INSTITUTIONAL CREDIT FOR FISHERIES DEVELOPMENT IN NEPAL: A CASE STUDY

Bishnu P. Shrestha

Asia and Pacific Regional Agricultural Credit Association

Bangkok

1. BACKGROUND

Nepal is a land-locked country with a total area of 147 181 km². The economy is primarily based on agriculture. More than 90 per cent of the population, 17.5 million in 1987, live in rural areas. The mountains and hills occupy almost two thirds of the country's total area. Nepal has abundant inland water resources, including 6 000 rivers. An estimated area of 726 380 ha can be used for raising fish, of which 395 000 ha consists of rivers, 5 000 ha of natural lakes and ponds, 1 380 ha of reservoirs and 325 000 ha of rice fields.

In order to utilize the water resources in a more organized way for fish raising, the government has established fish farm centres to provide the technical base for the development of aquaculture. These centres provide technical know-how and concentrate on the production and distribution of fingerlings to fish farmers. As the majority of Nepalese farmers are presently smallholders unable to generate marketable surpluses and therefore remain at subsistence level, fish farming credit should be considered an essential agricultural input for further development of the sector. With adequate credit farmers can establish private fish farms and raise their income level. At present, however, the credit needs of rural families are met to a great extent by informal sources such as moneylenders, landlords and traders. Only 24.02 per cent of the borrowing farm families received loans from institutional sources in the late 1970s, according to the survey conducted in 1976/1977. Although aquaculture as a new subsector of Nepalese agriculture is attracting the attention of policy-makers, planners and researchers, credit flow is still very low compared to other subsectors of Nepalese agriculture.

2. THE IMPORTANCE OF FISH CULTURE IN NEPAL

Fish raising has been identified as a priority activity, generating high income at low cost over a short time span. Fisheries is considered one of the simplest and most practical solutions to the malnutrition problems of poor rural families. The development of fisheries in Nepal is expected to play a vital role in consumption, GDP, employment opportunity, income generation and balance of payments.

Consumption. The consumption of fish contributes notably to protein intake. The average annual animal protein consumption in Nepal as of 1974–75 was 4.5 kg per person, of which the contribution from fish consumption was only 0.2 kg. This implies scope for fisheries development both in the private and the public sectors. The national average per capita fish consumption was 390 gms in 1986 and was estimated to reach 555 gms by the end of the Seventh Plan (1989–90).

Share of agricultural GDP. The share of agriculture in the GDP is around 62 per cent and the share of fisheries in total agricultural GDP was estimated at 0.983 per cent in 1984-85. Though the latter seems insignificant, the contribution of this subsector to the creation of employment, to the trade balance, and as a source of cash generation and resource utilization in the total agricultural sector should not be overlooked.

Employment opportunities. In 1985 the Department of Food and Agricultural Marketing Services of the Government of Nepal conducted a survey of 14 selected districts of the Terai to study employment opportunities in the fisheries sector. It was revealed that on average only 0.60 per cent of the families surveyed were self-employed in fisheries activities; about 60 per cent of those involved in fisheries activities were fully employed in that occupation and 35 per cent of them were engaged for more than six months per annum in fisheries activities. The study further showed that 0.947 per cent of the families involved in fisheries were engaged in fish pond operations.

It may be estimated that the fisheries activities have provided employment (self-employment and employment as labourers) to about one per cent of the total population of Nepal. Moreover the fisheries sector provided employment to the under-employed labour force of rural Nepal.

Income generation. The inherent shortcomings of subsistence farming in Nepal have hindered the increase of efficiency in the agricultural sector and have deprived the farmers of cash income. Fisheries could be effective as a supplementary means of agricultural activities to generate cash income. For example, gross return from a hectare of water area is estimated to range from NRs 14 930¹ to 22 395 (at NRs 14.93/kg farm price and a yield of 1 to 1.5 tonnes/ha). This earning could be higher than the return from crop and/or livestock farming.

Balance of payments. At present fish imports exceed exports. India is the major partner in fish trading. The export of fish in the year 1984–85 contributed only 0.02 per cent of total exports (300 tonnes exported at NRs 15/kg export price). Fisheries could be developed as a major activity for both export promotion and import substitution and therefore reduce the negative trade balance with India.

