A report revealed that the Small and Medium Enterprises (SMEs) predominantly rely on ancestral property for initial investments.
The SMEs are largely dependent on the ancestral property of their proprietors for the initial investment to start their businesses, revealed a study ‘SMEs Financing in Nepal’ released by the central bank. “The SMEs on an average get 33 per cent of their initial capital from the ancestral property of their proprietors,” reads the report that highlights the hardship for the entrepreneurs, who want to start SMEs in the lack of ancestral property or savings. “Despite implementation of various facilities, refinancing, concessional loan and credit guarantee schemes to promote SMEs financing, they have not been able to mobilise financial resources.”
“Difficult process, high interest rate and lack of collaterals to take loan are some of the problems that the SMEs have been facing,” the report reads, adding that the SMEs find it easier to obtain loans from cooperatives despite higher interest rates. “The SMEs have been paying interest rates as high as 18 per cent per annum.”
SMEs find it easier to obtain loans from cooperatives despite high interest rates, according to the report that shows that SMEs have been paying in an average 12.51 per cent of interest rates to BFIs in addition to one per cent of service charge.
“While majority of the SMEs have to wait for an average of 38 days to receive a loan, many firms from Karnali province are compelled to wait for a year,” according to the report that revealed that the SMEs operating in Province 3, including Kathmandu Valley, which is the most accessible area, had to wait for 240 days to receive a loan. “But in an average, it takes 38 days for a SME for the loan processing in bank. There are 275,433 SMEs registered across the country as of the end of fiscal year 2017-18.”
Likewise, over reliance on house and land collateral, lack of long-term lending, unstable, and high interest rates and low banking capacity are also some other factors that have held many SMEs to tap bank credit for the investment, according to the study report that revealed some 26 per cent of initial capital is sourced from the saving of the income of the proprietors, whereas 16 per cent is financed from bank and financial institutions (BFIs). “Other sources of investment include informal borrowing (8 per cent), remittance income (7 per cent), loans from cooperatives (6 per cent) and venture capital (0.5 per cent) but neither of any SMEs are mobilising capital by issuing its shares.
The report also reflects the interventions of the government have not become effective yet, and most of them are not even aware about the refinancing facility for SMEs. The government has introduced a number of schemes including subsidised interest loans to SMEs. However, the efforts to channelise financial resources to the SMEs have largely failed, according to the findings of the report.
Bank loans – a major source of financing in business sectors – to the SMEs is also very low, the study report indicates, adding that nearly 50 per cent of SMEs have borrowed from BFIs. “As of mid-July 2019, the outstanding credits of BFIs to SMEs excluding agriculture, energy and tourism sectors stand at 3.26 per cent.”
According to the report, some 85.9 per cent of SMEs were approved of loans after showing land and houses as collateral. “SMEs receiving loan on movable assets accounts for only 6.4 per cent while 1.3 per cent were loans using machines and equipment as collateral,” it reads, adding that only 19.2 per cent of small industries have access to subsidised loans.
The report has also recommended coordination between various policies and programmes scattered over various agencies like the Industry Ministry central bank and other institutions.
The SMEs are largely dependent on the ancestral property of their proprietors for the initial investment to start their businesses, revealed a study ‘SMEs Financing in Nepal’ released by the central bank. “The SMEs on an average get 33 per cent of their initial capital from the ancestral property of their proprietors,” reads the report that highlights the hardship for the entrepreneurs, who want to start SMEs in the lack of ancestral property or savings. “Despite implementation of various facilities, refinancing, concessional loan and credit guarantee schemes to promote SMEs financing, they have not been able to mobilise financial resources.”
“Difficult process, high interest rate and lack of collaterals to take loan are some of the problems that the SMEs have been facing,” the report reads, adding that the SMEs find it easier to obtain loans from cooperatives despite higher interest rates. “The SMEs have been paying interest rates as high as 18 per cent per annum.”
SMEs find it easier to obtain loans from cooperatives despite high interest rates, according to the report that shows that SMEs have been paying in an average 12.51 per cent of interest rates to BFIs in addition to one per cent of service charge.
“While majority of the SMEs have to wait for an average of 38 days to receive a loan, many firms from Karnali province are compelled to wait for a year,” according to the report that revealed that the SMEs operating in Province 3, including Kathmandu Valley, which is the most accessible area, had to wait for 240 days to receive a loan. “But in an average, it takes 38 days for a SME for the loan processing in bank. There are 275,433 SMEs registered across the country as of the end of fiscal year 2017-18.”
Likewise, over reliance on house and land collateral, lack of long-term lending, unstable, and high interest rates and low banking capacity are also some other factors that have held many SMEs to tap bank credit for the investment, according to the study report that revealed some 26 per cent of initial capital is sourced from the saving of the income of the proprietors, whereas 16 per cent is financed from bank and financial institutions (BFIs). “Other sources of investment include informal borrowing (8 per cent), remittance income (7 per cent), loans from cooperatives (6 per cent) and venture capital (0.5 per cent) but neither of any SMEs are mobilising capital by issuing its shares.
The report also reflects the interventions of the government have not become effective yet, and most of them are not even aware about the refinancing facility for SMEs. The government has introduced a number of schemes including subsidised interest loans to SMEs. However, the efforts to channelise financial resources to the SMEs have largely failed, according to the findings of the report.
Bank loans – a major source of financing in business sectors – to the SMEs is also very low, the study report indicates, adding that nearly 50 per cent of SMEs have borrowed from BFIs. “As of mid-July 2019, the outstanding credits of BFIs to SMEs excluding agriculture, energy and tourism sectors stand at 3.26 per cent.”
According to the report, some 85.9 per cent of SMEs were approved of loans after showing land and houses as collateral. “SMEs receiving loan on movable assets accounts for only 6.4 per cent while 1.3 per cent were loans using machines and equipment as collateral,” it reads, adding that only 19.2 per cent of small industries have access to subsidised loans.
The report has also recommended coordination between various policies and programmes scattered over various agencies like the Industry Ministry central bank and other institutions.
No comments:
Post a Comment