Concessional Loans Are Being Closed After Misuse
The government did not pay Rs. 9 Arba of interest subsidy to the banks, spending Rs. 22.39 Arba on interest subsidy. The program only increased the financial burden on the government, did not reach the target group, nor did it contribute to an increase in production and productivity.
The government has prepared to stop the subsidized interest loan program in operation. Sources in the Ministry of Finance were quoted as saying that they are preparing to close the program based on the conclusion that the loans that have flowed through the program since 2075 have been misused, have not reached the target group, and have only added to the government's expenditure.
Under this program, the government has spent only Rs. 22 billion 39 crores 8 lakhs 16 thousand for interest subsidy. According to sources, this is the amount paid only till last Asoj.
An official of the Ministry of Finance was quoted as stating, "This program only added a financial burden to the government, neither did the program reach the target group, nor did it contribute to the growth of production and productivity. There is no point in conducting the program with the current method. Now with the new method, the government can bring loan programs with low interest rates." The official was quoted as saying that the government has already given the signal to stop the loan program of interest subsidy which is currently being operated through the budget.
Experts say that because the government does not have enough money (resources) to subsidize interest for this program, the continuation of the program has also been questioned. "For the current financial year, the government does not even have money to give for interest subsidy," the source was quoted as saying, "Therefore, the government plans to close this program and introduce other subsidized loan programs instead of interest subsidy." According to which, the government has allocated Rs. 11.59 Arba for this program through the budget. Sources claim that the allocated amount is insufficient to pay for the loans currently invested through the program. Except for some government banks, most of the banks and financial institutions have stopped providing concessional loan programs since a few months ago. Experts say that government banks have also stopped this loan program since Jestha 15 after the government announced that it would restructure the program in the budget.
"Based on the study of the effectiveness of loans flowing at subsidized interest for the purpose of increasing production, internal employment promotion, entrepreneurship development, etc., the interest subsidy program for subsidized loans will be restructured," the next year's budget states, "Microfinance institutions will be promoted as specialized provincial financial institutions. Through small farmer development financial institutions, the small farmer enterprise development program will be conducted in all municipalities of the country. The chief executive officer of a commercial bank was quoted as saying that the subsidized interest loan program will not continue from the next financial year.
A study report of the Nepal Rastra Bank has shown that the loan disbursed through the subsidized loan program is invested in non-productive sectors such as buying real estate, buying cars, and motorcycles. The report also pointed out that due to failure to hold banks and financial institutions accountable, the loan was invested against the procedure and did not reach the majority of the target group.
The report on the study of the effectiveness of loans disbursed in accordance with the integrated procedure for interest subsidy for subsidized loans - 075 has shown this. Based on the same conclusion, the Rastra Bank announced that it will study the usefulness and effectiveness of subsidized loans in the monetary policy of the last financial year. According to the same announcement, currently, the Rastra Bank is studying the usefulness and effectiveness of the loan through an independent auditor.
The Nepal Rastra Bank has said that the monetary policy of the current financial year will be studied in relation to the usefulness and effectiveness of the programs to provide loans to designated areas such as re-loan facilities, subsidized loans, poor class loans, etc.
Rastra Bank spokesperson Gunakar Bhatt was quoted as mentioning that since the government will restructure the concessional loan program based on the study of the effectiveness of interest subsidy through the budget, it is not likely to be conducted using this method. "It seems that the government is ready to conduct this program in a different way by connecting it with direct production," he was quoted as saying. He also mentioned that the Nepal Rastra Bank is conducting an evaluation by an independent auditor regarding the usefulness of this loan and that will also provide some information.
Meanwhile, the government has not paid more than Rs. 9 Arba due to banks and financial institutions, insurance companies, and deposit and credit protection funds for interest subsidy. The banks are complaining that they have not received the amount due to the government for the last nine months (three quarters of the last financial year). Since the government has not received the amount of interest subsidy to be paid, the banks have not provided new loans, and the citizens are deprived of subsidized credit facilities.
Sunil KC, President of the Nepal Bankers' Association (NBA), was quoted as mentioning that although the amount to be received by the banks for the interest subsidy has been discussed with the Rastra Bank and the Ministry of Finance several times, it has not yet been received. "The interest subsidy amount from last Kartik to Ashad has yet to be paid," he was quoted as saying, "Continuous discussions are being held with the Nepal Rastra Bank to receive the said amount, and it seems that the Ministry of Finance should also be advised." Chairman KC was quoted as accepting that there has been a decrease in interest- subsidized concessional loans in recent months due to the decrease in loan demand and the end of the financial year.