3. FISHERY AND AQUACULTURE DEVELOPMENT

Fishing is an age-old activity in Nepal. The government established a Fisheries Section in 1943, signalling the beginning of organised fisheries development. In 1944 several species of carp, Rohu, Catla and Mrigal were imported from India and experiments carried out in the Kathmandu valley. In an effort to introduce a fish species which can breed and grow easily in the confined waters of a natural or artificial pond, an improved strain, the Common Carp (German Carp) was imported from India, in 1956. Subsequently the Mirror Carp was imported from Calcutta and Israel for experiments. These carp were found to breed well in confined waters and to grow satisfactorily in sub-tropical climatic regions. With the establishment of the first Fishery Station in Parwanipur in the Southern Plain in 1961, fish culture activities started in sub-tropical Nepal. Owing to the higher growth rate of the improved strains in the warmer climate of the Terai, carp raising gained popularity in the southern part of the country. Similarly, grass carp were introduced from India and Japan in 1966 and 1967 respectively. In 1972 the Big Head Carp was imported from Hungary. Since these fish do not spawn spontaneously in natural conditions in ponds, experiments were carried out at Godavarj Fish Farm, Kathmandu, to induce breeding for commercial culture. A breakthrough in breeding of grass carp species by artificial means was achieved in 1972. Success with fingerlings production of other Rohu and Mrigal species was followed by breeding programmes through Fishery Development Centres in various districts. The fingerlings were distributed to the farmers for fish production.
¹ NRs = Nepalese Rupees

Initially, monoculture was practised in fish farming, but soon polyculture became popular and integrated aquacultural systems such as fish/duck culture, fish/rice culture and fish/duck and pig culture, were adopted. The introduction of new species and modern technology supported by institutional credit facilities led to a considerable increase in the production of food fish. While 2 600 tonnes of fish were produced in 1975, the production increased to 3 821.5 tonnes in 1980 (a 47% increase) and 6 126 tonnes in 1985 (a 63% increase). Table 1 shows the various sources of production.

Systematic efforts to develop aquaculture began in 1956 with the establishment of the Fishery Section of the Ministry of Agriculture. The first fingerling production and distribution centre was established in 1958. In the following years, more fish farms and centres were created, and emphasis was placed on increasing production using existing infrastructures. At present there are 14 fisheries development centres, 12 in the Terai ad Inner Terai and one each at Pokhara and Trisuli. With the implementation of the Aquaculture Development Project funded by UNDP and the Asian Development Bank, aquaculture has been given high priority. The government's efforts in aquaculture development have been mainly concentrated in the Terai and Inner Terai, and have been limited to ponds and lakes. The budget allocation for aquaculture development was NRs 43 564 million in 1986/1987 which accounts for 4.98 per cent of the total budget for agriculture (0.50 per cent of total development budget).

The Seventh Plan (1985-1990) formulates a comprehensive programme for aquaculture development in terms of increasing acreage, production and productivity. The basic objectives are:

• to take advantage of low-cost protein for the people;

• to generate income and create productive employment, especially for small-scale farmers, and

• to achieve self-sufficiency for import substitution and to promote export.

The plan aims to increase the pond water area to 4 305 ha and the yield to 1.66 tonnes/ha. These targets are to be achieved through the implementation of special programmes in the Terai and Inner Terai of three development regions (eastern, central and western) of Nepal.

4. INSTITUTIONAL CREDIT ARRANGEMENTS FOR AQUACULTURE

There are two sources of credit: non-institutional; consisting of village moneylenders, agricultural traders, landlords, relatives and friends; and institutional, consisting of the Agricultural Development Bank (ADB/N), commercial banks and cooperative societies.

Loan advances for fisheries development by commercial banks are relatively negligible, while cooperative societies play a significant role in the sector. The main financial institution of the sector providing loans for aquaculture is the ADB/N.

Fish farming comes under the medium-term loan scheme of ADB/N, which covers a period of three to seven years. ADB/N has been providing loan assistance to farmers for the construction of ponds and for raising fish since its inception in 1968. The bank advances loans preferably in kind and the acquisition of fingerlings is arranged by government or private corporations/cooperative societies for farmers. ADB/N requires the mortgage of land, buildings or other assets acquired by individual borrowers as loan collateral. The total value of such collateral amount to a minimum 30 per cent of the fishery loan amounts. However, ADB/N also provides credit on group guarantees under the Small Farmers Development Project for low-income farmers without immovable property as collateral.

