The central bank has to ensure financial resources for productivity through financial system, and has therefore issued several provisions under productive-sector lending. There were various policies launched in the past, but none are effective

Productive sectors are the real sectors of the economy. It represents the livelihood of the people as they directly address the problem of low productivity, unemployment and food security.

In order to qualify for productive sector loans, the potential borrower must carry a business in agriculture, trade, tourism and other services which accounts for the GDP and employment generation.

Under the productive-sector lending program, 20 percent, 15 percent and 10 percent has to be lent out of the total loan portfolio by commercial banks, development banks and finance companies respectively. Out of this, commercial banks, have to lend a minimum 15 percent on agriculture and energy.

Direct lending on productive sectors practice is what the country requires today. The main objectives of the direct lending to the potential borrowers or say entrepreneurs are to uplift their standards of living and reduce their poverty level.

Unequal level of income distribution is the main cause of making the rich richer and the poor poorer. One of the reasons could be lack of opportunity to involve oneself in income-generated resources. Youths have deserted the rural areas, but somehow people are getting themselves involved in traditional occupations. Agriculture is not commercialized by farmers.

Farming is only for the basic requirement of the household, not to earn money or profit. People need work to do and finance could be an option for them to start a new job. With the development of democratic norms, people are not made aware of economic condition and its impact on livelihood.

Unlike many political slogans, if the programs on self-sustainable or self-reliant economic activities like “One House One Entrepreneur” were launched, the productive sector would get encouragement.

Although direct lending is not practiced in free market economies like Nepal, the central bank is resorting to this measure, as BFIs focus too much on unproductive sector, such as real estate and stock market.

Over-exposure to unproductive sectors drives up asset prices building inflationary pressure, reducing the value of money. Despite the government’s initiatives on national budget through various subsidies, capital grant and soft-loans, agriculture and industry still have delinquency rates for investing.

Natural hazards and calamities with low rainfall significantly attract less attention of the bankers to investment in these sectors.

Under-investment, limited research and scant inputs and technology and agricultural sector have always been neglected in Nepal to obtain commercial level of production. Poor infrastructure and discriminatory resource allocation system have further deteriorated the situation of agricultural production causing food insecurity and poverty.

The recent “Agriculture Loan for the Youth” has failed to meet its objectives with a deep gap between borrowers and the banks. The potential borrowers, farmers and would-be entrepreneurs, are blaming the banks for not providing adequate information.

According to them, only the people from affluent families have access to the bureaucrats and bankers have the privilege.

The real problems are collateral mismatch, non-availability of collateral to the youth by their guardians, lack of road adjacent land, non-registration status of potential borrower’s firm, etc. Banks are lagging behind in extending credit as per the program.

The government has recently issued the Interest Subsidy on Commercial Agricultural and Livestock Loan Guideline that revised the interest subsidy on commercial agricultural loans from the existing four percent as per the announcement made through the fiscal policy.

As per the guideline, banks and financial institutions extending such loans should not add more than five percent on top of the interest subsidy while fixing the interest rate. This basically means interest on commercial agricultural loans should not exceed 10 percent per annum.

The government, a couple of months ago, launched the Rs130-billion Prime Minister Agriculture Modernization Project, which envisages adopting modern farm techniques to boost productivity.

The real sector lacks adequate and timely credit to structural inadequacies perceived as risky by bankers due to high operational costs therein.

This credit program should not be understood by the bankers as part of corporate social responsibilities, but as a regular lending program that earns interest significantly. Direct lending is mostly preferred as it directly goes to the beneficiaries and not from any third-party or intermediaries.

The productive sector is directly related with national production, employment generation and living status of people. The central bank has to ensure financial resources for productivity through financial system, and has therefore issued several provisions under productive-sector lending. There were various policies launched in the past, but none are effective.

It’s mainly because of the lack for entrepreneurial dynamism. Foreign investment has to be opened in agriculture where at present the judicial and regulatory systems prohibit it.

The central bank needs to have a strong vision and white paper outlining impeccable planning in the productive sector, which is ultimately the bread and butter of the country.

Giri is Deputy Director at Nepal Rastra Bank