Subsidised loan scheme for youths in Cabinet
BFIs had dismissed the plan when it was floated earlier
Kathmandu, September 1
The government is gearing up to execute the provision in the budget that announced loan of up to Rs 700,000 to youths against their academic certificates as collateral.
The Ministry of Finance has already submitted the related guideline to the Cabinet for approval. Once approved, Nepal Rastra Bank will instruct banks and financial institutions to float loans as provisioned in the guideline.
The 2018-19 fiscal budget had announced plans to provide credit with five per cent subsidy on interest rate to youths against high-level academic certificates to encourage them to start their own businesses.
When the plan was floated earlier, BFIs had dismissed the idea citing high chances of loan default and increased cost to loan administration on such fragmentation of loan.
However, the fiscal budget 2018-19 has said there will be compulsory provisioning of credit guarantee and insurance of such businesses to minimise chances of loan default. “The credit issued under this scheme will be guaranteed through Deposit Insurance and Credit Guarantee Corporation,” said ChandrakalaPoudel, spokesperson for MoF. “Businesses set up from the loan scheme will also be insured, thus, BFIs can float the loan confidently.”
MoF will correspond with the NRB to execute the guidelines. Until now, BFIs have only been issuing credit against fixed assets collateral.
The draft guideline provisions scrapping of travel documents and voting rights of borrowers who intentionally default on the loan, said MoF officials.
As small loans issued by BFIs were waived by political decisions in the past, bank executives have suggested strict rules to make borrowers liable to pay back principal and interest in a timely manner.
In line with the announcement made through the fiscal budget, this fiscal’s monetary policy has also introduced a provision
that BFIs can calculate such loans under deprived sector category. BFIs have to float five per cent of their total loan portfolio to the deprived sector.
The MoF has prepared a guideline following consultations with a wide range of stakeholders, which is expected to be endorsed by the Cabinet by mid-September. NRB will ask BFIs to execute the provision by making necessary preparations within a month. Under this scheme, BFIs will charge the base rate plus premium on loan against collateral of academic certificates, and the government will subsidise five percentage point interest rate from the interest rate fixed by the BFIs.