Central bank simplifies concessional loans; Interest subsidy to returnees, SMEs

KATHMANDU: Nepal Rastra Bank (NRB) has issued Circular No. 3 (FY 2081/82), consolidating and clarifying provisions under the concessional credit framework for returnee migrant workers, youth self-employment, and cottage & small enterprises. The central bank instructs banks and financial institutions (BFIs) to implement the Government of Nepal’s (GoN) interest-subsidy support in a way that directly lowers borrowers’ effective lending rates, and to operationalize the program as a priority line of credit.

NRB states that concessional loans extended under the designated programs are to be funded by BFIs and supported by GoN’s subsidy budget, with the explicit objective of reducing the interest burden borne by eligible borrowers. The circular compiles earlier decisions and program notes so that BFIs have a single operational reference for loan processing, subsidy application, and compliance across the concerned schemes.

What the circular covers

Beneficiary programs: returnee foreign-employment workers, youth/self-employment initiatives, and cottage & small industry financing windows recognized by GoN and NRB.

Financing modality: BFIs extend loans; GoN interest subsidy is routed to lower the effective interest rate payable by borrowers under these specific schemes. BFIs are directed to treat this as a formal pass-through benefit, not as an internal discount or rebate.

Consolidation of prior notices: The circular gathers and re-issues earlier instructions and decisions on the same programs to ensure uniform implementation and to reduce ambiguity at branch level.

Implications for banks & borrowers

Clearer processing for BFIs: By merging dispersed instructions into one circular, NRB seeks to standardize underwriting, documentation, and claim procedures for the subsidy component tied to these priority loans. This is intended to reduce back-and-forth between branches, head offices, and the subsidy-releasing authorities.

Effective interest-rate relief: Borrowers approved under the returnee migrant worker, youth self-employment, or cottage/small industry windows should see lower effective rates to the extent of the GoN interest subsidy allocated to these programs. BFIs are reminded to pass through the relief transparently.

Consistency across institutions: The consolidation aims to reduce interpretation gaps between banks—so eligibility, rate computation with subsidy, and documentation standards are applied consistently across the industry.

Sector context

Concessional lending to returnee migrant workers (विदेशिक रोजगारी श्रमिक), young entrepreneurs, and cottage & small enterprises (CSIs) has been a recurring policy tool to spur employment, formalize micro-businesses, and improve access to finance in Nepal. By reiterating the interest-subsidy pass-through and compiling the operating rules in one place, NRB is signaling a push for quicker rollout and uniform service at the branch level.

What stakeholders should do now

BFIs: Align internal circulars, loan-product notes, and core banking system flags with Circular No. 3; brief branch credit teams on eligibility, documentation, and subsidy reflection on repayment schedules; and ensure periodic compliance reporting mirrors the consolidated guidance.

Prospective borrowers (returnees, youth, CSIs): Approach BFIs with proofs of eligibility under the respective windows and seek rate sheets that explicitly demonstrate the post-subsidy effective interest rate and the calculation basis referenced in the circular.