Agricultural Credit Down Rs. 5.7 Billion — Has Climate Risk Hit Rural Lending?

Nepal Rastra Bank’s mid-August 2025 credit report reveals a significant contraction in agricultural lending, with total credit to the sector declining by Rs. 5.7 billion, or 1.4%, within a month. The data indicates that outstanding loans to the agricultural sector fell from Rs. 417.9 billion in July to Rs. 412.2 billion in August, marking a notable slowdown amid growing climate uncertainty, poor harvests, and declining demand for farm-related investments.

The breakdown shows that lending to farming and livestock services — which together account for the majority of agricultural credit — fell marginally, while loans for forest, fish farming, and slaughter operations also dropped by Rs. 82.9 million. Analysts point to a mix of factors: erratic monsoon rainfall, rising input costs (fertilizers, fuel, and feed), and limited crop insurance coverage are increasingly discouraging both farmers and financial institutions. With rural incomes under pressure, repayment risks are rising, prompting banks to adopt a more conservative stance toward agriculture-based credit.

Despite this short-term decline, the central bank’s officials highlight that structural reforms, such as agriculture commercialization programs and green financing initiatives, could help restore confidence in the coming quarters. However, the sharp drop in credit also underscores Nepal’s broader vulnerability to climate-related disruptions — a challenge that threatens both rural livelihoods and the stability of the financial system.