With less than expected demand for refinance facility for Covid-19 pandemic affected small businesses, the main target group, Nepal Rastra Bank has removed the mandatory provision that such enterprises need to be provided 70 percent of the total loans under the facility.

The central bank, on January 1, called new applications removing the provision that 70 percent of the total refinance facility should be provided to small enterprises that demand upto Rs1.5 million in loans.

In order to help enterprises that had been hit hard by the pandemic, Nepal Rastra Bank scaled up the existing refinance provision as per which the central bank subsidises interest on loans by providing funds at 1 to 3 percent interest to commercial banks equivalent to the amount of credit they have issued to targeted borrowers.

The banks are allowed to charge these borrowers a maximum interest rate of 5 percent on such loans.

The central bank has called the fresh applications with the aim of extending the refinance of Rs98 billion collecting applications in bulk through ‘A’ ‘B’ and ‘C’ class banks and financial institutions.

In the first round application first called in August, the central bank had invited applications aiming to provide a refinance of a total of Rs148 billion under this scheme.

The refinance applications are either considered on a case by case basis or on the basis of bulk applications in which case all the applications are looked at together at one go.

But there was demand for only Rs72 billion from big and small enterprises with about Rs23 billion from small ones. Considering that the micro, small and medium enterprises were the hardest hit by the pandemic, the central bank had earlier prioritised providing refinance facilities to smaller enterprises.

A central bank study conducted in June and July last year also found that small enterprises were severely hit compared to larger enterprises due to lockdown imposed to prevent spread of coronavirus.

“We only got applications from around 34,000 small enterprises for just Rs23 billion of refinance facilities,” said Dev Kumar Dhakal, executive director at the central bank. “Therefore while calling applications recently, we removed the provision that 70 percent of refinance facilities should go to micro and small enterprises that demand less than Rs1.5 million in refinance facilities, considering that there won't be much demand from them in the second round either.”

But in the fresh call, the central bank has said that applications from micro and small enterprises must be accommodated as much as possible.

As per the monetary policy, the central bank provides this facility with upto Rs50 million under the bulk refinance scheme.

“Now, the refinance facility will be available to all eligible borrowers who have demanded the loans of up to Rs50 million under the scheme,” said Dhakal.

According to Nepal Rastra Bank, sectors that have been the hardest hit or have faced middle-level impact are eligible to apply for the facility.

The central bank provided a refinance facility of Rs50.05 billion for more than 40,000 borrowers under the scheme of providing the refinance facility in bulk. In the case by case scheme, an additional Rs32.64 billion was provided to 221 enterprises, according to the central bank.

As per the notice issued on January 1, banks and financial institutions can receive the applications from the borrowers till the end of January.

The central bank plans to provide more than Rs200 billion in refinance facility.

Stakeholders say that small enterprises may not have applied for the loans at subsidised interest rates because they are not aware about the refinance facility.

“In the past, only a few enterprises, mostly large enterprises used to get refinance facilities. Maybe small entrepreneurs are not aware about this facility,” said Bhuvan Dahal, president of Nepal Bankers' Association, a grouping of commercial banks’ chief executive officers.

Cholendra Bahadur Karki, managing director of Himalayan Joy Adventure, a trekking company said that he was unaware about the refinance facility being provided by the central bank.

“Had we known about the facility, we would issue a circular to our friends to get the facility,” said Karki, who is also the first vice-president of Trekking Agencies’ Association of Nepal.

Until last fiscal year, there used to be limited takers of refinance facilities, with mostly large enterprises availing of it.

According to Dhakal of the central bank, fewer than 150 enterprises have used refinance facilities in the past years.

But there was a manifold increase in that number this year.

“As many as 40,983 enterprises got refinance facility in the first round [announced in August], most of them are small enterprises. This is itself an achievement even though the number of applications may not be as much as we had expected,” said Dhakal.

After the Monetary Policy 2020-21 announced refinance facility for enterprises affected by the coronavirus, a large number of businesses applied for it so that the interest payments they owed to banks would be lowered.

The central bank has also allowed the micro-finance institutions to collect applications from their borrowers for providing refinance facilities. As per the monetary policy, the central bank aims to inject 10 percent of total refinance facility through the micro-finance institutions.

“We aim to provide refinance facility of Rs21.25 billion to the borrowers from micro-finance institutions,” said Dhakal. Borrowers of microfinance institutions can apply until January 25 to get the facility.

With collections of applications for refinance facilities around Rs120 billion (Rs98 billion through the ‘A’, ‘B’ and ‘C’ class banks and financial institutions and additional Rs21.25 billion through micro-finance institutions), the central bank aims to use up its resources meant for refinance facilities.

“We hope this will be the second and last round of refinance facilities to be extended this fiscal year,” said Dhakal.