Access to affordable finance remains one of the biggest barriers preventing farmers and micro, small and medium enterprises (MSMEs) from investing in agricultural production, processing and value chain development. The new guarantee scheme seeks to address this gap by reducing lending risks for financial institutions while enabling underserved borrowers to access formal credit.

The dedicated guarantee fund will be capitalized through contributions from multiple partners, creating a sustainable mechanism to encourage agricultural lending. Under the initiative, the UN Joint Programme, , will contribute USD 1 million, DCGF has committed USD 700,000, and the nine participating local governments will collectively contribute USD 300,000, with each local government providing NPR 5 million. DCGF has already established the ring-fenced account and transferred its contribution following approval of the scheme by its Board.

Unlike the existing guarantee mechanism, which is highly leveraged and often requires banks to wait until loan maturity before submitting guarantee claims, the new scheme introduces several innovations designed to improve efficiency and encourage lending to underserved communities.

The fund will maintain a prudent leverage ratio by guaranteeing loans up to five times the value of the fund. Financial institutions will be able to request guarantees for individual loans based on assessed risks rather than through a portfolio-based approach. Banks will also be eligible to submit guarantee claims immediately after 90 days of payment irregularities occur, with DCGF committed to settling approved claims within one month in a single tranche.

These improvements are expected to significantly strengthen confidence among commercial banks to extend loans to borrowers who often lack conventional collateral, particularly women, smallholder farmers, cooperatives and entrepreneurs in remote and marginalized communities.

"This partnership represents an important milestone in making Nepal's credit guarantee system more responsive, efficient and inclusive. By establishing a dedicated ring-fenced guarantee fund with the support of local governments and development partners, we are reducing risks for financial institutions while expanding opportunities for farmers and agri-entrepreneurs who have traditionally struggled to access formal finance. We believe this model can demonstrate a new pathway for strengthening agricultural financing across the country." said Mr. Dila Ram Giri, Chief Executive Officer, Deposit and Credit Guarantee Fund.

Separately, Deputy Resident Representative, and Officer In charge, UNDP Nepal, Julien Chevillard said, "Inclusive finance is essential for transforming Nepal's food systems and ensuring that no community is left behind. Through this innovative partnership, we are helping unlock investment for smallholder farmers, women-led enterprises and rural entrepreneurs who are central to building resilient local economies. The collaboration demonstrates how governments, financial institutions and development partners can work together to accelerate progress towards the Sustainable Development Goals."

During the programme, chiefs of local governments thanked UNDP and DCGF for developing such an innovative scheme targeting their local levels. They believed that the scheme would help local farmers and agri-MSMEs who were facing constraints to access to credit earlier, particularly, women and people from disadvantageous communities. They further informed that the respective local governments have allocated resources for addressing other problems in agriculture sector.

The initiative contributes directly to Nepal's efforts to transform its food systems by expanding financial inclusion, supporting resilient livelihoods and fostering inclusive local economic development in provinces that face some of the country's greatest development challenges.

For more information, please contact: 
Monica Upadhyay, Head of Communication, UNDP Nepal, monica.upadhyay@undp.org, + 977-9841343953