June 5: Though the government in its budget for the upcoming fiscal year (2021/222) announced a facility of business loan up to Rs 2.5 million for graduate students at a subsidized interest rate of 5 percent against collateral of academic certificates, bankers say that the implementation of the scheme is challenging. 

This is not a new scheme as bank and financial institutions (BFIs) are already providing loans up to a limit of Rs 700,000 to youths against pledges of their academic certificates. 
BFIs have been disbursing loans based on the 'Integrated Procedure on Interest Subsidy for Concessional Loans, 2020' issued by Nepal Rastra Bank (NRB). There are seven various subsidized loan schemes under this facility including the Educated Youth Self Employment Loan.Under these schemes, the government subsidy covers five to six percentage points of the interest rates that bank charges to their borrowers. 
According to the data of NRB, BFIs have disbursed loans to 139 youths under the Educated Youth Self Employment Loan. They have a total of Rs 65.1 million outstanding loans under this scheme. The scheme came into implementation in April 2019. 
There have been complaints that BFIs are reluctant to provide subsidized loans to youths against the collateral of academic certificates. However, bankers say that BFIs do not sanction business loans until they get convincing business plans from borrowers due to a risk of non-repayment or defaults. 
Dev Kumar Dhakal, the NRB Spokesperson, said that the central bank has decided to fix a minimum numbers of loans that each branch of bank or financial institution must provide under this facility. He said that the decision was based on complaints about the lack of willingness from BFIs to disburse subsidized interest loans. 
According to the NRB, except than agro and farming loans among various concessional loan schemes, a commercial bank must provide loans to 500 borrowers with ten minimum per branch and national level development banks to 300 borrowers or five minimum per branch, whichever is higher. 
“After enforcement of this directive, we have found that the flow of loans under these schemes has improved," he said.
Bankers say that increment in the loan amount against collateral of academic certificates also raises the risk for BFIs. 
Bhuvan Kumar Dahal, Nepal Bankers' Association’s President, says that such loans can be disbursed immediately if the borrowers pledge assets along with their certificates.

"It is not easy to disburse such loans against collateral of academic certificates only. Such loans carry high risk. If such loans turn bad, both the bank and the government would face losses. However, we are ready to provide loans to those who come up with a viable business plan,” he said.

Nepali citizens having academic certificate of minimum Bachelor degree or equivalent is eligible to get the loans under this scheme with repayment period of five years. Likewise, the borrower applying for the loan should have attended at least a week of enterprise or business training from any government body including the Council for Technical Education and Vocational Training. Banks also ask a brief business proposal for such loans.