Youth Self Employment Programme: Banks struggle to recover interests

KATHMANDU, JUN 02 -

Amid concerns about defaults of loans extended under the Youth Self-Employment Programme (YSEF), government-run banks are struggling to recover interest of such loans.

Agriculture Development Bank Limited (ADBL) said it is struggling to recover interests from nearly 50 percent of the borrowers.

ADBL was the first to sign the deal with the Youth and Small Entrepreneur Self Employment Fund (YSESEF) to mobilise funds under the programme.

Two other banks involved in the programme are Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL).

ADBL Chief Executive Officer Tej Bahadur Budhathoki admitted that there have been problems in recovery. “There are some groups that don’t work well,” he told the Post.

The YSESEF, however, said it has been receiving repayments from ADBL timely.

After taking loans from the YSESEF at a cheaper rate, ADBL and other banks and financial institutions re-lend at relatively higher rate to the borrowers.

“There has not been any problem in recovery from ADBL,” said Binod Guragain, executive director of YSESEF.

As private sector banks and financial institutions (BFIs) expressed reluctance to extend loans under the programme citing collateral-free nature of the lending, the government directed state-run banks to extend such loans massively. It had aimed at creating 30,000 jobs in the current fiscal year alone.

While ADBL is facing recovery problems, very low lending from three state-owned banks also suggests that the idea of expanding the programme through these banks is proving a failure.

These banks have lent very low amount compared to agreement they signed with the YSESEF.

The ADBL signed the agreement for lending Rs 1 billon under the programme a year ago and received Rs 300 million from the YSESEF.

It has so far lent around Rs 70 million and has approved loans worth Rs 120 million.

ADBL CEO Budhathoki said the lending remained poor as rural people do not have idea about how to utilise the fund.

The bank initiated the programme in 25 districts. Budhathoki said whatever lending has been made has gone in the areas of livestock and vegetable farming.

RBB, which received Rs 300 million from the YSESEF after signing an agreement of Rs 1 billion, has so far lent Rs 16.5 million, according to the bank.

RBB CEO Krishna Prasad Sharma attributed the slow lending to the failure of loan recommendation committees to recommend adequate number of probable loanees.

District-level loan recommendation committees are headed by the president of District Chamber of Commerce and Industry and represented by a representative of the chief district officer, a volunteer assigned by the YSESEF and a representative assigned by the bank concerned.

RBB’s Sharma, however, said his bank does not have any problem in loan recovery. He said the loans could be increased is the current modality is changed allowing banks to accept collaterals if a loanee is capable.

Among the three banks, lending from NBL has been the worst. The country’s oldest bank has so far lent just Rs 1.2 million to about a dozen individuals, it said.

“Although the bank has plans to execute the programme in 15 districts, it has so far only lent in Hetauda,” an NBL official said.

According to NBL General Manager Kiran Kumar Shrestha, a majority of the applicants did not meet the criteria, resulting in low progress in the loan disbursement.

“As it is a collateral-free loan, we are adopting extra caution to ensure that the loans go to good hands,” he said. “We are offering the loans only after a field study.”

YSESEF officials expressed dissatisfaction over the slow progress in lending through government-owned banks. “As the programme didn’t come on the banks’ priority lists, I have proposed during of a YSESEF board meeting that the government must instruct these banks to implement the programme with high priority,” said YSESEF Executive Director Binod Guragain.

He said the slow progress in lending could be due to the high operation cost for the banks which also lack experience in such programmes. “That’s why cooperatives were also included in the programme,” he said.

Although Guragain claimed that loan recovery through cooperatives has been good, the new government has suspended lending for the time being amid complaints about defaults.

Source: The Kathmandu Post