KATHMANDU, May 25: Large amounts of subsidized loans disbursed mainly in the primary sector including agricultural businesses are being misused, shows a study conducted by Nepal Rastra Bank (NRB).
The recent study conducted by the NRB on the effectiveness of subsidized loans provided to various primary businesses across the country has come out with such outcomes. Onsite visits of 31,664 borrowers under the category have revealed that a total loan amount of Rs 21.25 billion is suspected to have been misused. As of now, a total of 172,654 borrowers took loans under this heading facilitated by the NRB.
Of the crosschecked entities and individuals, Rs 1.74 billion was found to be disbursed without identifying the targeted groups. Likewise, loans worth Rs 10.49 billion in total were subjected to duplication.
Revised interest rate corridor system introduced
According to the NRB’s study report, many debtors were found to be using the borrowed amounts to settle their past loans rather than utilizing the money under the designated areas. Likewise, many debtors were found to have converted the previous borrowings to the subsidized loans without following working guidelines set by the central bank.
Of the subsidized loans for primary sectors, those targeted for agricultural businesses were largely misused. The central bank’s records show out of 10,901 borrowers of the farm sector with loans of Rs 5.34 billion, 25.6 percent had misused their loans. For an instance, Global IME Bank had issued loans of Rs 2 million to a poultry farm. However, the proprietor of the farm business went abroad for foreign employment without utilizing the collateral free loans for the given purpose.
Last year’s annual report published by the Office of the Attorney General reveals significant issues such as double subsidies to the same entities, lack of accountability, and inadequate monitoring and evaluation in farm businesses. Citing its ineffectiveness, the government a few months ago announced to stop providing subsidies to the agricultural sector.
According to the NRB records, a total subsidized loan of Rs 86.89 billion was issued to 46,356 borrowers engaged in commercial agriculture and livestock businesses as of the fiscal year 2024/25. Of the amount, loans of Rs 77.536 billion were disbursed to 41,689 borrowers via commercial banks.
In addition, the central bank has mobilized Rs 658.3 million through the Deposit and Credit Guarantee Fund and Rs 133.6 million to the Nepal Insurance Authority under the program.
Meanwhile, the government has stepped up efforts to amend the unified guidelines to revise the subsidized loans targeted for agricultural businesses. According to an official of the Ministry of Agriculture and Livestock Development, the government is considering reducing the loan threshold to up to Rs 10 million from Rs 50 million, while lowering the interest rates to up to four percent from six percent.
