Banks and financial institutions (BFI) have to increase the proportion of their direct lending to the deprived sector to 2 percent in four phases, as per a new directive issued by Nepal Rastra Bank (NRB).

They have to increase the proportion to 1.25 percent by mid-October, to 1.5 percent by mid-January 2017, to 1.75 percent by mid-April 2017 and to 2 percent by the end of the current fiscal year.

The new monetary policy for the current fiscal year included the provision of direct lending by BFIs up to a certain portion of their deprived sector loans which they have been extending through micro-finance institutions (MFIs).

Commercial banks have to provide 5 percent of their total lending to the deprived sector while the requirement for development banks and finance companies has been fixed at 4.5 and 4 percent respectively.

Amid complaints by banks that they don’t have the expertise to lend directly to the deprived sector, which has traditionally been MFI turf, NRB has also categorized agriculture loans for youths under the Working Procedure on Interest Subsidy for Agriculture Loans to the Youth as deprived sector lending.

Under this scheme, youths aged between 21 and 45 years are eligible to get agriculture loans from commercial banks at 6 percent interest. The area of lending include vegetable production, processing and storage; seed production, processing and storage; floriculture; livestock; fruits production, processing and storage; and dairy production, processing and sales.

Fishery, production and sales; mushroom production, processing and storage; animal slaughter house and meat business; herbal production, processing and storage; sugarcane, cardamom and ginger farming, storage and processing; and agriculture business are other areas eligible for the subsidy.

As per the central bank’s definition, deprived sector includes lending to socially backward persons, women, ethnic groups, Dalit, visually impaired, those with hearing disabilities, disabled people, marginalized communities, small farmers, workers and landless people.

“Commercial banks are already providing 1.04 percent of their total lending to the deprived sector directly,”

said a senior NRB official. “We have told them to increase the proportion by 0.96 percentage point in a phase-wise manner which should not be a big problem for them.”