According to the report, one-third of the SMEs have complained about procedural hassles in getting credit. “While majority of the SMEs have to wait for an average of 38 days to receive a loan, many firms from Karnali province are compelled to wait for a year,” according to the central bank report.

Surprisingly, SMEs operating in Province 3, including Kathmandu Valley, which is the most accessible area, had to wait for 240 days to receive a loan.

“Difficult process, high interest rate and lack of collaterals to take loan are among the other problems that the SMEs have been facing. With the reason, SMEs find it easier to obtain loans from cooperatives despite higher interest rates,” the report added.

It said that the SMEs have been paying interest rates as high as 18 percent per annum. Banks have been charging hefty interest rate to small and medium enterprises in particular.

Shyam Giri, president of the Federation of Nepal Cottage and Small Industries, said the banks strictly seek fixed assets as collateral to provide loans, adding that they also decline to negotiate the interest rate despite the government’s provision to subsidise primary sectors lendings.

The report shows SMEs on an average get 33 percent of their initial capital from the ancestral property of their proprietors. Similarly, 26 percent of initial capital is sourced from the savings of the income of the proprietors while 16 percent is financed from bank and financial institutions. Other sources of investment include informal borrowing, remittance income, loans from cooperatives and venture capital.

Likewise, 85.9 percent of SMEs were approved of loans after showing land and houses as collateral. SMEs receiving loan on movable assets accounts for only 6.4 percent while 1.3 percent were loans using machines and equipment as collateral.

Only 19.2 percent of small industries have access to subsidised loans. Most of the SMEs are not aware about the government scheme of refinancing provisioned for them, the NRB report said.

Banks were also found breaching the NRB rule that has barred financial institutions from charging service fees.

The report showed that the banks have been taking service charge of up to two percent from SMEs while issuing loans to them.

Issuing a directive last December, the NRB had barred the banks and financial institutions from charging any fees except administrative service fee and commitment charges, besides the interest while providing loans.

“If the financial institutions charge any extra fee other than administrative service fee and commitment charges, that should be reflected in the interest rate itself,” said the NRB at the time.