KOICA grants $2.5 million as an interest subsidy for Korea Returnee

Korea International Cooperation Agency (KOICA) and Agricultural Development Bank Ltd (ADBL), entered into an arrangement to implement the component 'Increased Access to Financial Support for Korea Returnee Migrants', which is envisioned by the Memorandum of Understanding (MoU) signed between the Government of the Republic of Korea and Nepal for the project 'Strengthening Stage-Wise Support System for the Stable Reintegration of Korea Returnee Migrants in Nepal.'
The agreement was signed by Country Director of KOICA Mooheon Kong and CEO of the ADBL Govinda Gurung, where joint secretary of FACD, Ministry of Finance Dhani Ram Sharma and joint secretary of the Ministry of Labour Employment and Social Security MoLESS Krishna Prasad Sapkota signed the agreement as the witness.
The main objective of this programme is to create a stable environment for entrepreneurship by improving financial access for Korea returnee migrants in Nepal, according to KOICA press nopte. "For this eligible Korea Returnee will get subsidised loan from the ADBL. The loan will be subsidized for 5 years."
KOICA will provide $2.5 million (approximately Rs 320,000,000) for the Programme. KOICA’s contribution will be used solely for interest subsidies. ADBL will contribute approximately Rs 1.2 billion as loan capital for the Programme.
It is estimated that the Programme is expected to support approximately 200 to 250 Korea Returnees with an average loan size of Rs 5 million, the press note reads, adding that the Programme will run from 2026 to 2028. "The interest subsidy will be provided for the period of 5 years."
Through this programme Korea Returnees will have full opportunity to employ their skills and establish successful enterprise that supports the local economy. In addition to this, local employment will be created, it adds.
In the event KOICA Country Director said that it is a shared commitment to empowering Nepali returnee migrants who have contributed their skills, labour and aspirations while working in Korea. "As they return home, it is our collective responsibility to create an enabling environment where they can reintegrate with dignity, security and opportunities for long-term economic stability," Kong said, on the occasion.
In the event, joint secretary Sapkota stated that Nepal and the Republic of Korea share a longstanding relationship grounded in cooperation, mutual respect, and a shared vision for human-centered development. "Our collaboration in the employment and migration sector especially through the Employment Permit System (EPS) has benefitted thousands of Nepali workers," he said, adding, "As these workers return home with experience, skills, and aspirations for a better future, it becomes essential that we, as institutions, support their smooth and productive reintegration."
During the event, joint secretary Sharma said that KOICA has always been a meaningful partner. "Its cooperation has been meaningful and very much effective," he added.
ADBL CEO Gurung, on the occasion, said that the programme is new and very much useful for returnee migrants who wish to start their own venture. He further stated that the ADBL will execute this programme successfully and look forward for such innovative programmes in future.

Nepal, ADB sign loan and grant agreements amounting to Rs 105.59 billion

The government and the Asian Development Bank (ADB) today signed loan and grant agreements amounting to $777.6 million (equivalent to Rs 105.59 billion), at the Finance Ministry, for the implementation of three projects and a programme.

The Financing agreement for the implementation of Kathmandu Valley Water Supply Improvement Project (phase 2), South Asia Subregional Economic Cooperation (SASEC) Electricity Transmission and Distribution Strengthening Project and Green, Resilient and Inclusive Development (GRID) Programme were signed, according to a press note issued by the Finance Ministry.

Finance secretary Dr Ram Prasad Ghimire and Country Director of the Nepal Resident Mission ADB, Arnaud Cauchois signed the agreement on the behalf of the government and ADB, respectively.

The project—Kathmandu Valley Water Supply Improvement Project (phase 2) aims to secure safe and reliable water supply services for people in the Kathmandu Valley, the press note reads, adding that tt includes the relocation and construction of the Melamchi intake, construction of long tunnel and the expansion of the Sundarijal Water Treatment Plant.

The project cost of Kathmandu Valley Water Supply Improvement Project (Phase 2) will be $240 million (equivalent to Rs 32.59 billion). The ADB will support $15 million (equivalent to Rs 2.03 billion) grant and $170 million (equivalent to Rs 23,08 billion) concessional loan, Japan Fund for Prosperous and Resilient Asia and Pacific (JFPR) will support $3 million (equivalent to Rs 407.46 million) grant and the government contributes $52 million (equivalent to Rs 7.06 billion) for it, it adds.

Similarly, the project—SASEC Electricity Transmission and Distribution Strengthening Project focuses on meeting Nepal's growing energy demands while supporting green electricity exports. It will be $537 million (equivalent to Rs 72.93 billion). ADB will support $30 million (equivalent to Rs 4.07 billion) grant and $311 million (equivalent to Rs 42.24 billion) concessional loan, EU will support $22.6 million (equivalent to Rs 3.06 billion) grant, Norway will support $31 million (equivalent to Rs 4.21 billion) grant, Strategic Climate Fund will support $10 million (equivalent to Rs 1.35 billion) and the government contributes $132.4 million (equivalent to Rs 17.98 billion) for the execution of this project.

