The Nepali business community is feeling good about getting cheap and easy credit under Nepal Rastra Bank's refinance facility after it enlarged the refinance fund and simplified procedures.

The refinance facility allows firms to borrow money at a lower interest rate than the going rate.

The central bank has adopted a lenient policy in terms of both amount and loan conditions in a bid to hasten recovery of pandemic hit sectors after Covid-19 battered businesses.

As per the monetary policy, business entities can get refinance up to five times the amount of currently available resources. This means the central bank can ensure refinance up to nearly Rs200 billion as the refinance fund amounts to around Rs38 billion.

The central bank has opened a separate window to provide refinance of up to Rs1.5 million for micro, small and medium enterprises which were badly hit by the virus but cannot afford expensive loans. They can borrow funds at a maximum interest rate of 5 percent.

Tourism and hospitality, aviation and exports are among the sectors which have been particularly hit by the pandemic, and they will get credit under the refinance facility at a maximum £ percent interest.

The new monetary policy allows banks and financial institutions to provide credit in bulk without having to submit separate proposals from borrowers to the central bank.

It has fixed the limit for refinance credit provided under bulk refinance by banks and financial institutions at Rs50 million. The upper limit for loans extended after evaluating each borrower has been set at Rs200 million.

The monetary policy has asked each bank branch to provide at least five loans under this facility.

“I think the maximum amount of credit that can be offered to each enterprise under the refinance facility will enable them to get cheaper loans,” said Shakti Golyan, managing director of Tricot Industries, a readymade garment producer.

The garment industry, which is dependent on exports, can get credit at a maximum 3 percent interest rate under a special refinance facility. Golyan has been borrowing funds under the refinance facility for the last few years.

But his bank has refused him credit under this facility several times saying that the quota given to them by the central bank had been used up with many loans going to large enterprises.

“We cannot be sure that such a situation will not arise again due to the Rs50 million credit limit set per enterprise,” he said. “This will help small and medium enterprises to get cheaper loans.”

A few months ago, Kiran Dangol, proprietor of Lotus Paper Crafts, waited for the central bank’s clearance to get credit under the refinance facility after submitting the necessary documents. Under the previous provision, the paperwork related to each borrower needed to reach the central bank separately.

The handicraft producer said his application was turned down for incomplete paperwork. “The process of putting together all the documents is time consuming and complicated,” he said. It was his first attempt to obtain refinance credit and he was unsuccessful.

With the central bank allowing banks and financial institutions to deal with refinance facilities in bulk, he expects to get decisions on refinance faster. The business community has long been complaining about the complicated procedure to get the refinance facility.

As a result, firms have not been able to utilise the entire amount made available by the central bank under the facility even though it has been around for the last several years.

As of the first 11 months of the last fiscal year 2019-20, the outstanding refinance amount extended to enterprises stands at just Rs.11.82 billion. Out of this, general refinance amounts to Rs9.99 billion and export refinance totals Rs220.02 million.

This is just a fraction of the Rs38 billion available with the central bank for refinancing.

The refinance facility announced for earthquake-affected people largely remained unused, and Nepal Rastra Bank ended it two years ago. The amount of outstanding loans extended to quake-affected people as of mid-June stands at Rs1.61 billion.

“One of the reasons behind the low credit flow under the refinance facility is lack of knowledge about it among entrepreneurs,” said Golyan.

“I am among the first from the readymade garment sector to get loans under this facility, and many people still don't know about it,” he said.

The central bank has made a provision requiring each bank branch to extend loans to five firms under the refinance facility, and officials believe that this will help to spread awareness among potential borrowers.

“It is also aimed at allowing enterprises based in all parts of the country to get cheap credit,” said Rastra Bank spokesperson Gunakar Bhatta.

He added that the provision of allowing banks and financial institutions to provide credit under the refinance facility in bulk would help firms to get credit faster after they submit their application.