Rehabilitation scheme for Covid-19 affected enterprises fails to woo borrowersEntrepreneurs say the prerequisites of needing to clear a portion of earlier loans and providing tax clearance certificates are obstacles. Central bank hopes the scheme will have takers as it gets continuity in the new budget.
Vinayak Shah, proprietor of Airport Hotel, gave up seeking loans under the government's Business Continuity Credit scheme after the bank he approached sought repayment of 10 percent of loans that he had borrowed earlier.
He didn’t name the bank but said the bank’s demand for repayment of the past loans was the reason he had to give up securing subsidised loans from the bank as he didn’t have enough funds to pay the loans amid the devastating impact of the Covid-19 pandemic on the hotels and restaurant sector.
“It is not just me but most other hoteliers have complained about similar demands from banks,” Shah, who is also the first vice-president of Hotel Association Nepal, told the Post. “Similarly, enterprises needing to submit their tax clearance certificates as well as of the employees also discouraged many hotels from availing these loans under this programme.”
Like Shah, many targeted enterprises have not benefitted from the government’s scheme introduced through the budget for the current fiscal year 2020-21 to provide subsidised credits to micro, small and medium enterprises and tourism enterprises affected by the pandemic.
As per the working procedure on Business Continuity Credit Scheme — a two-year credit programme — an enterprise from the most affected sectors can get up to Rs100 million credit while enterprises from the sector that is facing medium-level impact can get up to Rs70 million. Enterprises from a partially affected sector can get up to Rs50 million.
Half of the loan can be used to pay staff salaries and the other half can be used as working capital to continue the business. An enterprise cannot fire any employee as long as the credit facility is in effect.
But, as of mid-April, only 33 enterprises have received Rs420 million credit under this scheme, according to the Nepal Rastra Bank.
“Tourism related enterprises such as hotels and cable cars have mostly taken loans under this scheme,” said Dev Kumar Dhakal, spokesperson at the central bank.
Officials at the central bank and bankers say that the delayed introduction of working procedures regarding this credit plan was one reason for the low demand for credit. Even though the government announced a Rs50 billion package under this scheme in May last year, the working procedure was introduced only in November last year.
“When the working procedure was introduced, the borrowers had already taken credit from banks to run their businesses,” said Bhuvan Dahal, president of Nepal Bankers’ Association. “They could receive the loans at lower interest rates because of adequate liquidity with the banks. After the working procedure on the Business Continuity Credit Scheme was introduced, people willing to take extra credit from banks were required to justify their proposals which many could not do.”
Dahal said that the important reason behind the lack of interest among targeted enterprises is that they were required to submit their tax clearance certificates as well as of the employees.
“I think, this provision of the working procedure deterred many enterprises from availing the subsidised loans under this scheme,” said Dahal, who is also chief executive officer of Sanima Bank.
According to bankers and central bank officials, the provision of the working procedure which stipulates that anybody who has already received loans under other subsidised loan schemes cannot receive loans under this scheme also prevented many potential borrowers from receiving the credit under the Business Continuity Plan.
Clause 10 of the working procedure states that borrowers who are enjoying subsidised credit facilities from banks and financial institutions, government agencies or donors are not eligible to get loans under this scheme.
But, some borrowers didn’t approach the banks because of ignorance about the government’s provision.
For example, Hot Bread, a restaurant chain, didn’t approach any bank to secure extra credit under any government schemes. Due to the impact of the pandemic, they had to close three of their seven outlets over the last one year.
Around 50 employees of the restaurant chain lost their jobs due to closure of these outlets. The firm has outstanding loans of around Rs10 million but it has not made any efforts to take extra loans to continue operating the business.
“We were not aware of the government’s scheme and we didn’t approach any bank for subsidised loans,” Kedarnadhi Pandey, general manager of Hot Bread which sells bakery items. “Although executive committee members of the Restaurant and Bar Association of Nepal had talked about making efforts to get subsidised loans, I don’t know what happened to their efforts.”
The government is continuing the scheme for the next fiscal year too.
“Maybe more enterprises will be interested in this scheme after the borrowers hit the refinance facility limit,” said Dhakal, central bank spokesperson.
The Nepal Rastra Bank had decided to provide refinance facility upto Rs212 billion and it has already approved Rs147 billion in refinance facility.