Deficit of entrepreneurial intentMere policy announcements are unlikely to bear the desired fruits.
The budget for the upcoming fiscal year not only continued the government's four-year-old 'educated youths self-employment scheme' by provisioning for loans against academic certificates but increased the amount almost by four times to Rs2.5 million per borrower. The scheme on the face of it looks very attractive. The youths who hold a minimum of a bachelors' degree are eligible for it. The interest rate ceiling the banks can charge on borrowers is fixed at 5 percent and the difference in interest between the interbank rate and the rate charged to the borrowers is subsidised by the government. The proposed budget has earmarked Rs13 billion only for the interest subsidy on the government-announced concessional loans, including this scheme.
But ironically, according to the Nepal Rastra Bank (NRB) only 139 people have borrowed under the programme since then Finance Minister Yubaraj Khatiwada announced in the budget for the fiscal year 2018-19 with a loan limit of Rs0.7 million. The banks and financial institutions (BFIs) have so far disbursed Rs65.1 million rupees of loans to the youths between 25-40 year; that averages to Rs0.46 million per ticket.
The government, without addressing the structural and legal bottlenecks so as to enable youths to access the loan, seems obsessed only to expand the borrowing limits, ostensibly, for crude populism. Among several other structural issues, the recovery risk of the banks remains paramount. With the substantial expansion to the limit on per person borrowing, the risk on BFI investment also seemed to have proportionately increased. In a recent post-budget discussion, the governor of NRB, Maha Prasad Adhikari confessed that BFIs are naturally apprehensive about the impending risk on the recovery of this type of lending and, therefore, it remained challenging to implement.
Bankers insist that the loan could be easier to disburse if some immovable assets were also pledged as collateral along with their academic certificates. Otherwise, a 'tracking’ problem can occur when, say, a borrower with a different 'permanent address' as opposed to what’s mentioned in the legal document applies for the loan in a bank located in a city away from their hometown.
Yes, there have been a few efforts to facilitate the process. NRB issued a sort of moral suasion to BFIs in September 2018 asking them to initiate lending to youths against the academic certificates as per the government plan. Ministry of Finance had also concurrently developed a working procedure. The benchmarks set out for disbursement included that the borrower must be a bachelor’s degree holder, has taken at least a week-long skill-orientated training and should present a loan proposal with a convincing business plan.
To distribute the risk, insurance on the loan was made mandatory. Seventy-five percent of the insurance premium is borne by the government and the rest 25 percent by the borrower. The central bank later issued a revised version of 'Integrated guidelines for interest subsidy on concessional loans 2020' to BFIs. But none of these initiatives helped to bolster the confidence of the BFIs. As the result, the actual uptake of the loan remained extremely low at about 4 percent compared to, for example, the allocation of Rs142 billion in the current fiscal that ends on July 15.
There is a general agreement among key stakeholders—the Ministry of Finance, NRB, BFIs and borrowers—that Rs 2.5 million is not a small amount of money for a startup. But the banks contend that the potential borrowers actually lack honest entrepreneurial intent and most of them who visit the bank for the purpose tend to consider it as the government's free dole out. It is evidenced by the fact that the borrowers are also not ready to shoulder the 25 percent of the premium of the insurance on the loan. The candidates for the loan more often than not fail to present a viable business plan, complain banks.
This prolonged blame game, mainly between the banks and borrowers, has not only pushed the whole scheme to the brink of failure but unfolded an entirely new dimension of more overarching problems surrounding the entrepreneurial intents and skills of 'educated' Nepali youths. This perhaps will have deep running repercussions on the economic future of the nation and the individual well-being of its citizens.
The executives of the banks insist that the potential young graduate borrowers are appallingly uncreative, lack even minimum skills to develop a convincing business plan that incorporates market surveys for their proposed products, cash-flow management and, also, weigh on the associated business risks. The youths who wanted loans also allegedly lacked general knowledge about loan repayment obligations, instalment calculations and the concept of a phased release of the funds as the project progresses. The general perception is that the banks must right away be obliged to disburse the entire amount of Rs2.5 million. Also, the ones looking for instant loans could be those less industrious—both in studies and entrepreneurship.
This, in turn, raises questions on our education system that, as widely perceived, fails to instil soft skills like trustworthiness, creativity and the ability to articulate ideas. In order to upend this general climate of hopelessness, management education—which has the onus of producing future entrepreneurs and managers for the country—undoubtedly needs a thorough introspection and calibration. Two gaps are glaring. One, our management education apart from textbook knowledge completely lacks architecture for entrepreneurial innovation, firm incubation and systematic research on product development, market prospects and business sustainability. Two, for lack of integrated pedagogy related to entrepreneurship and management with the vocational skill-oriented university degrees like engineering, information technology and several others, the overall prospect of entrepreneurial growth as well as employment generation in the economy remain distressingly low.
Without a Darwinian approach to bridge the gap of entrepreneurial deficit in the investment-innovation-industry ecosystem, mere policy announcements and monetary incentives like the one on concessional loans against academic certificates, as this experience shows, are unlikely to bear the desired fruits. The government should not only understand the reasons for its failure but must come out with a feasible remedy, better sooner than later.