A recent study conducted by Nepal Rastra Bank (NRB) has exposed widespread misuse of subsidized loans, particularly in the primary sector, including agriculture-based businesses. The central bank’s field survey of 31,664 borrowers revealed that loans totaling Rs 21.25 billion are suspected to have been misappropriated.
The study assessed the effectiveness of the subsidized loan program, which has reached 172,654 borrowers across Nepal. It found that Rs 1.74 billion was disbursed without properly identifying the target groups. Additionally, loans worth Rs 10.49 billion were issued in duplicate to borrowers already availing of similar benefits.
The NRB report highlights that many recipients used the subsidized loans not for new investments but to settle older debts. In several cases, previous borrowings were simply converted into subsidized loans without following the central bank’s operational guidelines. Such practices violate the purpose of the subsidized loan scheme, which was designed to support investment and productivity in vital sectors like agriculture and livestock.
The misuse was especially severe in loans issued for agricultural businesses. Among 10,901 borrowers in the farming sector who received a combined Rs 5.34 billion in loans, 25.6 percent misused the funds. One striking example cited in the report involves Global IME Bank issuing a Rs 2 million collateral-free loan to a poultry business, whose owner subsequently left for foreign employment without using the funds as intended.
This is not a new concern. The annual report of the Office of the Attorney General from last year also pointed to serious flaws in the system, including double subsidies, weak accountability, and a lack of effective monitoring. Citing such problems, the government recently decided to halt subsidies to the agricultural sector.
According to NRB data, as of fiscal year 2024/25, a total of Rs 86.89 billion in subsidized loans was disbursed to 46,356 borrowers involved in commercial agriculture and livestock activities. Of this amount, Rs 77.54 billion was channeled through commercial banks to 41,689 borrowers.
In addition to direct loan disbursements, the central bank has also mobilized Rs 658.3 million through the Deposit and Credit Guarantee Fund and Rs 133.6 million to the Nepal Insurance Authority under the same program.
In response to the findings, the government is now working to revise its policies. An official from the Ministry of Agriculture and Livestock Development stated that the loan threshold for subsidized agricultural loans may be reduced from Rs 50 million to Rs 10 million. Additionally, the interest rate cap may be lowered from six percent to four percent in a bid to improve oversight and reduce misuse.
The findings underscore the need for more robust monitoring and enforcement mechanisms to ensure that subsidized loans serve their intended purpose of supporting Nepal’s primary sectors.