The construction of 290 kilometers of transmission lines, five new substations, and the upgrading of two existing ones are key components of this project, the press note adds.

Likewise, the GRID programme aims to assist in implementing the Green, Resilient and Inclusive Development approach by addressing policy, regulatory and institutional barriers to unlock sustainable investment opportunities across various sectors. The programme's objective is to ensure that development activities are environmentally sustainable, resilient and inclusive.

The ADB will support $100 million (equivalent to Rs 13.58 billion) for GRID Programme as a budget support.

The Irrigation Modernization Enhancement Project (IMEP) focuses on modernising surface water irrigation systems of Nepal and piloting hill lift irrigation. It will directly benefit families of project area enhancing agricultural productivity and climate resilience.

After signing the agreement, finance secretary Ghimire expressed his heartfelt appreciation to ADB for its consistent support and partnership. He emphasised that these initiatives would not only improve irrigation system, water security and agriculture but also strengthen climate resilience in Nepal's most affected communities and contribute to achieving sustainable development goals.

Country Director of ABD Arnaud Cauchois, on the occasion, emphasised the key features of these projects, including their financing structures and significance for Nepal's economy.

He reiterated ADB's strong commitment to supporting Nepal's development priorities, particularly in climate adaptation, agricultural productivity and water resources management and support to achieve SDGs.

Nepal, ADB sign grant agreement of Rs 21.23 billion for two projects

The government and Asian Development Bank (ADB) today signed a concessional loan and grant agreement of $157 million (approximately Rs 21.23 billion), at the Finance Ministry, for the implementation of the Mechanised Irrigation Innovation Project (MIIP) and the Climate Resilient Landscapes and Livelihoods Project (CRLLP).

The grant agreement amounting to $15 million and loan agreement amounting to $110 million for the implementation of MIIP was signed by finance secretary Dr Ram Prasad Ghimire and Country Director of the Nepal Resident Mission ADB Arnaud Cauchois, on the behalf of the government and ADB, respectively, according to the Finance Ministry.

According to the agreement, the MIIP will introduce advanced irrigation technologies, including a prepaid card system allowing framers to access water based on their field's need. "The project will be enforced in the Rautahat and Sarlahi districts of Madhes Province, benefitting over 121,000 farmers."

The primary objectives of the project are to improve agricultural productivity, ensure year-round irrigation and contribute to food security. Additionally, this project will adopt Design, Build and Operate (DBO) modality and establish an irrigation management company for the long-term sustainability of groundwater irrigation system in the region.

Similarly, the grant amounting to $22 million and loan agreement amounting to $10 million for the implementation of CRLLP was also signed by joint-secretary at the Finance Ministry Dhani Ram Sharma and Country Director of Nepal Resident Mission, ADB Arnaud Cauchois, on the occasion.

The CRLLP stresses enhancement of climate resilient rural communities in the Karnali and Sudurpaschim provinces, which are highly vulnerable to the impacts of climate change, a press note issued by the Finance Ministry reads. "The project is aimed at addressing water insecurity, promoting nature-based livelihoods and empowering local communities through the sustainable management of water resources." The project further stresses empowerment of communities to adapt to climate challenges by fostering sustainable water management, agroforestry, silviculture and forest management.

The project will also play a crucial role in improving water security by addressing the region's vulnerability to climate-induced challenges, it claims.

After the signing of the agreement, finance secretary Ghimire expressed his gratitude to ADB for its continued support and partnership. He emphasised that these projects would not only enhance irrigation infrastructure but also spur climate resilience among some of Nepal's most vulnerable communities.

Similarly, Country Director of ADB Cauchois, on the occasion, underlined the key features of these projects, the financing modalities and their importance to Nepal's economy, reaffirming ADB's commitment to supporting Nepal's development goals—particularly in the areas of climate adaptation, agricultural productivity and water security.

Government, loan-sharking victims ink five-point deal, for the second time

The government and representatives of loan-sharking victims signed a five-point deal today evening - on April Fools Day - after the government pledged to form a high-level commission to investigate into the problems of predatory lending victims. As the government has no institutional memory, this is the second time, it reached the agreement with victims in six months. Hopefully this time the government will walk the talk, and the victims will not be fooled, again.

The next cabinet meeting will form a high-powered probe commission and then the agitating committee will call off its protest programmes, according to the agreement that further reads that the government will also expedite the process to amend the law to criminalise unscrupulous lending.

