Nepal Rastra Bank (NRB), the central bank, today formally launched 100-billion-rupee Economic Revival Fund (ERF) through which interest subsidy and refinancing facility would be extended to borrowers of the productive sector.
The Fund was created to aid various sectors of the economy hit by the earthquakes of April and May and supply disruptions along the Nepal-India border points.
Issuing a directive today, NRB instructed all banks and financial institutions (BFIs) to work according to the ERF Operation Guideline endorsed by Cabinet.
The Fund was created through contributions made by the government, BFIs, and development partners. Also, interest earnings from refinancing facility will be injected into the Fund.
As per the guideline, NRB will provide credit line to each BFI at 1.5 per cent interest. BFIs will then have to extend refinancing facility to good borrowers at an interest rate of not more than five per cent.
Borrowers can apply for 100 per cent refinancing facility on credit of up to Rs 50 million for a period of two years. If the loan amount exceeds this level, 20 per cent of the credit amount in excess of Rs 50 million will be extended as refinancing facility. Borrowers, who are already availing refinancing facility for exports and sick industries, however, will not be eligible for ERF credit.
Extension of the refinancing facility will be monitored by a six-member committee formed under deputy governor of NRB.
The refinancing facility will be provided strictly to the productive sector, which can generate jobs and contribute in capital formation process.
Some of the productive sector enterprises that qualify for such loans are: small and medium enterprises, agricultural farms, mountaineering, trekking, rafting and travel agencies, hotels, restaurants, resorts and other recreational facilities,
airlines and other tourism-related enterprises.
Also, hydroelectric plants that are under construction, hydro projects whose commercial production has remained
suspended due to quakes and other problems, and any project related to production, transmission and distribution of hydroelectricity can benefit from this facility.
However, multinational companies and firms engaged in production of alcohol and tobacco products are barred from acquiring refinancing facility.
The ERF also entitles good borrowers to interest subsidy of up to four percentage points.
As per the guideline, good borrowers can apply for interest subsidy of four percentage points on loans of up to Rs 100 million and two percentage points on credit amount exceeding Rs 100 million.
The subsidy would be provided if production or transaction volume of the concerned business has fallen by over 50 per cent in the first six months of the current fiscal year as against the same period of last fiscal year.
If this condition is met, borrowers will be entitled to subsidy on interest charges of first six months of the current fiscal.