Interest-free loan program stops due to lack of preparation
A grant program called Zero Interest Rate, which provides interest-free loans to marginalized people, women, people with disabilities and migrant workers returning to become self-employed, has not progressed.
The initiative – launched by the provincial Ministry of Industry, Tourism, Forestry and Environment of Lumbini Province – failed due to lack of coordination between borrowers, Nepal Bank Limited and the provincial government.
Provincial Industry, Tourism, Forestry and Environment Minister Leela Giri said some of the conditions for getting loans need to be changed to simplify paperwork.
“We are currently reviewing the suggestions sent by stakeholders and potential borrowers,” he said.
“There are two sets of conditions – the guarantee or the guarantee and the registration of the business – to get a loan. “These conditions seem difficult for marginalized people to meet,” Giri said.
The program was introduced by targeting people who had lost their businesses due to the Covid-19 pandemic, returnees from foreign jobs, unemployed people, people with disabilities, victims of conflict, marginalized people and single women.
On December 6, the ministry and Nepal Bank Limited reached an agreement to grant Rs430 million loans per year. The ministry would pay the bank 7.25% interest for three years, and the bank would issue the loan without charging interest.
The ministry has allocated Rs 100 million from the Entrepreneurship Fund to make the interest payments for this fiscal year.
The program had planned to grant loans to 1,300 people during this 2020-2021 fiscal year. But only seven loan agreements were signed in the first eight months while 44 loan applications are being processed.
The Office of the Cottage Industry and Small Business has issued recommendations regarding interest-free loans to 133 people.
Lekhnath Bhusal, head of Nepal Bank Limited, Lumbini region, said most of the borrowers recommended by the Cottage and Small Scale Industry Office were not eligible for loans according to banking standards.
“More than 90% of applicants have applied for loans for agricultural projects. There are people who have raised one or two buffaloes, and two or four goats, and they are doing it in a traditional and non-commercial way depending on the purpose of the project, ”he said.
“Most of them are not clear on the land guarantees they have to show and on the objective of the project. It will be problematic for the bank to invest without guarantee, ”he added.
According to the working procedure, only entrepreneurs who registered their business during this fiscal year can get interest-free loans. Depending on the project proposal and the guarantee, they can get funding of 500,000 to 1 million rupees. The project lasts a maximum of five years.
Many potential beneficiaries are unaware that they have to repay the loan in installments. Some of the hopes came back after being told by the bank that they had to start repaying the loan early on.
“The government pays the interest and we have to repay the loan in monthly or quarterly installments,” said Sumitra BK from Tilottama-12 Municipality which manages Sumitra Food Industries.
“It will be difficult to make installment payments from the start as there will not be enough income in the initial phase of the operation,” she added.
Rajendra KC, secretary of the provincial Ministry of Industry, Tourism, Forestry and Environment, said most people who have heard of the program feel they don’t have to repay the money.
“People mistakenly thought that they would get the entire loan interest free after submitting the necessary documents.”
The bank was also reluctant to grant loans to applicants for lack of adequate documentation.
The ministry had warned the bank in February after receiving complaints from potential borrowers that they did not get the loan immediately, even after filling out the paperwork.
“Subsequently, the bank began to seriously study the documents submitted by loan seekers,” KC said.
Economic analyst Manikar Kark said the project encountered obstacles as it was started without doing the proper homework.
“The target group does not know the objective of the project and the banking process,” he said. “There is a lack of awareness among people.”