The government will also form a district-level coordination-facilitation committee under the coordination of chief district officers (CDOs) to address the complaints of loan-sharking, the another point of the agreement reads, adding that the committees will have police personnel, district government attorneys, heads of land revenue and survey offices, representatives of banks and financial institutions and representatives of loan-sharking victims as members. “The committees will assist and coordinate the works of the commission, collect complaints and grievances from victims, assist in gathering evidence and facilitate free legal aid and conduct awareness activities.”

Though Prime Minister Pushpa Kamal Dahal ‘Prachanda’ today morning pledged to set up a high-level probe commission to resolve the issues of loan shark victims, the victims are not convinced as most of the loan sharks are affiliated to the political parties.

Talking to victims at his official residence in Baluwatar today morning, the Prime Minister tried to assure the victims that the government is working on amendment of the law that provides a long-term solution to the predatory lending issues. “The government is committed to addressing the demands of victims of illegal money lending,” he added. “The government has also decided to amend the National Criminal Procedure (Code) Act to criminalise illegal money lending.”

The Prime Minister informed the victims that he had instructed the Home Ministry to address the issue. Home Minister Narayan Kaji Shrestha, who assumed his office yesterday, has also reiterated that the ministry is seriously concerned about resolving the problem.

Taking charge of the ministry yesterday, home minister Shrestha approved a file to form a high-level probe panel to solve the problems of usury victims. He has given the formation of a high-level inquiry commission the go-ahead to solve the problems of loan shark victims in accordance with the Commissions of Inquiry Act, 1969.

On Tuesday, the government has also formed a four-member talks-team led by the joint secretary at the Home Ministry Rudra Devi Sharma to initiate talks with the victims. Home Ministry undersecretary Dil Kumar Tamang, undersecretary at the Office of Prime Minister and Council of Ministers Uma Kanta Adhikari, and undersecretary at the Ministry of Law, Justice and Parliamentary Affairs Jang Bahadur Dangi are members of the talks-team.

Loan shark victims, who hail from various districts of Tarai Madhesh gathered in Mahottari of Bardibas and walked to Kathmandu to draw attention to their plight. They had arrived in the Capital on Sunday after walking for 11 days on foot. They had travelled to Kathmandu in September too. But the problem has not been solved, even after signing five-point agreement then, and they are forced to walk to Federal capital again to pressurise the government to get the justice.

The victims have been protesting with 9-point demands, including the formation of a high-level commission of inquiry, scrapping personal mortgaging contracts locally known as ‘Tamasuk’ system, making laws in favor of usury victims, suspending ongoing arrest warrants based on Tamsuk, investigating property of usurious moneylenders and returning the property captured illegally. Among other demands, the victims have requested the government to resolve their pending cases in court and provide them loans at lower interest rates, bring laws against unscrupulous lending, as they are still fearing that their land will be auctioned and they will be arrested before the government initiates any action.

The law
Section-3, sub-section-2 of the Commissions of Inquiry Act, 1969 provides that if it is necessary to form a commission to investigate a matter of public importance, the government of Nepal or the provincial governments can form a commission of inquiry consisting of one or more members. Similarly, according to Sub-section 2 of Section 3 of this Act, such commissions shall be chaired by a judge appointed by the Government of Nepal in the case where there is only a judge or other persons as well. The judicial council should be consulted while forming such a commission. This commission has the power to present a person before the commission and take a statement, to order a person to submit any document, to hear evidence and to extract any document or its copy from any government or public office or court as per the prevailing law.

Nepal to receive $200 million concessional loan from ADB

Nepal and Asian Development Bank (ADB) today signed a concessional loan agreement amounting to $200 million (equivalent to Rs 26.51 billion) for supporting the first five years of the School Education Sector Plan (SESP-2022–2030) and a grant agreement of $12 million to implement the Strengthening Systems to Protect and Uplift Women Project.

According to a press note issued by the Finance Ministry, the project will benefit survivors of gender-based violence (GBV) across Madhesh, Lumbini, and Sudurpaschchim provinces through the establishment of long-term rehabilitation centers, development of survivor-friendly facilities for the Women, Children and Senior Citizen Service Centers within selected district and area police offices and strengthening of survivor-friendly services in these provinces. "The project will also build a new national long-term rehabilitation center in Bhaktapur," it adds.

Joint secretary at the ministry Ishwori Prasad Aryal, and ADB Officer-in-Charge for Nepal Saugata Dasgupta signed the agreements on behalf of their respective institutions. The proposed assistance is expected to support the implementation of the government’s School Education Sector Plan in a sector-wide approach supported by eight development partners, including ADB under the Joint Financing Arrangement.

“The programme will enhance learning provisions for basic and secondary schools, strengthen teaching and learning skills in schools, accelerate the recovery from learning losses caused by the Covid-19 pandemic, and improve the capacity of local governments in education planning, monitoring and reporting,” the press note reads.

