Bankers unconvinced about subsidised farm loan plan

KATHMANDU, NOV 08 -

The government’s scheme to provide collateral-free subsidized loans to rural youth in a bid to encourage them to take up farming instead of migrating abroad has come under fire from bankers who say it is a high risk business.  

The government had announced in the budget for this fiscal year that it would offer a 4 percent interest subsidy on agricultural loans to young people opting to remain in their villages and farm. Banks charge 10 percent interest on such loans. The government has allocated Rs 1 billion for the scheme.

Planners, bankers and lawmakers have presented three options to ease lending at Friday’s meeting of the parliamentary Agriculture and Water Resources Committee.

The first option suggested by a number of lawmakers is to make it mandatory for farmers to insure their agricultural products to be eligible to obtain the loans with minimum collateral. “This option will reduce the risk of smallholder loan default,” said Krishna Devkota, joint secretary at the Ministry of Finance. “Crop insurance itself will be a part of farm collateral.”

Government officials said that the mandatory provision would encourage farmers to insure their agricultural products. The government has provided a 75 percent subsidy on insurance premiums to farmers to insure their crops. But due to lack of awareness, the scheme has not been able to draw farmers’ attraction. Lawmakers who have recommended another option said that the objective of the scheme was to help rural youth who do not have enough money to start a new way of farming and asking for collateral from them does not hold any meaning.

They said that the government’s project itself should be used as collateral. “The scheme will not reach small farmers or the targeted group if collateral is demanded,” said lawmaker Bhawani Prasad Kafle. “The government’s scheme itself should be the collateral.”

Another lawmaker Shiva Chandra Chaudhary also said that the government’s scheme itself should act as collateral. “When it takes more than four days for an ordinary man to get a bank loan, it will not be practical for farmers to put up their property as collateral and get the subsidized loan,” he said.  “The collateral system will also keep these loans out of the hands of smaller start-ups.”

The third option was suggested by Nepal Rastra Bank (NRB) Governor Yuvaraj Khatiwada. He said, “We can simplify the procedure of providing loans with minimum collateral.”

With bankers expressing concern about the risk of smallholder loan default, Khatiwada said that the loans under NRB’s supervision would have less risk. “The subsidy on the interest is aimed at attracting and engaging youths in a new way of farm production, and it will be crucial for the country’s economic development.” The Nepal Bankers’ Association (NBA) expressed reservations on the government’s scheme. The NBA said that they first need collateral assurance.  

Upendra Poudel, vice-president of the NBA, said the “project collateral” was ideal for releasing loans, but considering the current scenario of Nepal, it would not be practical. “We have our reservations on the collateral issue only. Apart from this, commercial banks welcome the government’s move to increase investment in the farm sector.”

In line with the budgetary provision, NRB unveiled the working procedure on October 27 after getting the Finance Ministry’s nod. It states that an individual can borrow up to Rs 10 million. The working procedure has categorized 12 areas of agriculture eligible for the facility.

Subsequently, the parliamentary committee ordered the government to defer the implementation of the Working Procedure on Interest Subsidy for Agriculture Loans to the Youth until the following week. The order followed complaints from the Ministry of Agricultural Development that it was not consulted when the working procedure was prepared and that it contradicted its programmes.

Parliamentary panel, donors to meet

Members of the parliamentary Agriculture and Water Resources Committee and the donor agencies involved in drafting the ambitious Agriculture Development Strategy (ADS) have scheduled a meeting for Thursday. The donor agencies have been asked to appear before a parliamentary committee to clearly explain their commitment to Nepal’s farm sector. The ADS, a 20-year vision and a 10-year planning horizon for the country’s farm sector, is being prepared with the technical support of the Asian Development Bank (ADB) and includes investment commitments from a dozen other development partners. It has envisioned an ambitious growth pattern in output and land and labour productivity. The ADS is expected to supersede the Agriculture Perspective Plan (APP) by 2015.

Source: The Kathmandu Post