Look beyond the numbers
- It is vital to revisit repayment histories of ‘deprived sector lending’
Dec 2, 2018-The recent Monetary Policy (MP) endorsed by the Rastra Bank aims to maintain a low and stable inflation rate and achieve a long term Gross Domestic Product (GDP) growth rate. Needless to say, the prosperity of the country depends on an effective robust monetary policy— based on legitimacy derived from realistic achievements and a focus on accelerating opportunities, such as employment generation.
Around a couple months ago, the government presented its budget for the fiscal year 75/76 and projected that the economic growth rate of the country will increase by 8 percent. Alignment with the provisions of the budget and the monetary policy is vital in order to achieve this improvement.
With regards to loans in deprived sectors, if we observed the monetary policy of the previous fiscal year and its achievements, all the banks have exceeded their targets. As per the MP of that year, the Central Bank of Nepal had fixed ceilings of 5 percent, 4.5 percent and 4 percent of the total lending amount for commercial banks, development banks and financial institutions respectively in cases of loans to the deprived sector. Among this group, banks had achieved the ceiling by 5.2 percent, 8 percent and 5 percent respectively. At first glance, this appears to be quite an impressive achievement. However, when grappling with the context below the surface, it’s easy to find issues that suggest otherwise.
The loans disbursed under the basis of ‘deprived sector lending’ are not being used to achieve the geniune upliftment of deprived communities. Most of the loans disbursed under the scheme of the deprived sector are not used for the intended purposes and rather, used in many occasions for personal gain such as repaying personal debts and applying for foreign employment. This can be captured by tracing a simple indicator: the repayment history. When following the records of the repayment of loans dispersed to the deprived sector, failure is clear. Many lenders are not in positions to return their money, simply because they have not been utilising the loan or they have been misutilising the capital for economic growth. This phenomenom is also evident in the countless publications of notice issued by the banks for the auction of property.
The government has equipped itself with various regulating and monitoring mechanisms to keep a check on the utilisation of the loan for the said ‘purposes’. For instance, the Bank and Financial Institution Act 2073 in Section 56 clearly states that, ‘banks and financial institutions, should inspect on regular basis to check whether the loan is used for the said purpose or not.’ Similarly, in the Bank Offence and Punishment Act 2064, section eight has regarded such acts as offenses and provides a maximum punishment of up to five years of imprisonment. In addition, the relatively recent directive issued by the Nepal Rastra Bank has clearly instructed all the banks to blacklist such offenders. However, these checks are clearly failing in terms of implementation as money continues to be misutilised and redirected from productive intiatives.
Many people—especially legal professionals—know for a fact that certain laws have failed to achieve their targets in Nepal. But this calls for ample solid and reliable ground to inspect the gap between law and practice and take appropriate measures and actions in response.
The real intention of the MP is to make the deprived sector economically active and thriving—and in turn, lead to the development of the country as a whole. However, if the deprived sector continues to mismanage the money they borrowed from the banks, no meaningful change can be made in this country and the whole purpose of the MP is not met. Only judging their sucess on the basis of numbers would be amiss.
Regmi is an advocate at The Associates Hub
Published: 02-12-2018 07:37