"Nepal has done significantly in terms of improving access to education in the past decades however, much more needs to be done to further improve equity of access and the quality of education," said Aryal after signing the agreement. The programme will be crucial to operationalising Nepal’s holistic approach in improving the overall learning outcomes."

"The agreement is a key part of ADB’s overall efforts to help Nepal accelerate reforms and transform the country’s education system to develop human capital, reduce social inequity, and attain sustainable growth," Dasgupta is quoted as saying, "The plan is designed towards eliminating inequities in access and participation in school education, and improving quality and resilience of school education."

ADB approves $200 million loan to strengthen education system in Nepal

The Asian Development Bank (ADB) today approved a $200 million concessional loan to help Nepal strengthen the equity, quality, and resilience of its school education.

The programme will assist the implementation of the first 5 years of the government’s School Education Sector Plan 2021–2030 in a sector wide approach supported by eight development partners, including ADB, according to a press note issued by the multilateral development partner. “The programme will enhance learning provisions for basic and secondary schools; strengthening teaching and learning in schools; accelerate the recovery from learning losses caused by the Covid-19 pandemic; and improve capacity of local governments in education planning, monitoring, and reporting,” it reads.

“Nepal has done significantly well in terms of improving access to education, however, there is still a need to address remaining equity issues to access and importantly to take a holistic approach to address persistent challenge in improving learning outcomes,” ADB Principal Social Sector Specialist for South Asia Rudi Van Dael said, adding that the programme will help accelerate reforms and transform the country’s education system to develop human capital, reduce social inequity, and attain sustainable growth.

Selected secondary schools will be upgraded to increase opportunities to study science education in grades 11–12, especially for girls. The pro-poor scholarship scheme will be expanded from grades 9–12 to grades 6–12 to improve retention.

To mitigate learning loss from the Covid-19 pandemic, a recovery and accelerated learning program will be jointly implemented with community and civil society organisations. “To prepare schools against future learning disruptions, more and better accessible e-resources will be made available through the Sikai Chautari online learning portal,” ADB Senior Project Officer (Education) for South Asia Smita Gyawali said, adding that the programme will further strengthen local government’s capacity to deliver education in the federal system.

ADB will provide an additional $1 million technical assistance grant from its Technical Assistance Special Fund and administer equivalent of $600,000 grant from the Government of Norway to support capacity building activities, strengthen programme management and coordination, and improve the monitoring and reporting capability of the Ministry of Education, Science, and Technology.

IMF executive board approves $395.9 million ECF arrangement for Nepal

The executive board of the International Monetary Fund (IMF) approved a 38-month arrangement under the Extended Credit Facility (ECF) for Nepal in an amount equivalent to SDR 282.42 million (180 per cent of quota or about $395.9million). The ECF arrangement will assist the authorities’ Covid-19 response in mitigating the pandemic’s impact on health and economic activity, protect vulnerable groups, preserve macroeconomic and financial stability, and support sustained growth and poverty reduction, according to a press note issued by the IMF. "The programme will help fill financing gaps and will catalyse additional financing from Nepal’s development partners."

Approval of the ECF arrangement enables immediate disbursement of SDR78.5 million (50 per cent of quota, about $110 million) usable for budget financing. This follows Fund emergency support to Nepal in May 2020 under the Rapid Credit Facility (100 per cent of quota, SDR 156.9 million, equivalent to $214 million at the time of approval).

The Covid-19 pandemic is taking a heavy toll on Nepal’s economy. From April to July 2021, Nepal suffered a devastating second wave of Covid-19, interrupting a gradual recovery in economic activity. GDP contracted by 2.1 per cent in the last fiscal year 2019-20, staff estimate a partial recovery of growth at 2.7 per cent for fiscal year 2020-21 and forecast growth of 4.4 per cent in fiscal year 2021-22. The collapse of the tourism and service sectors, which are key drivers for growth, will take time to recover. After a sharp drop in 2020, imports have rapidly grown, fueling a large current account deficit (8.3 per cent of GDP in the fiscal year 2020-21). Gross international reserves remain adequate but have begun to decline in recent months. The Covid-19 shock affected both revenues and expenditures with the fiscal deficit expected to widen from 4.2 per cent of GDP in the fiscal year 2020-21 to 6.3 per cent of GDP in the fiscal year 2021-22.

The Fund-supported programme under the ECF has three main objectives, aligned with the government’s Relief, Restructuring, and Resilience (3R) plan. First, mitigating the Covid-19 impact on health and economic activity, and protecting vulnerable groups, including by making room in the budget for health, social assistance, and job support, while enhancing fiscal transparency and governance. Second, preserving macroeconomic and financial stability, including by maintaining a prudent fiscal stance, preserving reserve adequacy, and strengthening financial sector regulation and supervision. Third, supporting a reform agenda that leads to sustained growth and poverty reduction over the medium term, including by implementing cross-cutting institutional reforms that improve governance and reduce corruption vulnerability.

