A subsidy scheme named Zero Interest Rate, which provides interest-free loans to marginalised people, women, disabled persons and returned migrant workers to become self-employed, has failed to make progress.

The initiative—launched by the provincial Ministry of Industry, Tourism, Forest and Environment of Lumbini province—ran aground for lack of coordination between the borrowers, Nepal Bank Limited and the provincial government.

Provincial Minister of Industry, Tourism, Forest and Environment Leela Giri said that some of the conditions for obtaining loans needed to be modified to simplify the paperwork.

"We are in the process of studying the suggestions sent in by the stakeholders and potential borrowers," he said.

“There are two sets of conditions—collateral or guarantee and registration of the business—to get a loan. “These conditions look difficult for marginalised people to fulfil,” said Giri.

The programme was introduced targeting people who had lost their businesses due to the Covid-19 pandemic, foreign employment returnees, jobless persons, disabled persons, conflict victims, marginalised people and single women.

On December 6, the ministry and Nepal Bank Limited reached an agreement to issue Rs430 million in loans annually. The ministry would pay the bank 7.25 percent interest for three years, and the bank would issue the loan without charging interest.

The ministry has allocated Rs100 million from the Entrepreneurship Fund to make the interest payments for this fiscal year.

The scheme had planned to provide loans to 1,300 people in this fiscal year 2020-21. But only seven loan agreements had been signed as of the first eight months while 44 loan applications are being processed.

The Cottage and Small Scale Industry Office has issued recommendations for the interest-free loans to 133 people.

Lekhnath Bhusal, chief of Nepal Bank Limited, Lumbini region, said that most of the borrowers recommended by the Cottage and Small Scale Industry Office were not eligible for loans as per banking norms.

“More than 90 percent of the applicants have sought loans for agricultural projects. There are people who have raised one or two buffaloes, and two or four goats, and they are doing it in the traditional way and not commercially as per the project’s objective,” he said.

“Most of them are not clear about the land collateral that they have to show and about the project’s objective. It will be problematic for the bank to invest without collateral,” he added.

According to the work procedure, only those entrepreneurs who have registered their firms this fiscal year can get the interest-free loans. Depending on the project proposal and collateral, they can get funding from Rs500,000 to Rs1 million. The project lasts a maximum of five years.

Many potential beneficiaries do not know that they have to repay the loan in instalments. Some of the hopefuls returned after being told by the bank that they have to start repaying the loan right from the beginning.

"The government pays the interest, and we have to pay back the loan in instalments monthly or quarterly," said Sumitra BK of Tilottama Municipality-12 who operates Sumitra Food Industries.

“It will be difficult to make instalment payments from the start as there won’t be enough income in the initial phase of the operation,” she added.

Rajendra KC, secretary of the provincial Ministry of Industry, Tourism, Forest and Environment, said that most of the people who have heard about the scheme are under the impression that they do not have to pay back the money.

“People mistakenly thought that they would get the entire loan without interest after submitting the necessary paperwork.”

The bank was also reluctant to issue loans to the applicants as they lacked adequate documents.

The ministry had warned the bank in February after receiving complaints from potential borrowers that they did not get the loan immediately even after completing the paperwork.

“Subsequently, the bank started studying the documents submitted by the loan seekers in earnest,” KC said.

Economics analyst Manikar Kark said the project ran into obstacles as it was launched without doing proper homework.

“The targeted group does not know about the project's objective and the banking process,” he said. “There is a lack of awareness among the people.”