Since the start of the current fiscal year 2021-22 in mid-July, the state-owned Rastriya Banijya Bank has not granted even a single loan to businesses under the government’s Business Continuity Credit Plan meant for Covid-19 affected businesses.

Even though the credit scheme was a much prioritised plan announced in last year’s budget to help the pandemic-hit micro, small and medium enterprises (MSEs) and tourism industry, demand for loans under the scheme has remained subdued, according to the Nepal Rastra Bank.

The two-year scheme allows MSEs and tourism businesses left cashless by Covid-19 to borrow funds to pay their employees. Borrowers have to pay 5 percent interest in the first year and 6 percent the following year.

“No loan under the scheme has been granted in the current fiscal year,” said Kiran Kumar Shrestha, chief executive officer at the Rastriya Banijya Bank (RBB).

Other banks have, however, lent around Rs93 million under the schemes during the first quarter of the current fiscal year, according to central bank statistics. As much as Rs956.7 million was lent in the last fiscal year while just over Rs1.05 billion has been lent by mid-October, according to central bank statistics.

In fact, in the first month of the current fiscal year, only one company—Global Education Service Pvt Ltd—had received a loan under the scheme. In the last fiscal year 2020-21, 12 firms had received loans under the scheme, central bank data show.

Given that the banks and financial institutions extended loans totalling Rs287 billion under various other schemes during the first quarter of the current fiscal year, the size of the business continuity loan [93 million] is insignificant in comparison.

Bankers and officials at the central bank attributed the lacklustre response to strict borrowing conditions, which bar businesses that have received subsidised credit under other schemes from applying for loans under the Business Continuity Credit Plan.

Clause 10 of the Business Continuity Loan Disbursement Procedures, 2020 states that borrowers who are enjoying subsidised loans from banks and financial institutions, government agencies or donor agencies are not eligible for loans under this scheme.

“The loan procedures bar firms which are enjoying refinance loans from participating in the scheme,” said Dev Kumar Dhakal, spokesperson for the central bank. “And a majority of firms hit by the pandemic had already received refinance loans before the new scheme was announced, hence the poor response to business continuity loans.”

Under the refinance scheme, the central bank subsidises interest on loans by providing funds at 1 to 3 percent interest to commercial banks.

The government released the loan procedures in November last year, nearly six months after announcing a Rs50 billion scheme through the budget statement in May last year.

Summit Air, which received the business continuity loan last fiscal year, had two options—refinance loan or business continuity loan.

“We actually wanted refinancing of our US-dollar loan, but that is not allowed, so we opted for a business continuity loan,” Manoj Karki, managing director of Summit Air.

Earlier, Summit Air, which relied mostly on the income from foreign tourists who go on mountain flights, had taken loans in US dollars from Nepali banks. After the pandemic badly hit the aviation sector, the company received a business continuity loan of around Rs85 million to pay its staff, pay premium of insurance and to cover other administrative costs.

As per the loan procedures of the two-year credit programme, businesses falling under the most-affected sectors can get up to Rs100 million credit while businesses falling under the moderately affected category can get up to Rs70 million and those under the partially affected category 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. Businesses enjoying the credit scheme cannot sack any employee during the loan period.

Karki also believes that the need to meet several conditions to apply for the loan might have discouraged many businesses from applying for the business continuity loan. Rastriya Banijya Bank’s Chief Executive Officer Shrestha also stressed the need for relaxing the existing provisions of the business continuity loan to encourage more businesses to seek the loan. Amid poor response to the scheme, the central bank has also asked the government to relax some provisions of the loan.

“We have asked the finance ministry to relax some provisions, including the one that bars borrowers who are using other subsidised loans from applying for business continuity loans,” said Dhakal.