• Shortfall in Economic Revival Fund to be bridged through supplementary budget

Kathmandu, December 10

As Economic Revival Fund (ERF) — the Rs 100 billion fund launched by the government to revive productive sector hit hard due to the earthquake and border blockade by providing interest rate subsidy and refinancing facility — failed to grab borrowers’ attention in the last fiscal, the government has instructed the Nepal Rastra Bank (NRB) to do the groundwork for optimum utilisation of the ERF in this fiscal.

NRB, the executing agency of ERF, has recently held discussions with banks and financial institutions (BFIs) regarding the optimum utilisation of the fund, which is considered as a stimulation package for the productive sector.

“NRB is preparing to issue a notice to the BFIs to call for application from potential borrowers under the scheme,” said Chinta Mani Shiwakoti, deputy governor of the central bank.

The Ministry of Finance (MoF) has released Rs five billion to the central bank and commercial banks had pledged Rs 29 billion for the ERF last fiscal. However, with the banks facing liquidity crisis, they will not be able to contribute the pledged amount in this fiscal, according to Bhuvan Kumar Dahal, CEO of Sanima Bank and a member of Nepal Bankers’ Association (NBA) — the umbrella body of class ‘A’ financial institutions. “The government should come up with new ideas to raise funds on the basis of application because banks may not be able to contribute the amount pledged earlier as they are facing acute liquidity crunch,” he said.

Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara has also sought commitment from the government-owned financial institutions to implement this scheme effectively, which will be supportive to spur economic growth to higher trajectory as envisioned by the government. The government envisaged creating the Rs-100-billion fund through contribution from the government, BFIs and development partners. None of the development partners have, however, pledged a single paisa to this fund.

The fiscal budget 2016-17 has also not allocated fund under this scheme. NRB had released Rs five billion for the fund in fiscal 2015-16 after the ERF was launched in January 2016. According to MoF officials, DPM Mahara has given high priority to effective implementation of ERF and the shortfall will be bridged from the supplementary budget. Under the ERF scheme, NRB will provide credit line to each BFI at 1.5 per cent interest. BFIs will then have to extend refinancing facility to good borrowers at an interest rate of not more than five per cent.

Borrowers can apply for 100 per cent refinancing facility on credit of up to Rs 50 million for a period of two years. If the loan amount exceeds this level, 20 per cent of the credit amount in excess of Rs 50 million will be extended as refinancing facility. Borrowers, who are already availing refinancing facility for exports and sick industries, however, will not be eligible for ERF credit. The ERF also entitles good borrowers to interest subsidy of up to four percentage points.

Extension of the refinancing facility will be monitored by a six-member committee formed under deputy governor of NRB. The refinancing facility will be provided strictly to the productive sector, which can generate jobs and contribute in capital formation process.

Some of the productive sector enterprises that qualify for such loans are: small and medium enterprises, agricultural farms, mountaineering, trekking, rafting and travel agencies, hotels, restaurants, resorts and other recreational facilities, airlines and other tourism-related enterprises.

Also, hydroelectric plants that are under construction, hydro projects whose commercial production has remained suspended due to quakes and other problems, and any project related to production, transmission and distribution of hydroelectricity can benefit from this facility.