A recent study by Nepal Rastra Bank (NRB) has revealed that the misuse of subsidized loans is on the rise due to poor coordination and lack of accountability among key institutions—including the Ministry of Finance, NRB, and various financial institutions.
As per the study, the central monitoring committee—formed under the Subsidized Loan Procedure 2075—has met only three times so far. Despite its mandate to oversee and implement the loan scheme, it has failed to prepare any effective monitoring reports. The committee includes high-level representatives from the Ministry of Finance, NRB, and the Insurance Board.
The study highlights that:
- 8.9% of subsidized loans have not been used effectively.
- 22.9% have been misused.
- 19% of the loans have gone to beneficiaries outside the targeted groups.
Multiple Cases of Misuse and Institutional Failure
Examples from the study show how financial institutions have failed to ensure proper loan utilization:
- Civil Bank extended a Rs 25 million loan to Yugine Agriculture Farm for livestock and fisheries. The farm shut down without fulfilling the stated objectives, and the land remains unused. The borrower even offered the land to the municipality for waste dumping, with no response from the bank.
- Nabil Bank granted Rs 40 million to Unique Multi Agro Pvt. Ltd. The company used part of the loan to repay older debts, violating loan terms. The bank later sought repayment of the interest subsidy.
- Sanima Bank provided Rs 6 million to Kanchan Cold Store & Poultry Pvt. Ltd., which also used the funds to clear old debts. The bank did not conduct follow-up inspections.
- Global IME Bank gave Rs 2 million to Banjara Agriculture Farm for poultry farming, which never became operational. The borrower has since moved abroad, yet the bank has remained passive.
- Lumbini Dairy Milk Pvt. Ltd. took Rs 89.78 million in subsidized loans from an undisclosed bank but also received a separate Rs 4 million government grant, showing overlapping support not cross-verified by the bank.
- Tilottama Agriculture Farm received Rs 9 million from Global IME Bank and also took loans from NIC Asia under a different business name within the same family, using the funds primarily to purchase land instead of business development.
- Siyari Rural Municipality’s Rukmini Livestock Farm received Rs 3.5 million from Agriculture Development Bank, but only six cows were raised. Most of the money went to repaying older loans.
- Daunne Feeds Pvt. Ltd. converted an existing Rs 100 million loan into a subsidized one via Machhapuchhre Bank. Although the original agreement allowed a 5-year subsidy period, the subsidy was provided for only 2.5 years.
Systemic Flaws and Poor Oversight
The report blames the failure of the subsidized loan program on:
- Weak institutional coordination
- Delays in interest subsidy reimbursements
- Poor identification of target beneficiaries
- No consistent mechanism to prevent or verify double-dipping
- Preference for profit-driven projects by banks instead of need-based lending
- Inadequate assessment of repayment capacity or business viability
- Frequent amendments to procedures causing confusion
Moreover, the study finds that many banks ask borrowers to repay subsidies or restructure loans instead of conducting proper field-level monitoring. The loan repayment terms—typically 5 years—are found to be impractical for agriculture businesses, which need longer gestation periods.
A senior NRB official remarked, “The goal of boosting domestic production and entrepreneurship is undermined by the lack of seriousness among responsible agencies. The burden shouldn’t be on the borrowers alone—institutions must step up.”
