Ex-Finance Minister Yuvraj Khatiwada Recommends Transition to SME Financing for Banks

Ex-Finance Minister Yuvraj Khatiwada Recommends Transition to SME Financing for Banks

Yuvraj Khatiwada, the ex-finance minister, has recommended that banks transition from microfinance to providing loans for small and medium-sized enterprises (SMEs). During the national conference on the current economic crisis and future prospects, organized by the Association of Chartered Accountants of Nepal (ACAN) in Kathmandu on Thursday, he offered these suggestions to banks.

He said that only 200 businessmen were taking loans from the banks. He stated that even if the banks continue to extend loans to those 200 businessmen, they will never reach their destination because access to loans has not reached all businessmen. He mentioned that 1.2 million citizens are below the poverty line, and after netting 2.2 million, money was given to 3.0 million people. He said that by crowding the members brought by the microfinance institutions, loans cannot reach all businessmen.

Khatiwada also asked the banks to go for collateral-based financing. He said that the monetary policy of the next financial year should also be addressed by the Nepal Rastra Bank. He stated that the banks should not be given the stress that they must reach a 5 percent lending target. He also asked the banks to find projects themselves and invest.

How many loans have 200 entrepreneurs taken from banks? Perhaps half have been taken. Where is the money? By extending loans to these 200 industrial entrepreneurs, we will not achieve our goal as access to loans has not reached all entrepreneurs. Conversely, 1.2 million citizens are below the poverty line. We have provided assistance to 2.2 million people and distributed funds to 3 million individuals. What should be our next step? Banks should now shift from microfinance to supporting small and medium enterprises (SMEs). The current microfinance system attracts a crowd, but it is ineffective. We should focus on SMEs and consider mortgage loans as an option. Unsecured loans have not been successful. The upcoming monetary policy should address this issue. There should not be pressure on banks to reach a 5 percent target; reaching 150 percent of GDP in terms of credit access is unlikely unless banks adopt an Innovative Financial Mechanism. The government should oversee the construction of major infrastructure projects by banks. Banks invest money, and investors receive a 15 percent profit, of which one percent should be allocated to new bank projects. Banks should also demonstrate innovation during times of crisis. It is not solely the government's responsibility; individuals should also contribute. Everyone should be resourceful and willing to put in effort. This is necessary for project-based financing.

Khatiwada said that banks need to spend at least 1 percent of their profit in developing projects. He stressed that banks need more work in project-based financing.

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