Political Economy of Rural Finance Reform in Nepal: ADB’s Experience

Abstract

This paper analyzes ADB’s rural finance program in Nepal, particularly the support to the Agriculture Development Bank (ADB/N), from a political economy perspective. The relatively smooth transformation of ADBN toward a viable commercial institution so far can be attributed to the congruence of the stakeholders’ policies, the cluster approach, and the strong engagement among the stakeholders led by the project staff. A number of general recommendations are made for more effective ADB interventions in Nepal’s finance sector. ADB should (i) engage only in an area that is clearly on the government’s priority; (ii) engage more proactively with “street actors” including labor unions, while remaining within ADB’s mandate; (iii) modify the modality of engaging consultants; and (iv) continue with the cluster approach at least until the country’s transition is complete.