Through the new budget, the government has put forward a plan to provide loans to the youths who have graduated or passed higher level by pledging their educational certificates. The Finance Minister made the announcement while announcing the budget for the coming fiscal year. It is said to give a loan of up to Rs 2.5 million. As soon as the government came up with this plan, there were comments from both positive and negative sides.

However, this plan is not new. In the fiscal year 2075-076 BS, the government had also made an arrangement to give loans on the basis of educational certificates. Nepal Rastra Bank has informed that only 139 people have taken educational certificate collateral after the completion of 3 fiscal years of this scheme.

The government has announced to provide loan up to Rs. 2.5 million to the youths who have passed at least bachelor level through the budget announcement of the coming fiscal year. In the previous budget, the limit of loan up to Rs 7 lakh has been increased to Rs 2.5 lakh. Therefore, this program is not new.

One of the seven types of interest subsidy schemes for concessional loans is the provision of collateral for education. However, none of the seven loans included in the list, except for women entrepreneurship and agriculture, have been implemented effectively, said a banker.

The banker said that there is an understanding among some youths that they should get a loan after having an educational certificate and then they can do whatever they want with that money. He said, ‘Educational collateral is actually given according to the efficiency and qualifications of the person. When the money is received, it is paid in installments according to the work done by the person. ‘

What are the preparations to get a loan by pledging educational certificate?

The person claiming the educational pledge loan must first submit the project (business) design. Also, the bank should prepare and submit all the required documents. Necessary process will move forward only if the bank is satisfied with the action plan. Therefore, the bankers said that it is not easy to get loan as expected by being included in the budget. This is because the bank studies the risk aspect of the loan well.

The project should be satisfactory. And, there is only the possibility of getting a loan. So far, the government has been giving 5% interest subsidy to the borrowers who have taken loans from banks on the security of educational certificates. Announcing the budget for the coming fiscal year, Finance Minister Bishnu Prasad Poudel said that the government will now provide such loan at 5% interest rate. It seems that the borrower has got more benefit in interest in the provision mentioned in the current budget than the provision mentioned in the previous budget.

Under the current arrangement, banks are not allowed to add more than 2% to the base rate of such loans. At present, the base rate of most banks is less than 8%. Mandatory security (insurance) will have to be provided from loan deposit and loan security fund for concessional loan. There is a provision that only 25% of the loan is secured by the concerned bank and financial institution. The remaining 75% of the fee will be reimbursed through the grant remittance account in Nepal Rastra Bank.

There is also a provision for the banks to make a claim in the same fund if the loan given by the banks cannot be recovered by pledging the educational certificate for any reason. The borrower has to repay such loan for 5 years. If the borrower does not repay the loan within 6 months after the expiry of that period, the concerned bank will make a claim in the deposit and loan protection fund. There is an arrangement for the fund to pay as per the rules after such a claim is made.

What are the requirements to get a loan?

Educational Certificate Permanent Account Number (PAN Certificate) must be obtained for taking collateral loan Must be a person who has not been blacklisted by the Credit Information Center and has at least a bachelor’s degree and is under 40 years of age. Must have at least 7 days of enterprise or business skill development training from government agencies including Home and Small Industries Office, Committee, Skill Development Training Center, Technical Education and Vocational Training Council or after the loan is approved, proof of skill development training should be submitted in such institution. A brief proposal on enterprise operation and loan utilization is also required.