The implementation of the Asian Development Bank and IFAD funded Aquaculture Project I and the ongoing Aquaculture Project II has given a boost to fisheries credit. The Aquaculture Project II runs until December 1992. Under the project a sum of NRs 278.1 million is to be provided as a loan to farmers and entrepreneurs connected with fisheries. The project envisages a substantial increase in fish production, to meet the national requirement of animal protein, to increase employment and income and to earn foreign exchange through export. These objectives are to be achieved under the project through the provision of credit to farmers for fisheries, expansion of fingerlings production at the Fisheries Development Centres, the upgrading of the support services and institutional development.

The interest rate for fishery loans was 12 per cent per annum as of 15 June 1982. This was raised to 16 per cent per annum on 26 May 1986. The government, however, provides an interest subsidy of 5 per cent on aquaculture loans. Recently, a liberal interest rate policy has been adopted whereby banks are authorized to fix their own rates, which had formerly been fixed by the central bank.

As of 1987–88, cumulative loan disbursements since 1981/82 by the ADB/N stand at NRs 123 million to 13 386 borrowers in 16 districts in Terai. The water area covered under aquaculture loans is around 2 575 ha of which 1 074 ha is under old ponds and 1 501 ha under new ponds. The performance of ADB/N with regard to fisheries credit is commendable; disbursement of aquaculture loans increased almost 3.5-fold to NRs 29.6 million in 1987/1988, compared to NRs 8.7 million in 1983/84 (see Table 2).

Over a period of five years, 1983/84 – 1987/88, the total collection constituted 23.18 per cent of the total outstanding, which can be considered a fair collection performance for medium-term aquaculture loans. The overdue loan as a percentage of the outstanding loan in the year 1986/87 was recorded as 19.36 per cent and 18.69 per cent in the year 1987/88, revealing an improved repayment performance, particularly when compared to the overall ratio of overdue loans to outstanding loans of around 30 per cent in agricultural lending in Nepal.

Source: Loan Division, ADB/N.

Note: Disbursement amount is less than outstanding loan as outstanding loan includes interest due on loans.

5. A CASE STUDY OF THE IMPACT OF AQUACULTURE LOANS AT FARM LEVEL

Recently the ADB/N conducted a study of the impact of aquaculture loans at farm level. The study was undertaken mainly to assess aquaculture loan operations, their impact on fish production, productivity, income and employment generation and finally marketing and other support services.

The survey area of the study was chosen from 16 districts of Nepal where the Aquaculture Development Project Phase I was implemented in 1981. Altogether eight districts were chosen for the survey on the basis of the area covered under aquaculture and the number of loan disbursements for aquaculture during the period 1981/82 to 1985/86 (see Table 3).

Systematic sampling was adopted for the selection of the respondents of the survey: 142 fish farmers who borrowed for aquaculture during 1981/82 to 1985/86. The respondents were categorized according to whether they operated an old pond or a newly dug pond. They were further sub-categorized into three groups according to the water surface of the ponds: small (up to 0.25 ha), medium (0.25–0.5 ha) and large (above 0.5 ha).

Sample characteristics

The average family size was 9.2. The average size of land holding was 6.0 ha for operators of new ponds (ONP) and 4.6 ha for operators of old ponds (OOP). The average proportion of area irrigated of the land holding per respondent for ONP and OOP was 55 and 61 per cent respectively. The average number of years of experience in fish farming among ONP and OOP was 3.7 and 5.6 years respectively.

Project characteristics

Ownership of fish pond. Among the respondents, 84 per cent had their own ponds while 8 per cent raised fish on leased ponds, and 8 per cent had self-owned ponds as well as leased ponds.

Size of the project. The average size of the project (net water surface area) per respondent was 0.53 ha, falling into the medium category for ONP, while it was 1.75 ha, falling into the large category, for OOP.

Water surface area. The average percentage area of ponds covered by water was 71 in new ponds and 61 in old ponds. Average pond water surface area for new and old pond respondents was 0.16 ha, 0.37 ha and 1.17 ha and 0.18 ha, 0.36 ha and 2.69 ha for small, medium and large categories respectively.

Pond characteristics

Depth of pond and water. The average depth of ponds was 5.3 ft for new ponds and 7.1 ft for old. The average depth of water in the pond was 3.8 ft in new ponds and 4.9 ft in old ponds.

