Misguided loans prompt government to cease interest subsidy program

KATHMANDU: The subsidized interest loan program, in operation since 2007, is set to be terminated by the government. Sources in the Ministry of Finance reveal that the program has been misused, failed to reach the intended beneficiaries, and only added to the government’s expenses.

A total of 22.39 billion rupees has been spent on interest subsidies through the program until October of the previous year.

An official from the Ministry of Finance stated that the program has not achieved its goals, neither benefiting the target groups nor contributing to production and productivity growth.

As the government faces a lack of resources to sustain the program, it plans to introduce alternative subsidized loan programs instead.

Banks and financial institutions, apart from some government banks, have already halted concessional loan offerings. Experts argue that the loans were invested in non-productive sectors like real estate, cars, and motorcycles.

The National Bank’s study confirmed that the loans deviated from the intended purpose and did not reach the majority of the target group.

Given the findings, the government is determined to restructure the concessional loan program and explore ways to link it directly with production. An independent auditor is also evaluating the program’s effectiveness.

Banks and institutions are awaiting more than 9 billion rupees in interest subsidy payments from the government, affecting their capacity to provide new loans and limiting citizens’ access to subsidized credit facilities.

The government plans to redirect funds towards a study on the use of concessional loans in the current financial year.

Initially launched to promote production, internal employment, and entrepreneurship, the interest subsidy concession program has faced mismanagement and misallocation of funds, leading to its eventual closure.

At present, the government allocates 11.59 billion rupees for the program through the budget, but experts argue this amount is insufficient to cover the existing loans under the scheme. Hence, the program’s termination is imminent, and a new approach is being sought to achieve the intended economic objectives.

The subsidized loan program was introduced with good intentions, covering various sectors like agriculture, education, and housing.

However, it now faces challenges due to misuse and the government’s inability to sustain it financially. As the current fiscal year progresses, the focus will shift towards exploring alternative subsidized loan options aligned with production and growth objectives.