The government had started providing unsecured low-interest loans of up to Rs 200,000 to jobless youths some three years ago through a vehicle called Youth and Small Entrepreneurs Self-employment Fund (YSESF). [break]
The main objective of this project was to promote entrepreneurship among jobless youths and raise their access to credit.
So far, the YSESF has released a fund of Rs 335.9 million, which is said to have helped more than 1,800 individuals in starting vegetable farming, opening small dairy and agricultural industries and setting up animal husbandry units, among others.
“Now, most of the financial institutions that had distributed these loans have said they cannot continue to give away credit without asking the borrowers to pawn land or other valuables as they fear problems in recovery of these loan amounts may force them to incur losses,” Punya Prasad Regmi, vice chairman of the YSESF, told Republica.
Regmi called their argument valid as loan amount these institutions receive are enrolled into balance sheets and cases of default may put them in a “difficult position”.
“But again if we allow them to accumulate collateral, the whole idea of launching the project, which is to distribute collateral-free loans, will go down the drain,” Regmi said, informing, “discussions are being held to settle this problem”.
Recently, the YSESF had found that few microfinance institutions under Small Farmers Development Bank - that had received YSESF funds - was asking borrowers to pawn land or other valuables before sanctioning the loan amount.
The YSESF suspects other institutions may have already followed this practice but it has not been able to conduct thorough investigation into them.
Currently, the fund is relying on 11 banks and financial institutions to distribute the loan amount. Most of these institutions are, in turn, using other financial institutions, like microfinance companies, to give away credit in rural areas.
Apart from demanding that they be allowed to collect collateral, these institutions have demanded that they be given the freedom to fix credit rates.
Currently, institutions that receive YSESF funds are not allowed to charge interest rate of more than 12 percent per annum. But few microfinance institutions, like Mid Western Rural Development Bank and Western Rural Development Bank, that are issuing credit at rates of up to 22 percent per year, have written to the YSESF saying that the rate is too low.
Citing this reason, Western Rural Development Bank has not used any of Rs 9 million it had received from the YSESF, while Mid Western Rural Development Bank has taken cautionary approach in distributing Rs 6 million obtained from the YSESF.
“We simply cannot give away loans at rates fixed by the fund as this goes against our practice,” the two institutions have written in letters to the YSESF, which were seen by Republica.
Regmi said: “If this was the case, they shouldn´t have signed agreement with us and taken away loan amounts. We will take action against them.”
Related story
Govt to establish financial fund of Rs 100 billion for infrastr...
