December 6, 2020 | Mukunda Tripathee
The government of Nepal has set the target to uplift the living standard of people by granting interest subsidies on loans of different sectors through BFIs. The government has prioritized to improve the commercial agriculture and livestock sectors in order to increase productivity, to create employment opportunities within the country for unemployed educated youths, to utilize skill and business efficiency of youth who have returned from foreign employment, and to make them self employed within the country.
Also, the government has been working to develop women entrepreneurs’ efficiency, to modernize and promote the traditional skills and occupations of a marginalized community, to make availability of education loan to the marginalized, economically backward and targeted communities’ students to obtain higher, technical or vocational education. To promote and uplift these sectors and to encourage the people for their active and continuous involvement, the government has been conducting different projects and programs. In this government initiation, the interest subsidy is also one of them.
Interest Subsidy On Loan
The government through the budget had announced a plan to provide interest subsidy on loans for various sectors. Through fiscal policy, budgeting, and monetary policy, different projects and programs have been conducted in the country. To support the government objectives, Nepal Rastra Bank issues monetary policy based on budget and fiscal policy every year.
With the purpose to grant interest subsidy on loan in the different priorities sectors, Nepal Government (council of ministries) has carried out Interest Subsidy Unified procedure (Second amendment) 2076 for Subsidies loans. As per the procedure, BFIs should sanction loans to the targeted clients with the aim to grant interest subsidies to the borrowers from the government through NRB.
Interest Subsidies Sectors and Maximum Limits
- Commercial agricultural and livestock loan – up to Rs. 50 million
- Educated youths self-employed loan – up to Rs. 7 lakh
- Youths returned from foreign project loan – up to Rs. 1 million
- Women entrepreneurship loan – up to Rs. 1.5 million
- Marginalized community business development loan – up to Rs. 1 million
- Higher and technical or vocational education loan – up to Rs. 5 lakh
- To construct the individual residential home for earthquake victims – up to Rs. 3 lakh
- Loan to commence the clothing industry – up to Rs. 50 million
- To take the training from the institution approval granted from CTEVT loan – up to Rs. 2 lakh.
Interest Rate and Conditions
For loans in which the Nepal government grants a subsidy to the borrowers, banks are not allowed to charge interest to the borrower not more than 2 percent interest over the base rate. For example, if the base rate of the bank is 6 %, BFIs can charge the borrower a maximum of 8% by adding a 2 % premium on the base rate. Similarly, BFIs shall not allow charging additional charges to the borrowers other than the interest rate, credit information charge, insurance premium that has to bear by the client, and debt security fee.
Interest Subsidy and Insurance Premium
The loan facilities which are sanctioned by BFIs under this procedure to targeted groups/sectors, the Nepal government will grant the following interest subsidy.
- A 5% interest subsidy on loans that are sanctioned by BFIs at their rate charge to the borrowers.
- A 6 % interest subsidy on women entrepreneurship loans.
- In the case of commercial agricultural and livestock loans more than Rs. 50 million, Nepal government will grant 2% interest subsidy.
- 75% of debt security fee while securing a loan through Deposit and Credit Guarantee Fund other than more than Rs. 1 million commercial agriculture and livestock loan.
- 75 % of insurance premium other than more than Rs. 1 million commercial agriculture and livestock loan.
With the purpose of granting interest subsidy to the borrowers, BFIs should have to submit a quarterly report to NRB in the prescribed format within 15 days, for loans under the interest subsidy procedure. Then NRB will grant interest subsidy amount as per the report, by crediting the accounts of BFIs maintained at NRB and customers account has been credited by concern bank. BFIs should maintain, up to date credit utilization reports of such loans as per type, objective, invested amount, risk categories, and so on. If the borrower misuses, the government will not grant an interest subsidy to such borrowers.
(Mr. Mukunda Tripathee is currently working in the banking sector)
From The Author:
(Liked this article??? If you are also interested in publishing your articles related to business, finance, and economics, then mail us your article at Investopaper@gmail.com)