Govt to revise guidelines for interest subsidy loans amid concerns over utilization

KATHMANDU: The government is set to amend the Integrated Guidelines for Interest Subsidy Loans due to various issues, including the inability to disburse approximately NPR 14 billion in subsidies, declining interest rates, and concerns over the proper utilization of loans, according to the Ministry of Finance.

“Considering the current context of declining interest rates and questions regarding the optimal use of subsidized loans, the government has directed the Nepal Rastra Bank (NRB) to provide suggestions for amending the guidelines,” said Finance Secretary Ram Prasad Ghimire. He emphasized that NRB must ensure the proper utilization of concessional loans, while banks and borrowers must also bear responsibility.

The Ministry of Finance has yet to pay about NPR 14 billion in interest subsidies. However, Ghimire stated that some of the pending payments would be cleared within a day or two. “Only NPR 3 billion was disbursed last fiscal year. Meanwhile, an independent study raised concerns about the utilization of concessional loans, which caused delays in payments,” he said. Discussions with NRB have been held, and partial payments are expected shortly.

Planned Revisions to Guidelines

After clearing these payments, the guidelines will be revised, and the concessional loan program will resume. “The NRB has been instructed to submit suggestions for amendments within this month (Poush), and loan disbursements will resume from Magh,” Ghimire added.

The guidelines have not been revised since Poush 2077 BS. Interest rates were significantly higher at the time, and subsidies for women entrepreneurs (6%) and nine other loan categories (5%) were deemed appropriate. With current interest rates falling to single digits (7–8%), NRB is expected to reassess the relevance and adequacy of these subsidies.

Independent Assessment Highlights Loan Misuse

An independent evaluation conducted by Joshi & Bhandari Chartered Accountants revealed that approximately

18% of subsidized loans** were misused. Among the evaluated loans:
– 7% were found to be improperly utilized.
– 12% lacked proper identification of target groups.
– 6% involved double utilization.
– 11% were suspected of misuse.

NRB sources confirmed that loans not meeting utilization criteria (7%) and suspected of misuse (11%) together accounted for nearly 18% of the total.

Strengthening Oversight and Responsibility

Through the upcoming amendments, the Ministry of Finance seeks to enforce stricter accountability for NRB, banks, and financial institutions regarding the effective utilization of concessional loans. “Expertise on loan disbursement and utilization lies with banks, financial institutions, and NRB. They must ensure proper utilization, while the government will regularly provide interest subsidies,” an NRB source stated.

In response to the findings, NRB has instructed banks to recover improperly utilized loans and improve their internal control systems. Additionally, NRB has directed its regulatory department to conduct internal audits of these loans and submit a report.

Halt in Subsidized Loans

For the past two years, citizens have been unable to access interest-subsidized loans due to the government’s failure to pay NPR 14 billion in subsidies to banks. Consequently, banks have halted disbursements of new concessional loans and are collecting full interest from existing borrowers, including the portion that should have been subsidized by the government.

The Ministry of Finance and NRB aim to address these issues through amendments to ensure transparency, accountability, and the effective use of concessional loans to foster economic growth, job creation, and entrepreneurship development.