"The Covid-19 pandemic severely impacted Nepal’s economy, including through a decline in tourism and domestic activity and volatile remittances," at the conclusion of the executive board’s discussion, deputy managing director and acting chair Bo Li said. "Households are experiencing an ongoing shock to income and social assistance programs have limited coverage, implying a likely setback to poverty alleviation gains in recent years," he said, adding that important fiscal and external financing needs remain to support the Covid-19 response, facilitate a continued recovery, and maintain a comfortable level of reserves. "The Extended Credit Facility arrangement will support the government’s priorities, to mitigate the pandemic’s impact on health and economic activity and protect vulnerable groups; preserve macroeconomic and financial stability; support sustained growth and poverty reduction; and catalyse additional external financing."

It will also help anchor and leverage the Fund’s capacity development strategy in Nepal, he added.

"Fiscal policy in the early part of the programme accommodates priority spending to address health needs, support the economy, and protect the most vulnerable," he said, adding that fiscal deficits would gradually decline once the health crisis wanes, helping to ensure debt sustainability, while also accommodating the authorities’ commitment to further enhance social safety nets. "A comprehensive fiscal structural reform agenda underpins the programme, with both revenue mobilisation and public financial management reforms to address the public investment efficiency gaps, strengthen fiscal risk management, improve public debt and cash management, and help advance fiscal federalism in a fiscally prudent manner." 

Moving ahead with reforms to further enhance fiscal transparency and reporting will be important, he added. "The gradual unwinding of accommodative monetary policy and the authorities’ commitment to remain vigilant toward emerging risks in the external and financial sectors are welcome."

Suggesting to strengthen financial sector regulation and supervision, he urged that progress is needed on policies that preserve the stability of the financial system while supporting growth through ensuring the availability of adequate and timely supervisory data, updating the regulatory framework to better capture risks including to banks’ asset quality, and enhancing the quality of supervision. "Measures set out under the programme to further improve the autonomy and accountability framework of the central bank would support this agenda."

"Sustained structural reform efforts are necessary to enhance the business environment, strengthen climate resilience, and raise medium-term growth," he further suggested, adding, "To this end, the programme supports several cross-cutting institutional reforms that address governance, vulnerability to corruption, and efficiency of the public sector."

Nepal, ADB sign $250 million loan for Nepal’s Covid-19 response

The government of Nepal and the Asian Development Bank (ADB) signed on a loan agreement of a $250 million (equivalent to Rs 30 billion) for the Covid-19 Active Response and Expenditure Support (CARES) Programme to respond the impacts caused by Covid-19, today.
In presence of finance minister Dr Yuba Raj Khatiwada at the Finance Ministry, finance secretary Sishir Kumar Dhungana and ADB country director for Nepal Mukhtor Khamudkhanov signed the agreement. “We thank ADB for its support to Government of Nepal’s response to the Covid-19,” said Dhungana after the signing ceremony. “The programme will support the government’s National Relief Programme that has been announced to address the impact of the Corona pandemic,” he said, adding that it will also help to strengthen the Nepali public health system, provide social protection and create more employment.
“ADB remains fully committed to supporting Nepal in this challenging time and will work closely with the government in implementing this programme to support Nepal in fighting the pandemic and reduce impacts on people,” said ADB’s country director for Nepal Mukhtor Khamudkhanov.
This is a concessional loan and will be provided as a budgetary support. The programme will support the government of Nepal to strengthen its public health system by scaling up its testing laboratories, establishing quarantine facilities in all provinces, enabling of quality health service for prevention, control and cure of communicable disease, developing of health infrastructures with well-equipped hospitals, supplying of medicine and equipment; and providing service of qualified doctors and health workers.
The programme will also support the government to mitigate the adverse economic and social impacts of the pandemic, particularly on the poor and vulnerable.

