Finance ministry preparing working procedure for the subsidized-loan scheme
KATHMANDU, Aug 2: The government is preparing to implement the subsidized loan scheme for youths interested to start business by pledging their academic certificates as collaterals within the next two months.
Following the announcement of the scheme in the budget speech of Minister for Finance Yuba Raj Khatiwada for Fiscal Year 2018/19, the finance ministry is drafting working procedure to make bank credit available to aspiring youths under the scheme.
Through the budget speech, Finance Minister Khatiwada has announced that arrangements will be made to provide loan of up to Rs 700,000 with 5 percent interest subsidy against academic certificates as collateral.
The new scheme is aimed at ‘encouraging youths with higher education to start own businesses’.
Once the scheme comes into implementation, youths with higher education degrees can borrow up to Rs 700,000 to start their business ventures by pledging their academic certificates as collateral. This new scheme is expected to provide access to financial services for youths interested to start their own business ventures by pledging their academic certificates to the banking institutions who generally seek fixed assets as collateral to extend credit.
Jhakka Prasad Acharya, the spokesperson for the finance ministry, said that the ministry was preparing working procedure for the subsidized loan scheme.
“The working procedure will be ready by mid-September and the modality on extending such loans will be finalized within two months,” said Acharya. “If things go as planned, youths will be able to get subsidized loans from November 1,” he added.
Under this scheme, the Nepal Rastra Bank (NRB) will allow banking institutions to charge certain percent of interest rates for such loans and five percent of such interest will be subsidized by the government.
The government is also planning to rope in the Deposit and Credit Guarantee Corporation (DCGC) for implementation of the scheme. The government-owned corporation will guarantee the credit floated by the banking institutions, while youths taking such credit are will be required to insure their businesses.
To prevent any misuse or willful default of such subsidized credit, the government is also introducing some measures to ensure that the loans are repaid.
Many banking executives say that a perception among many people that government subsidized loans get waived off later, could lead to willful defaults. By including safeguard measures, the government will send a clear message that the loans will be floated under the prerequisite of delinquency, said a senior official at the finance ministry.
In line with the provision in the budget speech, the NRB also stated in its Monetary Policy for FY2018/19 that it will facilitate in implementation of the scheme. The central bank, through the monetary policy, also said that banks can include loans floated under the scheme in their deprived sector lending.
As bank and financial institutions (BFIs) have to float at least 5 percent of their loans to deprived sector, allowing them to include the loans under this scheme in the deprived sector lending portfolio is expected to encourage banks to floats more loans under the scheme.