Kathmandu — A recent study has revealed that 36 percent of the Government of Nepal’s concessional, interest-subsidized loans are likely being misused, raising serious concerns about the effectiveness, transparency, and sustainability of the program.
The findings are based on a report prepared by a consultant appointed by Nepal Rastra Bank to assess the use of refinancing and concessional loans. The conclusions are also highlighted in the 62nd Annual Report of the Office of the Auditor General, which underscores systemic shortcomings in the planning and oversight of the concessional loan program.
The audit evaluated records of 31,664 borrowers and conducted on-site inspections of 1,838 projects, representing 18.34 percent of the total 172,654 borrowers. The results showed that:
7 percent of borrowers, involving loans worth Rs 6.356 billion, had not properly utilized the funds.
12 percent of borrowers, with loans totaling Rs 18.749 billion, lacked clear identification of the target group.
6 percent of borrowers accessed double loan facilities, totaling Rs 10.49 billion.
Another 11 percent, involving Rs 21.254 billion, raised suspicions of misuse.
A targeted sample of 10,981 borrowers under the Commercial Agriculture and Livestock Loan scheme revealed a total disbursement of Rs 5.34 billion, further reinforcing concerns regarding the efficiency of loan distribution and use.
The Auditor General’s report criticizes the lack of adequate study, analysis, and review prior to the launch of the concessional loan program. It states:
“The procedure has been amended repeatedly, which has affected stability. There is a need for improvement in the target group identification and interest subsidy distribution process. Financial institutions have not been sufficiently encouraged to invest on a priority basis.”
Rising Interest Subsidies Raise Sustainability Concerns
The Integrated Procedure for Interest Subsidy for Concessional Loans, 2075, was introduced in 2075 to facilitate access to affordable credit. Under this scheme, banks and financial institutions disbursed a total of Rs 187.7 billion in concessional loans by mid-Ashad 2081.
To support this, the government provided interest subsidies amounting to Rs 24.899 billion by the same period, with the current subsidy figure standing at Rs 28.49 billion. However, the outstanding loan amount has declined from Rs 126.82 billion in mid-Ashad 2081 to Rs 91.32 billion, raising questions about repayment and recovery.
The Office of the Auditor General has also flagged that many banks failed to maintain adequate records regarding concessional loans, interest subsidies, and related administrative expenses. The report calls for urgent reforms, stating:
“It is necessary to prepare comprehensive details of concessional loans and make loan recovery more effective.”
Exponential Growth in Subsidy Spending
The interest subsidy alone has seen a sharp rise in recent years:
As of Asad 2078: Rs 6.796 billion
As of Asad 2079: Rs 16.968 billion (an increase of 150%)
As of Asad 2080: Rs 22.398 billion
As of Asad 2081: Rs 24.899 billion
While this growth reflects broader participation by financial institutions, the Auditor General cautions that the long-term sustainability of the interest subsidy program requires deeper evaluation and structural reforms.
Under the concessional loan program for commercial agriculture and livestock, Rs 111.255 billion has been approved for 46,356 borrowers as of mid-Ashad 2081. The report recommends a return-on-investment evaluation to ensure that funds disbursed under this scheme contribute to actual productivity and economic value.
