Thursday, November 28, 2019

Central bank forces BFIs to issue subsidised loans

After receiving lots of complaints that targeted groups have not received concessional loan, the central bank today instructed commercial banks to disburse subsidised loans to at least 500 borrowers by mid-July 2020.
Likewise, the central bank – in its circular – instructed that the ‘B’ class development banks require to float such concessional loans to a minimum of 200 borrowers, whereas ‘C’ class financial institutions need to disburse such loans to 100 borrowers by the end of the current fiscal year.
The scheme aims to give access to cheaper credit to different groups, including educated self-employed youths, returnee migrant workers, dalits, women entrepreneurs, earthquake survivors and youths.
“The banks and financial institutions, however, cannot count borrowers under commercial agro and livestock farming as beneficiary of concessional loans,” the circular reads, adding that the banks and financial institutions that do not meet the requirement by the deadline will face the central bank’s fine.
The government has announced – through the budget speech for the current fiscal year 2018-19 – interest-subsidised loans to targeted groups. Under the scheme, the government subsidises a certain per cent of the interest costs. The government bears five percentage points of interest rate on these loans, while the interest subsidy for loans for women-run enterprises is 6 percentage points, which means, if loan is floated at 13 per cent to a woman entrepreneur, the government will bear 6 per cent interest while the remaining 7 per cent will have to be paid by the borrower.
Though, some of the borrowers have received commercial farming and livestock loans under the scheme, there are not much who have benefited from the subsidised-interest loans on other six categories. According to the central bank, the outstanding concessional loans extended to 18,805 borrowers for selected agriculture and livestock businesses stands at Rs 38.20 billion as of mid-October 2019. “The concessional loan outstanding to other headings remains Rs 1.10 billion utilised by 1,854 beneficiaries.”
While the commercial agriculture and livestock farming scheme was introduced few years ago, the government has added six other categories in the last fiscal year. Other categories include Rs 700,000 loan for educated self-employment youth, Rs 1 million for business projects promoted by returnee migrant workers, Rs 1.5 million for women-run enterprise and Rs 1 million for business promoted by members of ‘Dalit’ community. Earthquake survivors (up to Rs 300,000 to rebuild their houses) and youths (up to Rs 500,000 for higher, technical or entrepreneurship education) can also borrow from BFIs at subsidised interest rates.

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