In his budget speech for the fiscal year 2018/19, then finance minister Yubaraj Khatiwada had announced plans to provide a loan of up to Rs. 0.7 million to aspiring entrepreneurs by accepting their degree certificates as collateral. Since then, every year, speculations over the plan peak for a while during the budget period. Yet only a handful of people have benefitted from the scheme so far.
During the Panchayat period, then Prime Minister Kirti Nidhi Bista had first announced a plan to provide loans to educated but unemployed youths against their degree certificates to help them set up businesses. But the plan never took off. When Prakash Chandra Lohani, one of the key Panchayat figures, became finance minister in 2003, he resuscitated the idea. But his plans too were limited to paper.
In his budget speech for 2021/22, Finance Minister Bishnu Prasad Paudel once again announced loans of up to Rs. 2.5 million to aspiring entrepreneurs by accepting their university degree certificates as collateral.
Following Khatiwada’s announcement last year, Nepal Rastra Bank had issued a directive to banks to allow this kind of loan. According to the central bank, 142 project leads have taken out loans against their graduate certificates so far. “The loan amount has also increased from Rs. 0.7 million to Rs. 2.5 million,” says NRB Spokesperson Dev Kumar Dhakal. The NRB is now coming up with a new directive to implement Finance Minister Paudel’s program, says Dhakal
Any unemployed individual with a Bachelor’s degree can apply for a loan, officials say. If a bank trusts the business plan, it can issue the loan. Dhakal adds, “The bank should be convinced that the business plan is promising.”
That only a handful of people have benefitted from the project shows that the scheme is problematic, says former Finance Secretary Rameshore Khanal. In addition to the complicated directives from the central bank, Nepali banks don’t have human resources to assess the feasibility of business plans. If someone comes with an idea and submits a proposal to a bank, the proposal cannot be properly accessed. “Without proper infrastructures and human resources, we can’t expect any such scheme to succeed,” he adds.
Even for those selected under the scheme, the banks offer them loans in installments rather than a lump sum. “Just as you get installments to complete your home affected by the quake, you get installments from the bank only after you show the bank your project’s progress,” says Dhakal.
Bank representatives inspect the project periodically to decide whether to issue the next installment. Also, the bank may also choose to issue the payment to the concerned business instead of the individual loan-taker so that the fund is not misused.
In other countries where such programs have been implemented, if a skilled person asks for a loan against their academic credentials, the bank helps them prepare a proposal. The banks themselves provide alternative startup plans, if required. For instance, PayPal was a startup proposal financed by a commercial bank. “We don’t see the same spirit and system in Nepal,” adds Khanal.
“Not a single Nepali bank has the mechanism to investigate the future of a project or a startup,” he says, adding the only thing our banks do is evaluate physical collateral and issue loans accordingly.
Govinda Aryal, a resident of Butwal, has a strange experience to share regarding the loan. In 2019, when he approached Nepal Bank Limited for a loan against his certificates, the manager told him that he could get the loan only against something valuable. Acharya explains, “This might have happened as the loan quota may already have been exhausted.”
NRB has provided a quota of 500 and 300 to commercial and development banks respectively for this kind of loan. But banks are still reluctant as they are far from assured they can recover their money if the business fails. “To make every concerned body comfortable, we are working on a new directive,” Acharya tells ApEx.
Most people think this loan system will only benefit political workers, and Khanal is one of the skeptics. “To get a loan against educational certificates in Nepal, either you have to be rich or you should have political backing,” he says.