For interest- subsidized loans, the government has to pay the insurance company and the loan protection fee to the deposit and loan protection fund. Since last Asoj, those agencies have also complained that they have not received the amount they should get from the government. Nepal Rastra Bank sources were quoted as saying that in three out of four quarters of the last financial year, the government did not pay the amount of interest subsidy. The government should pay about Rs. 3 billion every quarter under this heading. Since last Asoj, the said amount has not been paid, according to which the remaining amount to be paid has reached more than Rs. 9 Arba. The source was quoted as saying, "We are also requesting the Ministry of Finance to pay the said amount. As the new financial year has started, the payment will be made now."
Finance Ministry spokesperson Dhani Ram Sharma was quoted as saying that he is not aware of the remaining amount to be paid by the government to banks and financial institutions under the subsidized interest loan program. "Although I don't think that the amount is due to be paid, I understand the situation," he was quoted as saying. He was quoted as mentioning that a study on the use of concessional loans will be conducted in the current financial year and some funds have been allocated.
The interest subsidy concession program has been formally launched since 2075 with the objectives of increasing production, promoting internal employment, and developing entrepreneurship in the country. Sources in the Ministry of Finance were quoted as saying that they are preparing to close the loan through the program based on the conclusion that it has been misused, has not reached the target group, and has only added to the government's expenditure burden.
In order to increase production, create employment, and develop entrepreneurship for building a productive economy, the Government of Nepal issued the Integrated Procedure 075 regarding interest subsidy for subsidized loans. According to the same procedure, on Kartik 20, 075, the Nepal Rastra Bank issued instructions to the banks and financial institutions for the implementation of the procedure related to subsidized loans. Initially, this loan was voluntary. When the banks and financial institutions refused to pay, the National Bank decided to make the payment mandatory by specifying the number.
Initially, interest subsidies were given for seven types of loans, including agriculture and livestock, educated youth self-employment, youth projects returning from abroad, women entrepreneurs, Dalit community business development, higher and technical and vocational education, and private housing construction loans for earthquake victims. Of these, agricultural loans are the oldest. The government had started subsidizing interest in commercial agriculture and livestock loans since 073. The government made an integrated program from 075 by including the loans in one place. At that time, interest subsidy was provided under seven headings, but later three loans were added to make 10. In these loans, the government has been subsidizing 6 percent interest for women entrepreneurs and 5 percent for the remaining 9 types of loans.
The government is spending Rs. 22.39 billion rupees for interest subsidy. The amount for the same has not been paid for the last nine months. According to the data of Nepal Rastra Bank, Rs. 2 Kharba 3 Arba 10 crore rupees taken by 1 lakh 47 thousand 510 borrowers were invested in subsidized loans till last Jestha. During the same period, the sanctioned loan is Rs. 2 Kharba 58 Arba 34 crore. Under this program, the most number of women entrepreneurs have flown under the title. Under this heading, 83 thousand 455 borrowers have received Rs. 60 billion 45 crore 64 lakh rupees till last Jestha. Experts say that the practice of registering businesses in the name of women has increased due to the lure of cheaper interest than real women entrepreneurs.
Until last Jestha, Rs. 1 Kharba 39 Arba 68 crore rupees have been disbursed to only 61 thousand 235 borrowers in commercial agriculture and livestock loans. According to the data of Rastra Bank, the remaining amount was transferred to 8 other types of loans. Only 2 percent can be added to the base rate in the subsidized loan program. Apart from that, no other fees can be charged. Therefore, the interest rate of subsidized loans varies from bank to bank. This means that the interest rate on concessional rate loans is expensive in banks with high base rates and cheaper in banks with low base rates.
The repayment period of such loans is up to 5 years at most. According to the nature of the business, the loan period can be set by banks and financial institutions. Such a loan is necessarily insured. The bank subsidizes 25 percent, and the government subsidizes 75 percent of the expenses (fees) incurred in securing the loan. In the case of commercial loans, insurance of related industry and business is mandatory. Even in such insurance, 75 percent of the total premium (insurance fee) has to be paid by the government, and only 25 percent by the related businessmen.
(Disclaimer: This is a translation based on an original article. Consistency in information has been maintained for accuracy.)