Average number of fish ponds per respondent. The average number of fish ponds per respondent was 3.0 for ONP and 2.2 for OOP. The average number of fish ponds in the small category was 1.4 for new ponds and 1.0 for old ponds, while in the medium category, it was 2.8 for new and 1.4 for old ponds. The large category had the maximum number of ponds per respondent for both new ponds (5.6) and old ponds (2.8).

Integrated fish farming

The integration of fish farming with other activities such as the raising of ducks, pigs and livestock and the cultivation of fruit and vegetables has become popular in Nepal, as it improves the productivity of fish ponds and generates additional income. In the survey districts 51 per cent (72) of the respondents followed some form of integrated fish farming. Twenty-two respondents integrated with pig raising, or pig raising and banana cultivation and four respondents integrated with duck raising or duck raising and banana cultivation.

Income

The income per hectare of fish pond by district is presented in tables 4, 5 and 6 below.

The average annual gross income per hectare for new and old ponds was NRs 42 644 and NRs 24 272 respectively (see Table 4). Similarly the average annual net income per hectare for new and old ponds after loan repayment at 18 per cent interest was NRs 11 061 and NRs 24 815 respectively and after loan repayment at 13 per cent interest NRs 18 022 and NRs 25 315 respectively. It is interesting to note that although the gross income for new ponds was higher, the net income for new ponds per hectare was lower because of higher initial capital investment. It was also observed (see Tables 5 and 6) that there is no direct relationship between the net income per hectare and the size of the pond. In the case of new ponds (see Table 5) small ponds were most profitable, followed by large ponds, while medium ponds were least profitable. In the case of old ponds (see Table 6) a medium pond seems to more profitable than a large or small pond.

Loan operations

Disbursement. The ADB/N was the only source of institutional credit for the respondents. As Table 7 shows, the bank financed on average NRs 79 217 per hectare for new ponds and NRs 9 965 per hectare for old ponds. Loan disbursements for old ponds were low because old ponds were usually leased and required investment only for repair and renovation work.

As far as the relationship between size of pond and loan amount per hectare of water surface area is concerned, in the case of new ponds the highest and lowest loan amounts per hectare of water surface area were disbursed for small ponds (NRs 112 756) and large ponds (NRs 70 301) respectively. Similarly for old ponds, the lowest and highest amount of loan per hectare of water surface area was disbursed for small ponds (NRs 43 924) and large ponds (NRs 7 324) respectively (see Tables 8 and 9). These differences are due mainly to the economy of scale.

Repayment. As Table 7 shows, the overall repayment rate was 68 per cent in the case of new ponds and 50 percent for old. Pond productivity may be one of the factors contributing to higher repayment rates in the case of new ponds. The ratio of overdue loans to outstanding loans was 15 per cent in the case of new ponds and 27 per cent in the case of old ponds.

Regarding the relationship between pond size and loan repayment, the ratio of overdue loans to outstanding loans in the case of new ponds was 22 per cent, 13 per cent and 14 per cent for small, medium and large ponds. Similarly for old ponds, the proportions were 16 per cent, 16 per cent and 32 per cent respectively. These figures show that while repayment performance is better among loanees with new ponds than among loanees with old ponds, there is no direct relationship between pond size and repayment performance.

The main causes of non-repayment of loans reported by the respondents were:

• low productivity

• high water management costs

• high market margin

• income used for other purposes

• floods

• short repayment periods.

Problems encountered by fish farmers

The farmers interviewed faced various types of problems, both technical and economic, particularly in the area of marketing. The respondents feel that technical services and advice to the fish farmers are poor. Inadequate and untimely supply of fingerlings and the high mortality rate of fingerlings or fish are also problems.

Most of the respondents reported insufficient water supply including frequent interruption of water supply from the government canal. High water management costs were also noted. They are also confronted with frequent environmental difficulties such as the washing away of fingerlings and fish by floods. They are dissatisfied with the ADB/N's complex loan procedure and inadequate loan amounts.

The most significant problem encountered by fish farmers, however, is that of marketing. Although productivity, at about 2 tonnes/ha, is reasonable, the lack of a proper marketing system leads to lower profits. They are also concerned with the lack of cold storage and of proper facilities to transport fingerlings and fish.

* Weighted Average

* Weighted Average

* Weighted Average