Central bank relaxes bank loan for first-time home buyers

The central bank prohibits bank and financial institutions (BFIs) from raising the monthly installment even when there is a rise in the interest rates of loans. Likewise, the central bank has also raised the loan to value (LTV) ratio – the maximum amount of loans that a bank can float out of the total valuation of the collateral – to 70 per cent for such first-time home buyers.
Amending the ‘Unified Directives 2075’, the central bank has, however, said that the loan repayment duration could be extended beyond the originally slated period, despite the prohibition to increase monthly installment amount.
The maximum limit of the loan that a buyer can get to purchase a house or apartment under this category has been fixed at Rs 15 million, the ‘Unified Directives 2075’, that is a collection of rules and circulars issued to the BFIs.
“The new provision will offer a respite for the borrowers even in case of interest rate rise,” Nepal Bankers Association said, adding that there will not be an immediate pressure of paying more money in installment.
According to the ‘Unified Directives 2075’, a bank can also provide loan amount up to 70 per cent of the total valuation of the home to the borrower. “The limit for other residential home loans has been capped at 50 per cent inside the Kathmandu Valley and 60 per cent outside the valley,” it reads, adding that the banks and financial institutions (BFIs), however, should make sure that the borrower has not acquired any loan to purchase or construct house or apartment from any bank or financial institution. “The central bank has also fixed certain criteria for loans under this new arrangement,”
The house or apartment, which should be inhabited only by the borrower, should be of maximum 3,000 square feet,” according to the central bank.
“The bank will not consider the rent earning from the house or apartment as the borrower’s income source for the loans floated under this category,” according to the ‘Unified Directives 2075’ that reads, “Apart from the value of the collateral, a bank should take into consideration the regular income of the borrower to ascertain the repayment capacity while floating personal loans.”

SMEs relying on ancestral property for investment

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.

World Bank recommends fewer than 15 banks

Though, the Monetary Policy – released by the central bank – for the current fiscal year 2019-20 failed to spell out the big merger, the World Bank has recommended the government to further reduce the number of commercial banks to fewer than 15 from current 28, within three years.
“The balance sheet size of commercial banks needs to increase to enable them to offer sensible loan volumes to support the infrastructure sector,” reads the report ‘Nepal Infrastructure Sector Assessment’ released by the World Bank on Thursday coinciding with two-day-long ‘Nepal Infrastructure Summit-2019’. The summit was organised jointly by Confederation of Nepalese Industries (CNI) and Ministry of Physical Infrastructure and Transport.
Though the report assesses the energy, transport, and urban infrastructure sectors and highlights private sector solutions for sustainable infrastructure development, it has also recommended the government to further consolidate the banking sector to enable it to finance large-scale infrastructure projects in Nepal as a short-term priority action of up to three years.
The report also suggested that that lowering the number of commercial banks to less than 15 will help in developing the domestic banking sector’s capacity to finance infrastructure projects. The report also reads that reducing the number of commercial banks from current 28 to less than 15 will start to reshape the sector and provide banks with scale and efficiency to deliver consistent loan volumes. It has also concluded that Nepal’s domestic banks and financial services institutions are fragmented, subscale, and constrained in their capacity to finance.
“The domestic banking sector can also help in meeting the finance gap in the infrastructure sector,” the report reads, adding that it requires consolidation to enable more efficient deployment of capital. “Not only the mismatch in the asset and liability makes it difficult for banks to lend in long-term infrastructure projects, it has also been making interest rates volatile in the market.”
Due to an asset-liability maturity mismatch, banks have limited ability to lend in the long term, as evidenced by the 5-to-10-year average tenure of a term loan,” the report further reads, “Bank lending is further limited by high collateral, considerable sponsor support requirements, and a lack of experience and capacity in structuring, assessing risk, and leading financing initiatives for limited-recourse financing.”
The total assets of the financial sector stood at Rs 3,137 billion ($30.46 billion) as of mid-October 2017, according to the World Bank report that has also revealed that commercial banks account for 86 per cent of the sector’s assets. “As of 2017, bank credit to the private sector equaled 77 per cent of GDP, significantly above the South Asia’s region’s average of 47.6 per cent of GDP.”
The World Bank report also reads that the further consolidation should be encouraged over the medium-term horizon along with partnerships with inter-national banks to achieve up to 10 local banks. “This can be achieved,” the World Bank report suggested, “by increasing the paid-up capital to over Rs 16 billion.” Currently, paid up capital for a commercial bank stands at Rs 8 billion, though it was four times lesser just two years ago. The central bank has increased the paid up capital to Rs 8 billion two years ago to four times from Rs 2 billion then. However, the four times increment in paid up capital in two years could not force the commercial banks to go for merger as expected also as the central bank did not restricted to issue rights shares. Almost all of the commercial banks have increased their paid up capital to four times to Rs 8 billion in two years with the help of rights shares, and bonus shares.
However, the report does not make clear on what basis it determined the number of banks that the country needs.

