The disbursement of concessional loans from banks and financial institutions has slowed significantly due to the government's failure to pay interest subsidies on subsidized loans. As a result, banks have halted approvals for new loans, leading to a decline in both the number of borrowers and the total amount disbursed.
According to the latest data from Nepal Rastra Bank (NRB), as of mid-December in the current fiscal year (FY) 2024/25, concessional loans totaling Rs 109 billion have been provided to 113,000 borrowers. In mid-July 2024, the total loan amount under this heading stood at Rs 126 billion, benefiting 120,000 borrowers. However, over the past five months, the number of borrowers has dropped by 7,000, while the total loan amount has declined by Rs 17 billion.
The concessional loan program reached its peak in mid-July 2022, with nearly 150,000 recipients and loan disbursements exceeding Rs 200 billion. Since then, both the number of beneficiaries and the loan volume have been steadily decreasing.
Govinda Gurung, Chief Executive Officer of Agricultural Development Bank Limited, stated that no new concessional loans have been approved in the past 18 months due to the government's failure to reimburse banks for overdue interest subsidies.
The government has not prioritized concessional loans following criticism over their misuse. In the budget for the previous fiscal year, it announced plans to restructure the interest subsidy program based on a study of loan effectiveness. However, in the current fiscal year, the government has only committed to reviewing subsidy procedures, with no significant progress so far.
Despite the availability of concessional loans, concerns persist regarding their misuse by individuals with privileged access. NRB conducted a study on the effectiveness of these loans last year but has yet to make the findings public. Reports indicate that concessional loans meant for production and economic development were often used for real estate purchases and personal expenses. In response, NRB took regulatory action against the Chief Executive Officers (CEOs) of 15 banks and financial institutions in the second quarter of the current fiscal year.
Concessional Loan Categories and Interest Rates
Under the current Interest Subsidy Procedure for Concessional Loans, banks can provide loans in 10 sectors, including commercial agriculture and livestock farming, education for youth self-employment, projects for youth returning from abroad, women’s enterprises, Dalit business development, higher technical and vocational education, private housing construction for earthquake victims, textile industry, technical and vocational education, youth self-employment.
Banks can set interest rates on these loans by adding a maximum of 2 percentage points to their base rate. The government provides an interest subsidy of 6 percent for women entrepreneurship loans and 5 percent for other categories. However, for commercial agriculture and livestock loans exceeding Rs 50 million, the subsidy is limited to just 2 percent.
