Central bank reduces districts that get interest free loans to 17

Due to the increased outreach of financial institutions in the designated remote districts, the central bank will now provide interest free loans to set up branches in only 17 districts instead of 30.

The central bank has announced that banks and financial institutions opting to open branches in Bhojpur, Khotang, Okhaldhunga, Rasuwa, Manang, Rolpa, Rukum, Salyan, Jumla, Mugu, Humla, Kalikot, Dolpa, Jajarkot, Bajhang and Darchula districts only will be eligible for interest free loans from the central bank now.

The number of districts with a minimal existence of financial institutions has gone down in the last couple of years, as financial access in the 13 districts that have been left out is satisfactory following the interest free loan provision.
The central bank, in December 2010, had decided to extend interest free loans to commercial and development banks to encourage them to venture into remote areas to improve financial accessibility. The financial institutions could avail interest free loans for up to Rs 5 million to open branches in the 30 designated districts.

If banks opt to open branches outside the district headquarters they are entitled for loans of up to Rs 10 million. Under the provision, Rs 60.65 million has been provided to financial institutions, comprising of Rs 40 million to five commercial banks for their seven newly opened branches, Rs 2.5 million to two development banks for their three branches, and Rs 1.5 million to one microfinance development bank for a new branch, in the last fiscal year.

In fiscal year 2010-11, Rs 150 million was loaned to six commercial banks and five development banks. A provision of interest free loan was made to enhance financial inclusion through expansion of financial institutions in areas with limited access to organised finance.

According to Nepal Living Standard Survey-III, 39.9 per cent households have access to a commercial bank's branch within 30 minutes walk radius at present, whereas 15 years back, only 20.7 per cent households had access to banks within the radius. According to International Monetary Fund’s (IMF) Financial Access survey, there are two branches of commercial banks per 100,000 adults in Nepal.

The same circular has also forbidden financial institutions from opening microfinance institutions providing subsidy headquartered outside nine districts that are devoid of banking facility only.

Such microfinance institutions can start operations only in Manang, Humla, Dolpa, Kalikot, Mugu, Jajarkot, Bajhang, Bajura and Darchula districts. Likewise, microfinance institutions operating in those nine districts only can collect deposits that are five times their primary capital.