BFIs barred from charging prepayment penalty for loans below Rs 5 million

After repeated complaints from the customers, the central bank has restricted bank and financial institutions (BFIs) from arbitrary charging service, administrative and other fees.
Issuing a circular, the central bank also told BFIs that the difference of administrative service charge, prepayment penalty and commitment fee between clients while floating loans of same type should not be more than 0.25 percentage point.
The new consumer protection move against the BFIs’ that are charging their clients exorbitant fee under various headings will end discrepancy in various fees that BFIs charge, the cntral bank circular reads, adding that the fees, except administrative service charge, prepayment penalty and commitment fee that a BFIs levy on borrower, must be adjusted in the interest rate. “The central bank has also barred BFIs from collecting any prepayment penalty while repaying loans in advance from their clients with loan limit of Rs 5 million.”
The move will give some respite for the borrowers, who want to repay their loans before the schedule. Currently, the BFIs collect up to 2 per cent of penalty from borrowers, who repay loans before the predetermined schedule. “If a borrower wants to repay loans higher than Rs 5 million, including project-based financing, because of the changes in interest rates or conditions agreed during the loan disbursement, the bank will not be allowed to charge the prepayment penalty,” the circular reads.
Likewise, the BFIs can levy commitment fee, only if the borrower utilizes less than 60 per cent of sanctioned loans annually, the circular further reads, adding that the BFIs will not be allowed to collect any hidden fee from borrowers.
The central bank has also asked to complain, if any BFI imposes any charge higher than what has been prescribed. “The clients can file complaints at the Nepal Rastra Bank (NRB), and the central bank will help get refund of such charges, apart from charging the BFIs fine and taking other actions.”

Central bank directs banks to ease concessional loans

The central bank has directed Banks and Financial Institutions (BFIs) – after receiving complaints that the BFIs were reluctant to provide concessional loans under the government scheme – to make arrangement to ensure that eligible people get credit facility from their branch offices easily.
Issuing a circular today, the Nepal Rastra Bank (NRB) also directed them to prepare internal working procedures in line with the Unified Working Procedures on Interest Subsidy for Concessional Loans and provide the subsidised loans of appropriate scheme to eligible and interested public through their respective branch offices across the country.
Following various complaints from the public that they did not get subsised loans from the BFIs, the central bank was pressurised to issue directives for the implementation of interest subsidised loan schemes.
Earlier some four months too, the central bank had issued a circular to the licensed BFIs to implement the working procedure of interest subsidised loan schemes as announced by the government in the budget speech for the current fiscal year 2018-19. The budget has announced cheaper subsidised interest rates on loans for targeted groups including migrant worker returnees, women entrepreneurs and earthquake survivors. The government has promised to pay certain percent of the interest costs – through the central bank – of these loans. The government bears 5 per cent to 6 per cent of the interest cost based on the scheme of the loans. Some of these new schemes bear certain per cent of interest expenses for loans up to Rs 50 million for commercial agro and livestock farming, Rs 700,000 for educated self-employment youth, Rs 1 million for migrant worker returnee’s business project, Rs 1.5 million for women enterprise and Rs 1 million for business for Dalit community.
Likewise, others, who are eligible to get the interest subsidised loans are earthquake survivors – up to the limit of Rs 300,000 to rebuild their houses – and youths up to Rs 500,000 for higher and technical or entrepreneurship education.
According to the central bank, banks are not allowed to charge more than 2 per cent premium on their base rate as interest rates in these loans that have maturity period of up to five years.
But the implementation of the subsidised loan scheme no easy cake as the banks need the complete paper works and lenders must eligible to get such loans.
"The directive is issued to prepare the internal working procedure in line with the central bank’s working procedure and make arrangement that eligible and interested public get such loans under the appropriate heading stated in the working procedure through any branch across the country," reads the central bank directive. 

