March 23: Nepal Rastra Bank (NRB) has increased the interest rate on refinancing by 2 percentage points. By making the fourth amendment to "Nepal Rastra Bank Refinancing Procedure, 2077 BS", the central bank has allowed banks and financial institutions to increases the interest on refinancing by 2 percentage points.

Accordingly, BFIs have increased the interest on refinancing for micro, cottage and home-grown industries as well as special loans and general loans by 2 percent.

The interest rate on refinancing, which was 5 percent earlier, has now been raised to 7 percent.

As the interest rates on refinancing by banks and financial institutions have increased, businessmen reacted by saying, "Don't be surprised."

Although the Federation of Cottage and Small Industries has taken the initiative for this loan, the businessmen accuse that the middlemen of the banks have benefitted from it.

Umesh Prasad Singh, president of the Federation of Cottage and Small Industries said that no matter how high the interest rate of refinancing is, it will not affect the entrepreneurs. "We have to fight hard to avail refinancing. The businessmen we have recommended are not in a position to avail this loan,” he said. Even if the interest rate goes up, the businessmen are not surprised.”

The Federation of Cottage and Small Industries has 45,000 members, said Chairman Singh. However, he said that only one or two of them have benefitted from the refinancing scheme.

Likewise, the President of the Federation of Handicraft Association of Nepal Prachandaman Shakya said that the increase in the interest rate on refinancing will have a direct impact on the handicraft business. He said that the recent decision of the NRB would have a direct impact on the export business.

“Handicraft traders benefited from this loan. However, when interest rates rise, they will be hit hard. This is because the businesses that could not be fully operational due to Covid-19 were also open due to this loan. If the interest rate on such loans goes up, it will impact harder,” he said.

Earlier, the NRB had fixed a 3 percent interest rate for special refinancing by banks, while a 5 percent interest rate was fixed for small and cottage enterprises and general refinancing.

At the same time, the interest rate on refinancing charged by NRB with banks has also gone up. The interest rate on special refinancing has been increased by one percentage point, while the interest rate on small and cottage enterprises and general refinancing has been increased by 2 percentage points.

As of the first seven months of the current fiscal year, 24,268 borrowers have taken refinancing facility of Rs 106.11 billion.