Loans floated by private BFIs account for meager share of total credit expanded to farmers on six percent subsidized interest rates as announced by the government.According to Nepal Rastra Bank (NRB), private BFIs have expanded only Rs 15 million out of Rs 1.16 billion worth of subsidized agro loans as of mid-February. State-owned Rastriya Banijya Bank Ltd and Agricultural Development Bank Ltd (ADBL) alone floated such loans amounting to Rs 640 million and Rs 370 million, respectively, in the review period.
The government had announced subsidized farm loan through the budget for Fiscal Year 2014/15. The government has released Rs 500 million to Nepal Rastra Bank (NRB) for Fiscal Year 2015/16 to subsidize interests of loans that they float to farmers at six percent. However, BFIs have claimed only Rs 18 million from the central bank as compensation for the subsidized interests.
While the state-owned BFIs say that the demand for subsidized loans is rising, private BFIs argue that they have not been able to extend such loans as they do not have much presence in rural areas.
"Such loans have high demand in rural areas where private BFIs have low presence. This is one of the reasons why private BFIs have not been able to float loans under this scheme," Kishore Maharjan, vice president of Nepal Bankers Association (NBA), said at a meeting organized by Agriculture and Water Resources Committee of parliament on Sunday.
"Also, collateral has been an impediment to this scheme. Banks have to turn down loan applications due to the lack of quality collateral," Maharjan, who is also the CEO of Civil Bank Ltd, said.
Surya Prasad Acharya, joint secretary of Ministry of Finance, said that the subsidy scheme should be tied with entrepreneurship. "If we can link the scheme with entrepreneurship, people can borrow loans for agro business even at the market rate," Acharya said at the meeting.
Pradeep Maharjan, executive director at Federation of Nepalese Chambers of Commerce and Industry (FNCCI), told the meeting that the age bar stated in the working procedure, collateral requirements and targeted scheme to rural areas have become the major hindrance for effective implementation of the scheme.
At the meeting, most of the members of the parliamentary committee criticized private BFIs for their reluctance to extend subsidized farm loans.
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