Subsidized housing loan for quake survivors to be scrapped from mid-October

Published On: September 25, 2018 09:27 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Sept 25: The government is scrapping subsidized loan scheme meant for earthquake survivors to rebuild their houses destroyed in the 2015 earthquakes from mid-October. 

Nepal Rastra Bank (NRB) has sent a circular to bank and financial institutions (BFIs), informing them that the central bank will not provide refinancing service and interest subsidies for any new housing loan floated to earthquake survivors after Ashoj-end (October 17). 

The central bank has been providing zero percent refinance facility to BFIs to extend loans to earthquake survivors, who lost their houses during the earthquakes of 2015, for rebuilding their houses since May, 2015. 

Under this scheme, BFIs get zero percent refinancing facility from the central for the loans they float to earthquake survivors. BFIs can charge interest rate of a maximum of 2 percent on such loans. But the central bank has decided to discontinue this subsidized loan facility after three years of its launch.

“The scheme was launched to offer financial relief for earthquake survivors. Most of such people have already benefitted from this scheme,” a senior official at the NRB told Republica. “As the scheme was introduced for a certain period f time, it’s time to close it,” he added. 

Though the scheme was announced immediately after the 2015 earthquakes, there were widespread complaints about the availability of the loan facility from earthquake victims. Even BFIs were initially reluctant to float loans under the scheme, citing lack of clarity on the procedures on various issues including refinancing period. 

BFIs have floated a total of Rs 1.79 billion housing loans at concessional interest rate of 2 percent to 1,067 earthquake survivors. The number of earthquake survivors benefitting from the scheme is very low if compared to the total number of families who lost their house in the quake. According to the National Reconstruction Authority, 810,690 houses were floored by the 2015 earthquakes.

Similarly, the NRB has also allowed BFIs to charge the borrowers two percent interest rates on their cost of funds, after two years of refinancing. This change in the central bank’s working procedure on providing refinance facility will require those borrowing under the scheme to pay higher interest rates after two years of getting loans.

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