September 24: Nepal is yet to benefit from concessional loans from Asian Infrastructure Investment Bank (AIIB).

In every annual meeting of AIIB, the finance ministry of Nepal submits proposals for concessional loans from the multilateral donor organisation but the AIIB turns down the proposals every time. Even now, Finance Minister Dr Parkash Sharan Mahat, leading a high-level delegation of the Ministry of Finance, has reached Cairo to lobby for concessional loan.

AIIB, which was established under the leadership of China, has set high interest rates on commercial loans, so underdeveloped countries like Nepal have a problem in getting concessional loan facilities. Nepal is also a founding member of the bank. Even though Nepal is not able to benefit much from the bank, Finance Minister Mahat has gone to Cairo to participate in the annual meeting of AIIB to be held this week with the proposal of subsidized loans.

Nepal is seeking loans from AIIB at the same interest and facilities as the Asian Development Bank and the World Bank. In every annual meeting and bilateral discussion, Nepal has been seeking for loans at subsidized interest rates. Nepal is not ready to take a loans other than concessional loans from AIIB as the interest rate is higher than that of Exim Bank. The bank’s officials have repeatedly requested Nepal to take loans, but they have refused to give concessions on interest rates.

AIIB has been giving loans at 2.5 percent interest rate. Finance Minister Mahat says that Nepal is not in a position to invest in infrastructure with such loans given in US dollars. Minister Mahat will make a proposal for a concessional loan with AIIB, mainly with the argument that there is a lack of capital for Nepal's infrastructure development.

When taking a loan from AIIB, the interest rate is fixed by adding 1 to 1.5 percentage points to the London Interbank Offered Rate (LIBOR). The Ministry of Finance said that AIIB's loan can be used only by blending it with loans received from other donor agencies at cheaper interest rates. The Chinese government has 30 percent shares in the bank. Nepal has invested Rs 8 billion in it, which is 0.08 percent of the bank's capital. The purpose of this bank is to mobilize more capital in the Belt and Road Initiative launched by China. Chinese President Xi Jinping announced the establishment of the bank in 2013. The government of Nepal has not been able to benefit much from AIIB, which has emerged as a competitive bank among international financial institutions.