25% working capital cap impractical: FNCCI

Kathmandu, Aug. 28

The private sector has voiced its reservations over the Guidelines on Working Capital Loan, 2022 issued by the Nepal Rastra Bank (NRB) on last Tuesday stating that the cap of 25 per cent working capital is impractical.

Maintaining that their attention was drawn to the newly issued guidelines, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Chamber of Industries, Morang (CIM) said in separate statements on Tuesday that its implementation would have an adverse impact on the businesses and enterprises in the country.

They want a differential ceiling on the working capital loan for the manufacturing industry and other businesses. "It is impractical to set the limit of 25 per cent for working capital loan bigger than Rs. 20 million since the capital differs according to the nature of the industry," FNCCI said.

Working capital loan is a facility for the businesses to finance their daily operations and is not used to buy long-term assets.

Since the time to conduct international trade is longest in Nepal in the South Asian region and it is troubling the entrepreneurs, they are worried that the 25 per cent ceiling would have serious repercussions on the operation of businesses and production capacity of the industries.

The FNCCI said that the banks and financial institutions (BFIs) should have the right to decide about the size of the working capital loan according to the nature of the business. "Such loan should be a cash credit rather than term-loan for five years," it said.

According to their analysis, the new guidelines were announced without assessing the current reality of the business sector, especially in the context of fluctuating interest rate, international economic crisis, sky-rocketing price of fuel and raw materials, and growing cost of logistics and freight.

The business community said that the BFIs should conduct monitoring and punish those who misuse the fund mobilised under the working capital loan but keeping all entrepreneurs in a basket is not practical. They demanded an amendment to the policy with the government and central bank.

Their demands also include bringing down the provision of estimated five years financial report and three years audit report to set the limit of the term loan for working capital to three years and two years respectively.

Speaking at an interaction organised by CIM, its President, Suyesh Pyakurel, also maintained that there is no objection to monitoring of loan but it must not create problems for the industries in their operations.

"If the loan limit is set on the industries that buy raw materials for a year and store them, they would find it hard to run their plants throughout the year," he said. In response, Director of the NRB's Regional Office in Biratnagar, Mina Pandey, said that the current guidelines wouldn't create any problems for the businesses.

Likewise, the FNCCI suggested that instead of conducting inspection of the current wealth and liabilities in every three months by the BFIs, there should be a provision to inspect while necessary.

According to it, estimated financial report should also be analysed on a half-yearly basis to facilitate the business. 

Published in The Rising Nepal daily on 29 August 2022.