Kathmandu, December 6

The Ministry of Industry (MoI) has said that it is working on a mechanism to compensate a certain per cent to banks and financial institutions (BFIs) for loans that are defaulted by small and medium enterprises (SMEs).

In a bid to encourage lending by financial institutions to the SMEs sector, Industry Minister Nabindra Raj Joshi today said that MoI is ready to establish a fund to compensate a certain per cent of loans defaulted by SMEs in the future. He opined that with this move, the BFIs can be ensured that their investment in small enterprises is relatively safe.

“A huge number of employment opportunities can be created if SMEs are promoted in the country but the major setback for growth of small enterprises is lack of access to financial services,” said Joshi, adding that MoI will facilitate BFIs to extend lending services to SMEs sector by guaranteeing them that some per cent of defaulted loans will be refunded.

Moreover, Joshi urged BFIs to develop a mechanism in coordination with MoI to increase micro entrepreneurs’ access to finance. He also urged financial institutions to bring down the high interest rates being charged on loans disbursed to SMEs. “We are ready to facilitate financial institutions in any step they take to promote SMEs in the country.”

Furthermore, Minister Joshi said that the MoI will soon form a committee by collaborating with financial institutions to increase people’s access to finance in remote areas.

Meanwhile, BFIs said that the government should first develop entrepreneurship in remote areas so that financial institutions are encouraged to increase the flow of loans in remote parts of the country. “Due to the current competitive pressure in the market, BFIs have been extending their services in remote parts of the country and are increasingly attracted towards SMEs,” said Kumar Lamsal, chief executive officer of Janata Bank, adding that the government should play the primary role first of promoting SMEs through entrepreneurship development while the role of the BFIs is secondary.

Upendra Poudyal, CEO of NMB Bank, said the government should try to establish an effective value chain system in SMEs sector. “Banks are ready to deliver services to SMEs. But the state should ensure entrepreneurs are well trained and their goods get a good market.”

On the other hand, Krishna Raj Lamichhane, CEO of Kailash Bikas Bank, said that the government should announce interest subsidy for financial institutions so that BFIs are encouraged to flow loans to SMEs at low interest rates.

Meanwhile, NRB Deputy Governor Shiva Raj Shrestha, urging BFIs to extend financial services in SMEs sector, said the Monetary Policy has a provision under which borrowers can avail loans of up to Rs one million by pledging the project as collateral.