Utilization of subsidized loans of government increases

KATHMANDU, May 26: The use of various subsidized loans provided by the government has increased in the third quarter of the current fiscal year. While the increase in the loans for the earthquake victims to rebuild their houses and farmers for commercial farming is modest, Nepal Rastra Bank (NRB) is finding hard time to meet the demands of the refinance facility from the business enterprises and manufacturers. 

The refinance facility is aimed at providing cheaper loans to the business enterprises and manufacturers meeting certain requirements of the NRB. With this facility, the government hopes to channelize financial resources on the priority sectors that help on import substitution, creation of jobs and economic growth. 

According to the NRB data, 829 families who have lost their houses during the earthquake have borrowed a total of 1.5 billion loans from bank and financial institutions as of mid-April to rebuild their homes at two percent interest rates, as subsidized by the central bank. The NRB provides the refinance facility at the zero percent to the BFIs who in turns have to float loans to the earthquake survivors at two percent interest rate. 

However, the number of beneficiaries to get the subsidized loans is still low if compared to the number of houses that were destroyed in the earthquake. Over 600,000 houses were damaged by the earthquakes in 2015. There were even complaints from the earthquake victims that the BFIs were reluctant to provide them the subsidized loans. Those getting the facility even say that the procedural and paper hassles to get loans are frustrating.

Similarly, 6,956 farmers have benefitted from the subsidized farming loans. The outstanding loan under this scheme whereby farmers get loans at five percent is Rs 7.84 billion, according to the NRB. They have received Rs 418 million in interest subsidies in total from the government so far. 

The central bank has provided a total of Rs 15.11 billion loans to private sector under its refinance facility at interest rate lower than the prevailing market rates.

The demand for the refinance facility from the private sector for the concessional loans to use it in the priority sectors identified by the central bank remained very high, according to officials at the central bank. 

“It has been very hard to manage the rising demands for the refinance facility from the private sector amid limited amount in the fund,” said an official at the NRB. 

Through its monetary policy for the current Fiscal Year 2017/18, the central bank had announced that the size of the refinancing fund that the central bank administers will be expanded to Rs 20 billion from the existing Rs 10.84 billion. 

The NRB included the unused Rs 5 billion of Economic Rehabilitation Fund in the refinancing fund and the remaining amount from the profit of the central bank in 2016/17 to expand the fund to support businesses.

Banking executives say that the rising interest rates and shortage of lendable fund in the banking industry have prompted more business enterprises to seek the concessional loans.