Interest subsidy on agri loans raised to 5 percent

April 01, 2017

The Kathmandu Post, 1st April 2017, Kathmandu

Those seeking bank credit to engage in commercial agriculture will now get a waiver of at least 50 percent on interest rate, as the government has raised interest subsidy on agricultural loans to 5 percent.

The Interest Subsidy on Commercial Agricultural Loan Guideline introduced by the Nepal Rastra Bank (NRB) on Friday revised the interest subsidy on commercial agricultural loans from existing 4 percent as per the announcement made through the fiscal policy. This new guideline will replace the Guideline on Interest Subsidy on Commercial Agricultural Loans for Youths.

As per the guideline, banks and financial institutions extending such loans should not add more than 5 percent on top of the interest subsidy while fixing the interest rate. This basically means interest on commercial agricultural loans should not exceed 10 percent per annum.

“The new provisions will come into effect immediately,” said NRB Spokesperson Narayan Prasad Paudel.

The scheme will apply to loans that will be used to produce, process, store and distribute vegetables, fruits, seeds, fishes, herbs, mushrooms, dairy items, ostriches, turkeys, ducks, sugarcane, coffee, tea, cardamom, ginger, turmeric, jaitun, sunflower, allo, lokta, barley, buckwheat, and silam seeds. Interest subsidy will also cover loans extended to floriculture and beekeeping businesses, rear livestock and poultry, establish slaughterhouses, and store, process and distribute meat items.

These loans can be extended on the back of farming land and crops. Also, up to Rs1 million in credit can be issued based on group guarantee. Until now, such loans were extended only on the back of farm land.

The new guideline has also made it mandatory for those seeking loans to insure their businesses.

These loans have to paid back within five years, albeit the debt servicing period can be extended by up to two years.

Under the scheme, banks and financial institutions should not extend more than Rs70 million in credit to each borrower. Until now, every borrower was entitled to a credit of Rs10 million under normal condition and up to Rs30 million if the loan was being extended for establishment of cold storage facilities.

Loans of over Rs50 million, however, should be approved by a seven-member Central Coordination and Monitoring Committee formed under the NRB deputy governor who overlooks the banking sector, says the guideline. This committee is also authorised to sanction loans exceeding Rs70 million to every borrower depending on business plans.

The new guideline has also raised the credit threshold for banks and financial institutions extending commercial agricultural loans. As per the revised provision, each bank or financial institution can extend a total of Rs3 billion in credit to borrowers under the scheme. Until now, this threshold stood at Rs1 billion. “Banks and financial institutions must seek NRB’s approval before extending loans beyond the limit,” says the guideline.

The new guideline was introduced to promote the agricultural sector, prevent youths from fleeing the country in search of jobs and make the country self-sufficient in food production. In this regard, the government, couple of months ago, launched the Rs130-billion Prime Minister Agriculture Modernisation Project, which envisages adopting modern farm techniques to boost productivity and making the country self-reliant in food.

As per the plan, the government will be creating 2,100 pocket areas of 10 hectares each, 150 blocks of 100 hectares each, 30 zones of 500 hectares each and seven super zones of 1,000 hectares each to bolster the country’s agriculture productivity.

Under the super zones category, Jhapa will be promoted for paddy, Bara for fish, Kaski for vegetables, Kavrepalanchok for potato, Dang for maize, Jumla for apple and Kailali for wheat.

The government will implement the project under a private-cooperative-group partnership model. The government has aimed to achieve self-sufficiency in wheat and vegetables by this fiscal year, and in paddy and potato in two years.

The government has targeted making the country self-sufficient in maize and fish by the next three years and in fruits like bananas, papaya and litchi by four years. By the end of the project period, the country is expected to become self-sufficient in fruits like kiwi, apple and orange.

To promote the subsidised interest scheme throughout the country, the guideline has incorporated a provision, which makes it mandatory for formation of seven-member committee under the head of the district agricultural office in each district.