In order to attract rural youths towards agriculture, the government had announced in the budget for this fiscal year that it would offer a 4 percent interest subsidy on agriculture loans. Banks take 10 percent interest on such loans.

In line with this budgetary provision, Nepal Rastra Bank (NRB) on Monday unveiled the working procedure, which stats an individual can avail the facility on loans up to Rs 10 million. The working procedure, which came into effect immediately, has categorised 12 areas of agriculture eligible for the facility.

The areas include vegetable production, processing and storage; seed production, processing  and storage; floriculture; livestock; fruits production, processing and storage; and dairy production, processing and sales.

Fishery, production and sales; mushroom production, processing and storage; animal slaughter house and meat business; herbal production, processing and storage; sugarcane, cardamom and ginger farming, storage and processing; and agriculture business are other areas eligible for the subsidy.

The interest subsidy facility can be availed only in investment made in areas outside the Kathmandu Metropolitan City and other sub-Metropolitan Cities. NRB Spokesperson Manamohan Kumar Shrestha said the scope of rural area was expanded in order to bring more youths in the agriculture sector.

The working procedure states commercial banks can charge just 6 percent from the borrowers in addition to insurance premium and fee for credit information to be received from the Credit Information Bureau. But the banks cannot charge other services charges. The banks will receive the 4 percent subsidised interest from the government.

The repayment period will range from a minimum of three months to a maximum of five years. One bank can lend a maximum amount of Rs 1 billion. Provided a bank wants to lend more, it has take the NRB’s approval.

To make available the subsidised amount to the banks, the government will open an account named “Agriculture Credit Interest Subsidy Reimbursement” in the central bank. The Finance Ministry will first deposit Rs 500 million in the account, and it will keep on depositing more based on the need. The government has allocated Rs 1 billion for the purpose.

Shrestha said the government has not yet opened the account, but is expected to do so within a few days. NRB will deposit the subsidised amount in the concerned banks’ account in NRB. If a borrower repays the loan regularly, the concerned bank can count the subsidy to be received from the government as its income.

The borrowers will have to use the loan for whatever purpose it was taken. Otherwise, the borrowers will not be given the subsidy, according to the working procedure.

The central bank has prohibited banks from hiking the interest rate under this category until the loan’s maturity period. The banks should ensure the credit is properly utilised. Otherwise, the government will not reimburse the subsidy amount, and if the amount has already been disbursed, it will be asked back. The working procedure has also provisioned a “coordination and monitoring committee” headed by an NRB deputy governor to ensure effective implementation of the credit.