Youth entrepreneurs who have received or are in line to receive credit under the government's Youth Self-Employment Programme will be happy to know that the interest rate on loans has been slashed from the existing 10 percent to 8 percent.

A board meeting of the Youth and Small Entrepreneurs Self-Employment Fund held last month decided to reduce the interest rate for borrowers effective from July 16. The fund channelises its resources to entrepreneurs aged from 18-50 years through banks and financial institutions and cooperatives.

The decision follows moves by the government and the central bank to ensure that firms and people hit hard by the Covid-19 pandemic have access to funds at a lower interest rate.

“The reduced interest rate is applicable to outstanding loans and loans that will be extended after the beginning of the new fiscal year 2020-21,” said Narayan Dutta Devkota, chief of the monitoring department and officiating executive director of the fund.

The cut in the interest rate will benefit more than 70,000 people who have gone into business for themselves after getting credit under the programme and potential borrowers.

According to the fund, as many as 72,789 people have become self-employed under the programme with more than 6,500 new entrepreneurs joining the scheme in fiscal 2019-20.

The government has aimed to create 12,000 new jobs in the current fiscal year 2020-21 as one of the key focuses of the budget is to boost employment.

The fund has issued nearly Rs5 billion in loans and recovers over Rs1.5 billion in repayment instalments every year, according to officials.

Ram Kumar Phuyal, a board member of the fund, told the Post that the interest rate was reduced to make credit under the programme attractive to potential borrowers as interest rates under other credit schemes have also come down to support Covid-19-affected sectors.

“As the budget seeks to generate large employment under the Youth Self-Employment Programme, it was necessary that more people receive credit under this scheme,” he said.

Targeted groups get loans at a maximum interest rate of 5 percent under the government's subsidised loan scheme. The central bank has ordered each commercial bank and development bank to extend at least 500 and 300 such loans respectively through the monetary policy.

The central bank provides refinancing facilities enabling targeted sectors to get loans through banks and financial institutions at 3-5 percent interest.

While credit up to Rs200,000 per person is available under the Youth Self-Employment Programme, credit up to Rs50 million per person is available under the Subsidised Loan Scheme, depending on the category of borrowers.

Devkota said that the real interest rate under the Youth Self-Employment Programme is still lower than the Subsidised Loan Scheme due to the interest subsidy that the fund provides to borrowers.

“Under our programme, youth entrepreneurs get a subsidy of 60 percent on the interest they pay. This means a borrower effectively pays less than 4 percent interest,” said Devkota.

According to him, credit is provided against the project's collateral coupled with a collective guarantee of the family members. There is also the provision of insurance for borrowers under which the insurance company repays the loan in case the borrower dies or is permanently disabled and the project suffers. The government pays the insurance premium.

The subsidised credit scheme issues subsidised loans at 5 percent interest to farmers, educated youths, returnees from foreign employment, women entrepreneurs, Dalits, earthquake affected people and people from deprived communities. They can borrow from Rs300,000 to Rs50 million depending on category. They can also get loans up to a certain amount by putting up the project itself or their academic certificate as collateral.