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Nepal authorities cut refinancing rate to woo productive sectors

Publication Date : 06-08-2012


The central bank of Nepal has simplified its refinancing facility, reducing the interest rate that it claims would be more attractive to the productive sector.

Based on recently unveiled monetary policy, the central bank - Nepal Rastra Bank (NRB) - adopted further flexibility in refinancing as refinance facility had hardly been used by different sectors over the last few years.

Issuing directive yesterday, the central bank categorised their refinance in four categories - normal refinancing, special refinancing, export refinancing and micro-enterprise refinancing for women entrepreneurs - from earlier two and announced the refinance facility as per these categories.

Under the simple refinancing facility, the NRB is providing fund to banks and financial institutions (BFIs) at an annual interest rate of 6 per cent which they will have to refinance at the rate not more than 9 per cent. Among the chief beneficiaries will be hydropower projects with capacity up to 25 megawatt, agriculture and livestock business, start-ups by youths who have returned from overseas, tourism businesses and other infrastructure-related projects.

The NRB has placed road, bridge, ropeway, trolley bus, tunnel, flying bridge, cable car and transmission lines under infrastructure.

As per the NRB Act 2002, such lending period lasts for six months that could be renewed from the central bank. The NRB used to charge an interest rate of 6.5 per cent which the BFIs had to provide at not more than 10 per cent to the hydropower and agriculture sectors. The BFIs would receive refinance from the NRB at 7 per cent to lend for other productive sectors.

“With these changes, we have reduced the cost of fund and have included almost all the productive sectors,” said Bhaskar Mani Gnawali, spokesperson of the NRB. “This will definitely encourage the investment in the productive sectors.”

NRB’s latest move has, however, failed to impress bankers. “At this point of time, we have excess liquidity and we are struggling to lend,” said a banker.

“Under such circumstances, we do not find this facility very attractive for the banks.”

Nevertheless, this facility is encouraging for the business people and they will get loan at really subsidized interest rate, he added.

Under special refinancing, the NRB provides fund to BFIs at 1.5 percent interest rate and they have to lend it at the rate not exceeding 4.5 per cent. Sick industries, small and cottage industries, small business ventures by Dalits and underprivileged among others qualify for such types of refinancing.

The central bank’s latest directive also has a provision for a facility of export refinancing, under which BFIs receive fund at 1.5 per cent interest and should re-lend it at the rate not exceeding 4.5 per cent.

Such refinancing should be provided on the basis of exports document presented by the firms/companies asking for such facilities, according to the NRB circular. BFIs will be responsible for monitoring whether the exporters received foreign currency in payment and loan should be cleared within four days after they receive the foreign currency.

Similarly, under the micro-enterprise refinancing for women entrepreneurs, BFIs are entitled to refinancing for lendings up to 300,000 rupees (US$2,712) at 6 per cent interest, which they can re-lend at the rate not exceeding 9 per cent.


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