Nepal | November 15, 2019

Interest subsidy on reconstruction loan

Rewati Sapkota
  • Govt will bear 5pc of the 9pc interest rate on loan banks, FIs will be allowed to disburse

Kathmandu September 6

The government is planning to provide interest subsidy of five per cent on loans of up to Rs 3 lakh for reconstruction of private houses destroyed by the earthquakes of 2015.

Under the proposed scheme, banks and financial institutions won’t be allowed to disburse loans at interest rate of over nine per cent, of which five per cent will be borne by the government and the remaining four per cent will have to be paid by the borrowers, National Reconstruction Authority CEO Sushil Gyewali told THT.

The loan will be disbursed against the security of houses that are being rebuilt, Gyewali told THT. Banks and financial institutions can categorise these loans as deprived sector lending, a central bank scheme under which financial institutions must disburse five per cent of their total loan to the deprived sector, Gyewali said.

If approved, the plan will replace the loan scheme for private house reconstruction under which interest-free credit of up to Rs 3 lakh is being provided under group guarantee or against the collateral of house that is being rebuilt. Since its introduction, banks and financial institutions have not shown interest in floating loans under this scheme fearing they might have to face political pressure if the property pledged as collateral has to be foreclosed in case of non-payment of the credit.

“The new scheme is more attractive for financial institutions as interest is higher,” said Gyewali, adding,
“The Ministry of Finance, Nepal Rastra Bank and the NRA are dwelling on the scheme. If the proposal is endorsed, a guideline will be prepared soon, which will explain who will be eligible for the scheme.”

The government is providing a grant of Rs 3 lakh for reconstruction of private houses destroyed by the quakes. Of this amount, Rs 50,000 has already been provided in the first tranche to those whose houses were destroyed by quakes and many have collected second tranche of Rs 150,000 and third tranche of Rs 100,000 as well.

The NRA today decided to extend the deadline for disbursement of second and third tranches of the housing grant. As per the revised schedule, second tranche of grant can be collected by mid-January and the third tranche by mid-May. “These deadlines could be further extended based on factors such as geographical location and the need for relocation to places where natural disasters are likely to cause less damage,” Gyewali said.

The extension of grant disbursement deadlines indicates slow pace of post-quake reconstruction activities. The NRA has decided to delegate more power to local governments to accelerate the pace of reconstruction.

A meeting of NRA steering committee headed by the prime minister today decided to allow local governments to monitor works related to post-quake reconstruction, including private house reconstruction.

“Additional human resources, including senior engineers, will be deployed to rural municipalities of 31 earthquake-hit districts to speed up reconstruction work,” Gyewali said. “These human resources and those who have already been deployed by federal ministries cannot be transferred without the consent of the NRA.”

Low staff turnover, according to Gyewali, will also strengthen local governments, and the NRA ‘is keen on empowering local bodies during the course of reconstruction’. “For this, the NRA is willing to allocate additional budget to build integrated settlements in municipalities. We are also willing to support municipalities to build roads, water supply systems and school buildings,” Gyewali said.

This support, Gyewali said, should help the country to wrap up reconstruction and rehabilitation works by 2020-end. “We have started developing a detailed work plan, along with a financial plan, to meet this target. We’ll also conduct a mid-term review of reconstruction work soon,” Gyewali said.

He added, “We have also decided to provide housing grant of Rs 3 lakh to landless quake-affected victims if they wish to build a house on land designated by the government.”


A version of this article appears in print on September 07, 2018 of The Himalayan Times.

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