Central bank bid to increase access to finance
KATHMANDU:
The central bank’s interest free loans to commercial and development banks to venture into remote areas have garnered quite an interest from financial institutions.
“About 12 banks and financial institutions obtained the loan to open branches in remote areas,” spokesperson for the central bank Bhaskar Mani Gyawali said, adding that most of the loans were meant for branches outside the district headquarters.
Nepal Rastra Bank (NRB) has provided interest free loans worth Rs 115 million in the last fiscal year to open branches in designated remote districts, according to the Monetary Policy for the current fiscal year.
However, the central bank itself is not sure about its effectiveness. “The NRB will review the decision after conducting a thorough study of the benefits,” he informed.
The central bank had — last December — introduced zero per cent interest loan to class ‘A’ and ‘B’ financial institutions to start a branch is any of the 22 remote districts by the government.
According to the regulation, any banks and financial institution is entitled to zero interest loan up to Rs 5 million to open a branch in the district headquarter, whereas the amount is double for those that want to open branch outside headquarters.
The measure was introduced as an incentive to venture into rural areas after the central bank decreed that banks and financial institutions will be allowed to open branch in Kathmandu valley only after opening two branches outside the valley.
Due to the central bank’s efforts, the number of districts with only one commercial bank branch has reduced to nine by the end of the third quarter of the lat fiscal year from 18 in the beginning of the fiscal year, according to the Economic Survey.
The mandatory provision, on one hand has increased the access to formal banking in the remote areas, but on the other hand, has increased the financial burden as without commercial viability the banks and financial institutions could not be interested to open branches.
“On the current scenario, it is not prudent decision for the finance companies to start a branch in remote areas as it is an expensive affair,” said president of Nepal Finance Companies Association Rajendra Man Shakya pointing out the absence of financial assistance from central bank to open branches in rural areas to class ‘C’ financial institutions.
The central bank governor Dr Yubaraj Khatiwada has also admitted that it has not been successful in increasing banking access despite all its efforts.
Lately, the central bank is also shifting its focus on promoting micro-finance institutions to increase banking access of the rural populace instead of coaxing the urban-centred commercial banks to go into remote areas.
“The emphasis will now be given to micro-finance institutions by providing interest free loans up to Rs 1.5 million to set up branch in nine districts — Manang, Humla, Dopla, Kalikot, Mugu, Jajarkot,Bajhang, Bajura and Darchula — that have limited access to finance,” Gyawali added.
Deprived sector lending
Nepal Rastra Bank (NRB) has widened the definition of deprived sector lending. Issuing a circular on Thursday, the central bank added the loans issued to small farmers to establish cold storage amounting to Rs 150, 000 and the loans issued to establish community hospital in rural areas worth Rs 10 million also to be considered under the deprived sector lending. The Monetary Policy had increased the mandatory portion for deprived sector lending by the banks and financial institutions by 0.5 percentage point. The commercial banks, development banks and finance companies have to lend 3.5 per cent, three per cent and 2.5 per cent, respectively to the deprived sector.
Source: THT
The central bank’s interest free loans to commercial and development banks to venture into remote areas have garnered quite an interest from financial institutions.
“About 12 banks and financial institutions obtained the loan to open branches in remote areas,” spokesperson for the central bank Bhaskar Mani Gyawali said, adding that most of the loans were meant for branches outside the district headquarters.
Nepal Rastra Bank (NRB) has provided interest free loans worth Rs 115 million in the last fiscal year to open branches in designated remote districts, according to the Monetary Policy for the current fiscal year.
However, the central bank itself is not sure about its effectiveness. “The NRB will review the decision after conducting a thorough study of the benefits,” he informed.
The central bank had — last December — introduced zero per cent interest loan to class ‘A’ and ‘B’ financial institutions to start a branch is any of the 22 remote districts by the government.
According to the regulation, any banks and financial institution is entitled to zero interest loan up to Rs 5 million to open a branch in the district headquarter, whereas the amount is double for those that want to open branch outside headquarters.
The measure was introduced as an incentive to venture into rural areas after the central bank decreed that banks and financial institutions will be allowed to open branch in Kathmandu valley only after opening two branches outside the valley.
Due to the central bank’s efforts, the number of districts with only one commercial bank branch has reduced to nine by the end of the third quarter of the lat fiscal year from 18 in the beginning of the fiscal year, according to the Economic Survey.
The mandatory provision, on one hand has increased the access to formal banking in the remote areas, but on the other hand, has increased the financial burden as without commercial viability the banks and financial institutions could not be interested to open branches.
“On the current scenario, it is not prudent decision for the finance companies to start a branch in remote areas as it is an expensive affair,” said president of Nepal Finance Companies Association Rajendra Man Shakya pointing out the absence of financial assistance from central bank to open branches in rural areas to class ‘C’ financial institutions.
The central bank governor Dr Yubaraj Khatiwada has also admitted that it has not been successful in increasing banking access despite all its efforts.
Lately, the central bank is also shifting its focus on promoting micro-finance institutions to increase banking access of the rural populace instead of coaxing the urban-centred commercial banks to go into remote areas.
“The emphasis will now be given to micro-finance institutions by providing interest free loans up to Rs 1.5 million to set up branch in nine districts — Manang, Humla, Dopla, Kalikot, Mugu, Jajarkot,Bajhang, Bajura and Darchula — that have limited access to finance,” Gyawali added.
Deprived sector lending
Nepal Rastra Bank (NRB) has widened the definition of deprived sector lending. Issuing a circular on Thursday, the central bank added the loans issued to small farmers to establish cold storage amounting to Rs 150, 000 and the loans issued to establish community hospital in rural areas worth Rs 10 million also to be considered under the deprived sector lending. The Monetary Policy had increased the mandatory portion for deprived sector lending by the banks and financial institutions by 0.5 percentage point. The commercial banks, development banks and finance companies have to lend 3.5 per cent, three per cent and 2.5 per cent, respectively to the deprived sector.
Source: THT
