Talks on for separate fund to insure credit

KATHMANDU, APR 27 -

The Youth and Small Entrepreneurs Self-Employment Fund (YSESEF) is having a hard time convincing Deposit and Credit Guarantee Corporation (DCGC) to insure its loans despite government-owned banks agreeing to issue credit under the Youth Self-Employment Programme (YSEP).

The YSESEF is in talks with stakeholders on forming a separate compensation fund after DCGC, which manages the funds, refused to insure such credit under the current circumstances.

The YSESEF has initiated discussions to form such fund following DCGC’s proposal to create compensation fund to pay the claims of banks in case of loan defaults.

“We are now discussing the formation of the compensation fund. The government will inject a certain amount with an additional amount coming from the insurance premiums collected from banks,” said Binod Kumar Guragain, executive director of the YSESEF.

DCGC has stated that it can manage such a fund, but it also made it clear that its own fund would not be used to pay additional claims not met by the compensation fund.

A senior DCGC official said that they refused to insure credit that comes under the YSEP as they were not convinced about the recovery of such loans which are disbursed without collateral.

According to him, the bitter experience of compensating almost all the loans

under the foreign employment credit scheme has made them wary about insuring credit.

“We paid about Rs 28 million out of the total lending of Rs 30 million under the foreign employment credit scheme, which was aimed at providing resources to enable conflict-hit people to go abroad for jobs,” said the DCGC official.

After private banks refused to provide credit without a guarantee, the YSESEF had approached DCGC for insurance coverage. Lack of response from banks prompted the government to instruct state-owned banks, especially those having a high government stake, to provide loans under its ambitious programme.

The YSEP is the brainchild of Prime Minister Baburam Bhattarai. It was introduced four years ago when he was the finance minister.

Planning to create 50,000 jobs this year, the government has directed Agricultural Development Bank Limited (ADBL), Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL) to offer loans under the programme.

ADBL has started implementing the programme after signing an agreement with the YSESEF, while RBB and NBL are expected to follow suit soon with both their boards approving their action plan for investing under the YSEP. The banks are now preparing a proposal on loans worth Rs 1 billion each in 25 districts.

“We have asked these two banks to sign the agreement next week,” said Guragain.

ADBL has already taken away Rs 300 million as the first instalment from the YSESEF.

The YSEP has not been as successful as it was expected to be with loans worth only Rs 350 million extended in the last four years. The YSESEF has more than Rs 3 billion in cash which is lying unused currently.

Source: Kantipur