Concessional Loans In Nepal: Banks Fail To Meet The Target

June 20, 2020 | Investopaper

About 5,500 people have taken concessional loans of non-agricultural interest subsidy,as of last Baisakh, 2077 . This is only about 27 percent of the NRB’s directive. In the current Fiscal Year, NRB had set a target of providing non-agricultural concessional loans to about 20,300 people. Accordingly, the NRB had fixed the number to the banks and financial institutions to disburse loans.

Of these, each commercial bank was required to disburse at least 500, development banks 200 and finance companies 8 types of non-agricultural concessional loans by Ashad end. The target number has not been reached as no bank has been able to disburse the prescribed amount.

As per the directive, if banks and financial institutions had disbursed loans, 20,300 people would have got concessional loans until Ashad. For this, 27 commercial banks at the rate of 500 per bank should provide loans to 13,500. Likewise, 23 development banks at the rate of 200 per bank have to provide the loans to 4,600 and 22 finance companies at the rate of 100 should float loans to 2,200.

However, until the Baisakh end, the BFIs have disbursed only 5,421 non-agricultural concessional loans. This is only about 27 percent of the target.

Concessional Loans In Nepal

As per the directive of the government, the NRB has issued the working procedure related to the concessional loan on Karhik 20, 2075. Initially, the loan was voluntary. NRB had made mandatory arrangement after the bank refused to flow. Previously, the banks floated the loans with 5 and 6 percent interest subsidy for seven types of loans including agriculture and livestock, educated youth self-employment, youth projects from abroad, women entrepreneurs, Dalit community business development, higher and technical and vocational education and private housing construction loans for earthquake victims.

Later, nine types of loan programs have been created by linking the textile industry and CTEVT. The program of giving interest subsidy on commercial agriculture and livestock loan has come in 2073 BS. The government has launched an integrated program of interest subsidy by including agricultural credit in one place since Karthik 20, 2075.

By modifying the working procedure last Mangsir, a loan facility of up to Rs. 50 million has been added for the operation of the textile industry. Likewise, person trained from CTEVT institutions can receive Rs. 200,000 as concessional loan.

According to the NRB, a total of 32,821 borrowers have received concessional loans of Rs 54.48 billion as of end of Baisakh. Out of that, Rs. 50.78 billion has been disbursed to 32,189 debtors in commercial agriculture and livestock loans alone.

Concessional Loan Features

In the concessional loan program, only 2 percent can be added to the base rate. Other than that no other charges can be levied. Therefore, the interest rate of concessional loan varies from bank to bank. That is why the interest rate of concessional rate loan is expensive in banks with high base rate and cheaper in banks with low base rate.

The repayment period of such loan is maximum 5 years. The loan period can be fixed by the banks and financial institutions according to the nature of the business. The bank provides 25 percent and the government 75 percent of the loan security expenses. Insurance of related industries and businesses is also mandatory in case of business loan. 75 percent of the total premium (insurance fee) has to be paid by the government and only 25 percent by the concerned entrepreneurs.

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