Kathmandu, January 6

The government has launched the Economic Revival Fund worth Rs 100 billion, under which refinancing facility would be extended to borrowers of the productive sector at five per cent interest.

The Fund has been launched to restore investor confidence, which has been sagging since the earthquakes of April and May, and imposition of blockade on Nepal-India border points.

“The Fund will come into operation immediately,” Finance Secretary Lok Darshan Regmi told a press meet organised by the Ministry of Finance today.

The Fund has been created through contributions made by the government, banks and financial institutions (BFIs), and development partners. BFIs can factor in investment made in the Fund while calculating statutory liquidity ratio. Also, loans extended by BFIs can be recouped whenever they want.

As per the Fund Operation Guideline, Nepal Rastra Bank (NRB) will offer credit line to each BFI at 1.5 per cent interest. BFIs will then have to extend this credit to good borrowers at an interest rate of not more than five per cent. Extension of the refinancing credit will be monitored by a six-member committee formed under deputy governor of NRB.

The credit extended through the Fund, the government hopes, ‘will minimise impact of quakes and undeclared blockade on various industries and economy’.

Nepal had recently started gearing up for higher trajectory of economic growth, booking growth rate of 5.1 per cent in the fiscal year 2013-14. But the earthquakes reduced the country’s growth rate to 3.04 per cent in fiscal 2014-15.

Now, due to trade disruptions across Nepal-India border points, which have choked supply of raw materials and other essential supplies, the country is expected to book a negative growth for the first time since 1983.

The Fund that the government has set up will extend loans 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.

However, firms engaged in production of alcohol and tobacco products are barred from acquiring refinancing facility.

Federation of Nepalese Chambers of Commerce and Industry, the largest umbrella body of the private sector, has welcomed the initiative taken by the government to establish the Fund.

“The FNCCI has long been drawing the attention of the government to introduce a relief package,” says a statement issued by FNCCI today. “The package was introduced late but we hope this will address some of our problems.”