Lending Institutions For SMEs On Cards

To cater to the credit demand of small and medium enterprises (SMEs), the government is preparing to announce separate lending institutions through the next fiscal budget

May 16, 2018, 11:34 a.m.

To cater to the credit demand of small and medium enterprises (SMEs), the government is preparing to announce separate lending institutions through the next fiscal budget.

Even as Nepal Rastra Bank (NRB) has barred licensing new financial institutions, Ministry of Finance (MoF) is going to announce a provision of separate lending institutions for SMEs.

Reportedly, Finance Minister Yubaraj Khatiwada has envisioned upgrading a few microfinance institutions (MFIs) to SME lending institutions, as the number of microcredit institutions has grown exponentially in the country.

Earlier, the government had announced the formation of a separate lending institution for infrastructure financing and the process to establish this institution is under way after fulfilling the regulatory processes of NRB.

Dedicated institutions to provide credit to SMEs can play an effective role in creating opportunities for SMEs to flourish and expand their businesses.

“Till date, the country had viewed microcredit institutions as an intermediary to provide access to finance to the poor,” a high-level source of the MoF privy to the development said. “However, there is a need for institutions that provide loans to SMEs to scale up their businesses for the benefit of the MFIs.”

Microfinance institutions can lend up to Rs one million to a single borrower.

“The finance minister believes that the upper limit of borrowing facility from the MFIs is insufficient for SMEs wanting to scale up their businesses,” said the MoF source.

According to The Himalayan Times, Minister Khatiwada has often mentioned that most of the loans provided by banks are floated to only a handful of businesspeople and a large number of potential entrepreneurs are excluded from the lending facility.

However, operators of MFIs have criticised the idea of opening up licence for SME lending institutions. Finance Minister Khatiwada has been advised to look into the past of Agricultural Development Bank (ADBL) and NIDC, which were specialised financial institutions, before opening up licence for SME lending institutions.

“There is no doubt that the SME sector should be promoted to generate employment and for the stable growth of the economy. However, just increasing the number of financial institutions is neither logical nor the right solution,” said Janardan Dev Pant, CEO of Nirdhan Utthan Bank.

“It will be better if the government assigns the responsibility of SME lending to ADBL and Nepal Bank by changing the articles of association of these two government banks,” added Pant.

Pant further said that converting ADBL and Nepal Bank into SME lending banks will provide the needed momentum from the onset instead of opening up licence to new players, which could take years to meet the objective.

Analysts have mentioned that Khatiwada might be eyeing political mileage through SME lending institutions to gain the confidence of a large section of enterprises in the country. According to them, this is why he will likely either provide facility of upgradation or merger of MFIs to form SME lending institutions or open up licence for new players.

Meanwhile, Ram Sharan Kharel, advisor to the finance minister, informed that discussions are under way regarding the modality of the proposed lending institutions.

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