Kathmandu, Oct. 21
A furniture entrepreneur running
nation-wide business has downsized its human resources by almost two-thirds in
the last six months since the beginning of the Nepali New Year 2079 that started
in mid-April.
The company had hired more than 80 personnel at various
levels last year with the aim of expanding the capacity of its production plant
and install a couple of new machines outside the Kathmandu Valley.
But in the wake of the liquidity crisis that has been
crippling the market for the last one-and-a-half years in the immediate
aftermath of the coronavirus pandemic, the company failed to manage the
much-needed finance required to expand the business.
As the banks continuously expressed their inability to
provide the financing to the businesses and the managers were tired of
lingering the business in a hope of the revival of the financial market, the
company ultimately decided to cut-down the human resources.
Even worse, another entrepreneur shut his recently launched
start-up as he failed to obtain bank loan and dare not to have it at the
current interest rates, and joined a job at a private company.
The liquidity crunch at the financial system and soaring
interest rates have begun to hit not only the entrepreneurs but also the
entrepreneurship.
The banks and financial institutions (BFIs) had mobilised
about Rs. 450 billion in loans in the first six months (from mid-July 2021 to
mid-January 2022) of the last fiscal year 2021/22. But the numbers came down to
just Rs. 55 billion in the second half of the year. It means the BFIs do not
have enough money to finance a business or any other project.
The private sector has responded to the situation quite
aggressively. Three large associations of the business community – Federation
of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of
Nepalese Industries (CNI) and Nepal Chamber of Commerce (NCC) have been continuously
demanding that the Nepal Rastra Bank (NRB) and the government should devise a
strategy to bring down the bank interest rates.
While the banks are charging up to 16 per cent interest
rates on their loan products and the businesses are fearing that the rates
would soon climb up to 18 per cent. “The shortage of liquidity has pushed the
base rate up and if the banks charged an additional 8 per cent premium on it,
there is a risk of interest rates reaching 18 per cent,” president of the
FNCCI, Shekhar Golchha told journalists a couple of days ago.
On Bhadra end, the base rate was 9.25 per cent and spread
rate was 4.38 per cent. In a year period, the bank interest rate has increase
as much as by 70 per cent. “It has caused about 70 per cent drop in the business
and production as well,” said Golchha.
Meanwhile, on Friday, entrepreneurs of Bhaktapur district
had submitted a memorandum to the District Administrative Office there against
the high interest being charged by the BFIs. This exhibited the helplessness of
the entrepreneurs as the DAO is not the concerned body to control the bank
interest rates.
Presenting the memorandum to the Chief District Officer
Rudra Devi Sharma, Vice-President of Bhakta Chamber of Commerce Kavi Das
Shrestha said that they were facing the crisis of life in their business due to
the soaring interest rates.
Considering the current effect of the interest rate and the
past experience, the industrialists have also demanded adoption of a policy to
keep the interest rate within the desired limit, a statement issued by the NCC
read.
Likewise, it has been demanded that banks and financial
institutions should reduce the existing spread rate and add a minimum
percentage of premium to the base rate of the loan as well.
However, a Chief Executive Officer of a finance company said
that the situation would not be damaging as the business community has been
trying to demonstrate. “But some banks have been trying to get benefit using
the crisis,” he said, maintaining that most of the bankers are now thinking
that further hiking the interest rate would only deepen the crisis.
Meanwhile, the NRB has maintained that the fixing interest
rate has been left to the market and the demand and supply will determine it. Likewise,
a task force formed by the Ministry of Finance has recently suggested adding
only 2-4 per cent premium to the interest rates.
Published in The Rising Nepal daily on 22 October 2022.
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