Key Takeaways
As 2020 began, Radhika BK was hoping the year would be financially auspicious for her poultry business. She had just expanded her coop and was set to add 1,000 chicks. But by the end of March, her hopes turned into despair as the government imposed a nationwide lockdown to control the spread of the coronavirus disease pandemic (COVID-19).
“Our income dried up immediately after the lockdown came into effect, as demand for chicken fell sharply at restaurants and hotels,” says the 26-year-old from Jogithok, PhediKhola, in the western district of Syangja. “We then had to drop the plan of buying additional chicks.”
Just as her business was becoming unsustainable, the Government of Nepal’s concessional lending scheme presented a lifeline. Mrs. BK received a loan of 1 million Nepalese rupees (approximately $8,435) from a commercial bank at annual interest of 4.5%—almost half the average interest charged by banks.
“We used a portion of the loan to settle a debt of 300,000 Nepalese rupees obtained at 14% interest from a microfinance institution to expand the poultry business. The rest went into buying chicks,” says Amrit Ramdam, Mrs. BK’s husband.
Since then, Mrs. BK has endured a second lockdown, which did not affect her business as severely as the first one. “Now, sales have bounced back to normal,” says Mrs. BK. “The concessional loan provided a much-needed support to our business.”
The concessional lending scheme is one of several relief initiatives of the government to mitigate the economic impacts of the pandemic. It is part of the $1.26 billion National Relief Program (NRP) package launched by the government on 29 March 2020.
The NRP was designed to strengthen the medical and health system in the fight against COVID-19, provide social protection to the poor and vulnerable, and offer economic support to affected businesses. To help the government implement the NRP, the Asian Development Bank (ADB) provided budgetary support of $250 million under the COVID-19 Active Response and Expenditure Support (CARES) Program in May 2020.
Rescuing micro, small, and medium-sized enterprises
The COVID-19 pandemic and the subsequent mobility restrictions had a devastating effect on businesses, with many reporting reduced cash flow, overdue rent, and ballooning debt. The impact was particularly severe on micro, small, and medium-sized enterprises (MSMEs), like those owned by Mrs. BK, because of their limited cash reserves and inability to cope with supply chain disruptions.
Widespread failures of MSMEs—defined as companies with fewer than 100 employees—could cause lasting economic damage, as they form a significant part of Nepal's economy. MSMEs account for 99% of its businesses and around 85% of its jobs, according to the National Economic Census 2018.
The concessional lending scheme, introduced originally in September 2018 and later included in the NRP, is one of the instruments used by the government to save viable MSMEs. Under the scheme, 2–6 percentage points of interest charged by banks and financial institutions are offered as subsidies on loans of up to 50 million Nepalese rupees. For instance, if a bank charges 10% annual interest, 2%–6% of it would be paid by the government, reducing the borrower’s interest cost to 4%–8% per annum.
The scheme targets women entrepreneurs, Dalit communities, self-employed youths, returnee migrants, textile manufacturers, and those engaged in commercial agriculture.
Another government scheme tailored to support MSMEs and hard-hit tourism enterprises is the Business Continuity Loan. This scheme offers credit of up to 100 million Nepalese rupees at 5% interest—which is raised to 6% in the second year—to cover recurring costs, mainly staff salaries. MSMEs also have the option of using the refinancing facility to weather the pandemic, under which loans are extended at subsidized interest of 5 percent.
“The government support did provide us some breathing space. We sincerely appreciate the initiative although we need more support,” says Dharmendra Kumar Bhataju, owner of Tristar Hotel in Pokhara, who secured the refinancing facility.
As of mid-November 2021, about 134,000 borrowers had used concessional loans totaling 205 billion Nepalese rupees. More than half of the borrowers were women entrepreneurs.
"The government’s economic response measures, especially the capital made available to MSMEs, are expected to accelerate the recovery of export-oriented manufacturing businesses, and the tourism sector,” says ADB Country Director for Nepal Arnaud Cauchois. “ADB is pleased to support this initiative at a time when the pandemic has caused serious economic disruption, affecting all sectors from tourism and transport to construction and manufacturing. We hope these measures will improve livelihoods, especially of the poor and the vulnerable, lower the mortality rate, reduce inequalities, promote gender equality, and strengthen the health care system, in line with Nepal’s development objectives."
Support to poor and vulnerable
The government, with the support of development partners like ADB, provided lifelines across the country to support the poor to mitigate the impacts of the pandemic, including food assistance for at least 1.9 million households (5.5 million people). This benefited daily wage earners such as porters and street vendors, and workers who had to return from other countries, such as neighboring India.
Tej Bahadur Nepali, a resident of Dhurkot Rural Municipality—located around 21 kilometers from Tamghas, the district headquarters of Gulmi—is among the migrant workers who returned home after India went into lockdown and his employer shut down.
“I had no savings when I came back because whatever I earned in the past was just enough to feed the family of five and cover children’s school fees,” says Mr. Nepali, 54, who worked in a restaurant in New Delhi before the pandemic.
While he was idle, a local government official told him to enroll in the Prime Minister Employment Program (PMEP), under which the government provides jobs for up to 100 days a year to registered jobless people. He enrolled, and a few weeks later started working as a construction worker, laying drinking water pipes, and building walking trails.
“I earned around 51,000 Nepalese rupees [after deducting 1% social security tax],” says Mr. Nepali. “If jobs like these are created in Nepal, I’d stay here.”
The PMEP benefited 432 jobless people in Dhurkot Rural Municipality in fiscal year (FY) 2021.
The PMEP supported 278,477 jobless people throughout Nepal in FY2020 and FY2021, 46.9% of which were women and 60.7% of which were individuals from disadvantaged groups. ADB provided budgetary support to this program.
“ADB will continue to support the implementation of the National Relief Program and other projects that will finance micro and small-sized enterprises for rural employment generation, medium-term recovery, and poverty reduction,” says Mr. Cauchois.
