Local governments’ non-cooperation hampers loan recovery: BFIs

Kathmandu, July 10

Banks, development banks, finance companies, and microfinance institutions have expressed serious concerns over the lack of cooperation from local governments during the loan recovery process.

According to Banks and Financial Institutions (BFIs), many local authorities either delay or outright refuse to provide essential documents such as right-of-way and access certifications, making it difficult for financial institutions to proceed with loan recovery within the legal framework.

Without the document for right-of-way and access certification, the banks can't transfer the ownership of the property to the new buyers.

In a joint statement issued by the Nepal Bankers’ Association, Development Bankers’ Association Nepal, Nepal Financial Institutions Association, and Nepal Microfinance Bankers’ Association, the organisations warned that such obstructions are negatively impacting the loan recovery process. This, they say, could disturb the overall financial cycle and ultimately threaten the country’s economic stability.

The institutions stressed that they have been complying fully with the policies, procedures, and legal provisions issued by Nepal Rastra Bank (NRB) regarding loan disbursement and recovery. "However, when loans are not repaid, and the financial institutions initiate auction proceedings, offices such as land revenue departments require various supporting documents—including property valuations and access approvals—that local governments are reluctant to issue," read the statement.

A case of physical assault on bankers by the creditor and ward representatives has already been registered with the police. According to bankers, all levels of BFIs are facing trouble in loan recovery due to the non-cooperation from the local offices and office bearers.

While the BFIs were facing challenges to recover loans during the anti-BFIs campaign launched by an interest group a couple of years ago, the non-cooperation has emerged as the new problem.

The BFIs further reported a disturbing rise in cases where financial sector employees face threats, psychological pressure, and even physical attacks during the recovery process.

"Such incidents undermine the integrity of the banking sector and significantly lower staff morale, while also raising serious concerns about the rule of law," they said.

According to them, there is no doubt that effective coordination between local governments and financial institutions is vital for the country’s economic development under federalism.

The associations urged all concerned authorities to take the matter seriously and facilitate local-level cooperation, ensure peace and security, and resolve these pressing challenges in accordance with the spirit of federalism.

Published in The Rising Nepal daily on 11 July 2025.