Concessional Loan Disbursement Drops by Nearly Rs 42 Billion in 11 Months

Concessional loan disbursement by banks and financial institutions (BFIs) fell sharply in the last fiscal year as the government failed to clear overdue interest subsidies. In the first 11 months of FY 2024/25, which ended on July 16, loans under the scheme declined by nearly Rs 42 billion, with both the number of borrowers and the amount disbursed taking a hit.

According to Nepal Rastra Bank (NRB), by mid-June 2025, 98,528 borrowers were using concessional loans worth Rs 85.1 billion. A year earlier, 120,274 borrowers had accessed Rs 126.8 billion. In less than a year, the number of borrowers dropped by 21,746 and loan disbursement shrank by Rs 41.72 billion. The fall has been more pronounced when compared with mid-July 2023, when 145,778 people had taken concessional loans totalling Rs 197.06 billion.

Bankers say the decline is directly linked to the government’s failure to release interest subsidies on time. “Banks have refrained from approving new loans because the government has not paid the interest subsidy owed,” said Govinda Gurung, CEO of Agricultural Development Bank. The Office of the Auditor General has reported that as of mid-July 2024, the government owed banks Rs 100.26 billion in unpaid subsidies.

The concessional lending programme allows BFIs to extend loans in ten priority sectors, including commercial agriculture and livestock, youth self-employment, women entrepreneurship, Dalit community businesses, projects for returnee migrants, higher technical and professional education, and housing for earthquake victims. The government provides an interest subsidy of 6 percent for women entrepreneurs, 5 percent for other categories, and 2 percent for large commercial agriculture loans above Rs 50 million. Banks are permitted to add up to two percentage points above the base rate when issuing these loans.

But concerns about misuse have persisted for years. Following an independent review, NRB last fiscal year took action against the CEOs of 15 BFIs for irregularities in concessional lending. The Auditor General’s report revealed widespread problems: among 172,654 borrowers and 1,838 projects inspected, nearly one-third had misused the scheme. The evaluation found that loans worth Rs 6.356 billion were not used for their intended purpose, Rs 18.749 billion had no clear identification of target groups, Rs 10.491 billion were duplicated facilities, and Rs 21.254 billion showed signs of outright misuse.

A sample test of nearly 11,000 borrowers who had received Rs 5.34 billion in commercial agriculture and livestock loans was also carried out. Although the government announced plans to restructure the concessional loan programme last fiscal year, the new procedures have yet to be enforced. The Office of the Auditor General has called for urgent reforms to improve transparency, ensure proper targeting, and restore confidence in a scheme that was originally designed to support vulnerable groups and stimulate priority sectors of the economy.