ADB operations reach $28.9 billion

Asian Development Bank (ADB) operations—comprising approvals of loans and grants, technical assistance (TA), and cofinancing—reached $28.9 billion in 2017 in its continued efforts to help meet Asia and the Pacific’s development needs, according to preliminary figures released today.
Approvals of loans and grants from ADB’s own resources reached a record $19.1 billion, representing a 9 per cent increase from the $17.5 billion seen in 2016. This puts ADB well on its way to meet its $20 billion target by 2020. Of the total, non-sovereign (primarily private sector) operations accounted for $3.2 billion, a 26 per cent increase from $2.5 billion in 2016. TA, meanwhile, increased by about 22 per cent to $205 million from $169 million in the previous year.
Commitments (the amount of loans and grants signed)—ADB’s new performance measure—reached $20.1 billion. This is a significant increase from $13.3 billion in 2016, reflecting the signing of large projects approved in 2016 and 2017.
“The strong figures for ADB operations in the past year were supported by the successful merger of ADB’s concessional Asian Development Fund (ADF) lending operations with the Ordinary Capital Resources balance sheet—which took effect at the start of 2017,” ADB President Takehiko Nakao said. “This will allow us to deliver a much higher level of assistance to our developing member countries for years to come without seeking a capital increase.”
A highlight of ADB’s operational figures for 2017 is climate financing, which reached a record $4.5 billion (comprising mitigation $3.6 billion and adaptation $0.9 billion), a 21% increase from 2016. This puts ADB in a good position to achieve its $6 billion climate financing target by 2020.
Cofinancing approvals declined to $9.5 billion in 2017 from the $13.9 billion recorded in 2016, partly due to the delay of large expected cofinanced projects. Disbursements were $11.7 billion in 2017, compared to $12.7 billion in 2016. This is because of lower approvals, and hence disbursements, of policy-based lending and counter-cyclical support facility, among other factors.
“Disbursements are essential to make a difference on the ground. Cofinancing and catalyzation is a much-discussed strategy in the international community to realize the Sustainable Development Goals,” said Mr. Nakao. “ADB will come up with additional concrete measures to increase disbursements and cofinancing, building on the new procurement policy approved in April 2017 and ongoing efforts to leverage resources.”
Among ADB’s other operational highlights were projects that combine finance with innovative approaches to development, including satellite data and remote sensing to improve irrigation in Indonesia and Pakistan, pilot testing of climate-smart agriculture practices in Bangladesh, and supporting social welfare reforms in Mongolia to promote human development.
An innovative $100 million TA loan to the Philippines, approved in October 2017, will help the government prepare and deliver infrastructure projects under its Build Build Build program. 
On the funding side, ADB offered new and innovative thematic products such as the health bond and gender bond. This is on top of increased efforts to raise local currency funding to meet the growing demand for nonsovereign local currency loans. ADB’s Indonesian rupiah bond in December was the first bond issued from a multilateral development bank of which Indonesia is a shareholder.
ADB launched three high-impact publications in 2017. Meeting Asia’s Infrastructure Needs estimated Asia and the Pacific’s annual infrastructure needs at $1.7 trillion per year until 2030. A Region at Risk: The Human Dimensions of Climate Change in Asia and the Pacific put forward scenarios of the devastating effects of climate change. The ADB history book, Banking on the Future of Asia and the Pacific focused on the region’s economic development, the evolution of the international development agenda, and the story of ADB over 50 years.
To scale up the bank’s operations with quality, the ADB Board approved the 2018 budget totaling $672.3 million, an increase of 3.9 per cent over 2017, comprising 2.2 per cent  price growth and 1.7 per cent volume growth. This budget supports the ongoing investments in IT reforms and organisational resilience. ADB continues to make its utmost efforts at staff optimization and efficiency measures.
A key priority for ADB in 2018 is to finalise its new corporate strategy, Strategy 2030. ADB’s 51st Annual Meeting of its Board of Governors will be held in Manila again in May after 6 years. Strategy 2030, the impact of technological change and globalization on jobs, aging and longevity dividends, role of women entrepreneurs, and private sector participation in infrastructure development will be among the topics discussed. ADB expects more than 3,000 participants to attend the meeting.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members, 48 from the region.

Number of farmer households increases, farmland fragmented more, borrowing habit of farmers less in a decade

Surprisingly, borrowing habit and market access of the farmers seem very discouraging, average holding size has decreased but farmers household has increased and migration of male for employment has forced more female in agriculture in last one decade.

"Over half of the agriculture households do not need loan," according to the Agriculture Census 2011-12 published here today. "Some 58 per cent of the agriculture households – holdings – do not need loan, and only 42 per cent needed loan."

Their priority also seems livestock and poultry as 46 per cent holdings need loan for livestock and poultry, whereas 24 per cent for fertilizer and seeds, and 17 per cent for irrigation. Surprisingly, the census revealed that only five per cent needed loan for agriculture machinery.

The study also revealed that the number of farming households have increased to 3.831 million as some 467,000 new members were added within a decade. The farm sector employs 20.55 million people – some 77.57 per cent – of the total population of 26.49 million.

But number of holdings with agriculture has also decreased to 21.82 per cent in 2011-11 from 10 year's ago's 23.82 per cent in 2001-02. But the average holding size has decreased to 0.68 hacter from 0.80 hacter in 2001-02 and 0.96 hacter in 1991-92, which means the fragmentation of land has made the farming less competitive and increased food insufficiency. "Some 60 per cent of the holdings have food insufficiency through their own production, whereas only 40 per cent have food sufficiency meaning they can live on their production for a year."

The survey – that is taken every 10 years – also has revealed that the number of females in active agricultural activities have doubled in last one decade – also may be due to their spouses migration in search for greener pasture – to 19 per cent from a decade ago's 8.1 per cent.

Meanwhile, only one fifth of the farmers have easy market access. "Some 21 per cent of the farmers have market at the distance of 10 minutes to 30 minutes, whereas same percentage of the farmers have market access at 30 minutes to one hour distance, and 25 per cent have market at a distance of one to two hours. "Some 13 per cent of the farmers have market at a distance of more than three hours."

The report will be an eye opener for the government and policy maker as it has revealed more hurdles in commercialisation of agriculture due to fragmentation of land, low financing and market access.