What Is Refinancing? How One Can Receive Refinancing Facility In Nepal?
September 3, 2020 | Investopaper
What Is Refinancing?
Refinancing is the provision of providing loans at concessional interest rates for the expansion of economic activities. Such loans are provided to the existing borrowers by fixing the interest rate to be collected from the customer and the borrower for a limited period. Refinancing are the loans provided by NRB to banks and financial institutions (licensed by Nepal Rastra Bank) at cheap interest rates. Banks and financial institutions distribute the loan to the borrower.
NRB has invited applications from the ‘A’, ‘B’ and ‘C’ class banks and financial institutions for the refinancing for the first time on Bhadra 1, 2077. As per the information issued by Nepal Rastra Bank, banks and financial institutions will submit application to NRB in the format as per Schedule 1 of Nepal Rastra Bank Refinancing Procedure 2077 with the address and date of operation of the branch office by the decision of the Board of Directors to benefit their customers from refinancing facility.
According to the Nepal Rastra Bank Refinancing Procedure 2077, the total refinancing amount that can be demanded by banks and financial institutions is up to a maximum of 25 percent of the institution’s primary capital. Also at least 70 percent of the total amount applied for refinancing should be under micro, home and small enterprise refinancing. The BFIs should include five borrowers from each of the branches.
Types Of Refinancing
As per Nepal Rastra Bank Refinancing Procedure 2077, the refinancing has been classified as follows.
1. Micro, Home and Small Enterprise Refinancing
The refinancing loan facility of up to Rs. 1.5 million provided to the enterprises, trade and business run by the entrepreneurs themselves is considered as micro, home and small enterprise refinancing.
Nepal Rastra Bank charges 2 percent on such loans to BFIs. Likewise, the BFIs can charge upto 5 percent to the customers.
2. Special Refinancing
A special refinancing is a refinance provided by a bank giving special priority to a particular sector. Under this, the existing exports, women entrepreneurs, enterprises run by differently competent people, refinancing provided in the areas affected by natural calamities are considered.
NRB charges one percent interest on special refinancing whereas BFIs can charge upto 3 percent interest from the borrowers.
3. General Refinancing
All refinances that are not classified under special refinancing and micro, home, and small enterprise refinancing are considered general refinancing. Banks and Financial Institutions charge 5 percent interest on general refinancing loans. The BFIs receive the loans from NRB at 3 percent interest rate.
How Can Borrowers Get Refinancing In Nepal?
Borrowers should apply for refinancing at the nearest branch of the bank and financial institution with self-declaration that they have not availed refinancing facility through other BFIs. Banks and financial institutions demand refinancing from Nepal Rastra Bank after conducting necessary analysis of the application.
The necessary documents include: Certificate of payment of Tax for the last fiscal year, certificate of Credit Information Center related to the company, system generated customer liability report showing fixed interest rate, export related documents in case of export refinancing, documents confirming last year’s exports and foreign exchange earnings, export business confirmation for other documents along with the self declaration stating no refinancing facility through other banks and financial institutions.
Nepal Rastra Bank will have the final say on whether the applicant can get refinancing after analyzing the applications received. Customers using refinancing facility will have to open a new refinancing account equal to the amount of refinancing facility from their loan in the branch.The interest rate of the account will be as per the types of refinancing shown above.
Customers can avail refinancing at a specified interest rate for given period and after the expiry of the term, the loan account is closed and the old account is fully operational and the interest rate as per the rules of the bank is applicable.
Refinancing Period
As per Nepal Rastra Bank Refinancing Procedure 2077, the term of refinancing will be one year at most. Such loan will not be renewed. Similarly, in case of refinancing provided on the customer basis, the period will be a maximum of one year for those highly affected by COVID-19 and six months for the customers at a medium and least affected area. The bank may renew such refinancing as per the provisions of the Nepal Rastra Bank Act, 2058 BS.
Borrowers Not Eligible For Refinancing Facility?
The following loans provided to borrowers are not eligible to apply for the refinancing facility.
1. Loans provided to businesses including cigarettes, bindi, cigars, tobacco, khaini, gutkha and liquor and liquor industries
2. Other subsidized loans including interest subsidized concessional loans.
3. Loans to industry/businesses with an average return on equity of 20 percent or more in the last fiscal year.
4. Overdraft loans, home and land loans, car loans, household goods loans, margin loans, gold and silver loans, social loans and loans taken in personal name or for personal consumption. However, such a loan will not be disqualified if the licensed entity is convinced that the self-employed have earned income by taking a loan in personal name such as driving a taxi, operating an electric tempo and others.
