The private sector has welcomed the government’s decision to establish Rs100 billion ‘Economic Rehabilitation Fund’ to bail out economic sectors hit by the earthquakes, political unrest and Indian embargo.

The Cabinet on Tuesday decided to establish the fund under the Nepal Rastra Bank (NRB) which will provide refinance facility at 5 percent interest rate and provide interest subsidy to crisis-hit industries related to agriculture, tourism, small and medium enterprises, and other productive sectors.

As per the regulations, crisis-hit industries will get 4 percent interest subsidy on loans upto Rs100 million and 2 percent for amount above that cut-off.

Issuing a press statement, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) said that the government’s decision, albeit late, would give certain relief to industries and businesses hit hard by the blockade and series of other disasters. “The FNCCI is grateful to the government for this decision,” said the apex private sector body.

“We urge the government to ensure loans for the crisis-hit industries under the fund and end the ongoing crises as soon as possible,” it said.

FNCCI President Pashupati Murarka said the decision has given hope to the private sector that the state is there to help them during such crises.

The government has sought to address most of the suggestions given by a taskforce headed by Revenue Secretary Rajan Khanal, formed to recommend facilities to be offered to businesses most affected by the earthquakes and India’s trade blockade recently.

The taskforce had suggested relief measures from the government, including waiver of electricity demand charge, interest subsidy and facility of allowing to pay tax on instalment basis. Senior Vice-President of Confederation of Nepalese Industries (CNI) Hari Bhakta Sharma said that though facilities offered are inadequate, it is a very good beginning. “It has sought to address some of the demands of the private sector and we have made additional suggestions too,” he said.

Nepal Chamber of Commerce President Rajesh Kaji Shrestha said that the government should now urgently implement the facility offered.

As per the regulation, the central bank will make loans available to banks at 1.5 percent interest and the banks, in turn, will have to provide

refinance at just 5 percent interest rate to the crisis-hit industries.

The government has also decided to give interest subsidy to the crisis-hit businesses for the first six months of

the current fiscal year

under the condition that

production should have been decreased by at least 50 percent compared to same period last fiscal.

Another condition is that the loans taken by the businesses should be under

good loan category until mid-July 2015.

According to the Finance Ministry, it has also written a letter to the Energy Ministry to waive electricity demand charge if industries have consumed less than 50 percent of the minimum consumption for which a demand fee should be paid.

“This is not an issue the rehabilitation fund will deal with,” said Krishna Devkota, joint secretary at the Finance Ministry. Devkota added that the government will first inject Rs10 billion as seed money in the fund while the remaining amount will be generated from banks and financial institutions (BFIs). “The BFIs can treat investment they make in the fund as statutory liquidity ratio, a reserve ratio they have to maintain in the form of gold and government securities,” he said.

“Banks will also be offered interest of 1.5 percent which is very good return on investment given that the BFIs are receiving less than one percent in the treasury bills at the moment.” Thus, the government expects big investment from the BFIs in the fund.

According to the Finance Ministry, there is currently a portfolio of Rs224 billion loans in productive sector. “We expect that there will be refinancing of Rs2.5 billion this fiscal year,” said a senior official at the ministry.

Facilities offered

- Refinance facility at 5 percent interest rate

- Crisis-hit industries will get 4 percent interest subsidy on loans upto Rs100 million and 2 percent for amount above that cut-off

- Govt will first inject Rs10 billion as seed money in the fund while the remaining amount will be generated from banks and financial institutions

- BFI’s investment in the fund can be treated as statutory liquidity ratio