The agriculture sector in Nepal has not been growing as expected over the last decade. To
understand the ongoing dynamics in the Nepalese agriculture sector, the study states a hypothesis
that lack of effective and efficient financing cause slow agriculture sector growth. The
hypothesis is tested using a system dynamics model representing the Nepalese agriculture sector
with causalities of financing on the sector. The analysis of the hypothesis states that insufficiency
in formal banking access causes aggregate interest rate to rise, which reduces investment and
capital in the sector, causing production levels to fall and vice versa. The model used to test the
hypothesis replicates the historic production trajectory in the Nepalese agriculture sector with
only a maximum deviation of an approximate 5 percent. Based on the reliability of the model in
terms of representing the Nepalese agriculture sector for the past 15 years, two policies are
proposed to increase productivity. The policy propositions, expansion of formal banking market
share and interest rate cut, to cost-effectively cover the rural agriculture sector, result in
significant improvements on production and income levels over the next 25 years. These policies
have significant positive implications for restructuring the growth trajectory of the Nepalese
agriculture sector towards an optimistic outlook.