25th August 2025, Kathmandu
Nepal Rastra Bank (NRB) has introduced a new provision to facilitate loans of up to NPR 1 million for farmers and small entrepreneurs.
NRB Eases Loans
Nepal Rastra Bank (NRB) has introduced a new provision to facilitate loans of up to NPR 1 million for farmers and small entrepreneurs. The central bank’s directive, a part of its latest monetary policy framework, makes it easier for these borrowers to access credit by waiving collateral valuation fees and introducing flexible repayment terms. This measure aims to bolster financial inclusion in agriculture, livestock, and small-scale businesses, which are the backbone of Nepal’s economy.
Key Features and Benefits for Borrowers
According to the NRB circular, licensed banks and financial institutions are now subject to new rules designed to be more accommodating to small borrowers. These rules apply to a wide range of activities, including crop production, livestock farming, poultry, fish farming, and other agribusiness-related ventures. A key benefit is that borrowers of loans up to NPR 1 million will not be charged any fees for collateral valuation. Banks are now permitted to self-assess the collateral for these loans, eliminating a significant financial burden and procedural hurdle for small farmers and entrepreneurs. This is a crucial step towards reducing dependency on informal lending, which often comes with exorbitant interest rates.
The directive also offers unprecedented flexibility in the loan repayment structure. Instead of rigid monthly installments, borrowers can now have their repayment schedules aligned with the harvesting and selling cycles of their agricultural products. This customized approach ensures that farmers are not pressured to repay during non-income months, which significantly reduces financial stress and the risk of default. Furthermore, the provision mandates that licensed institutions must provide an adequate grace period before repayment begins, a measure that is tailored to each business’s specific cash flow.
Impact on Banks and Financial Institutions
While the new policy may reduce banks’ income from collateral valuation fees, it also presents several long-term benefits. The new provisions make it easier for banks to lend in the agricultural sector, which can lead to a significant expansion of their agricultural loan portfolios. To encourage this, the NRB has introduced a special, more lenient arrangement for loan loss provisioning on these agricultural credits. For performing loans, banks are now required to maintain only a 0.25% loan loss provision in the first year, which increases slightly to 0.5% in the second year. This is substantially lower than standard provisioning requirements and provides banks with a financial incentive to lend to this sector while still managing risk.
This strategic move by the central bank directly supports rural entrepreneurship and agricultural productivity. By simplifying loan access and making repayment more flexible, the NRB is not only helping individual farmers but also contributing to the government’s long-term vision of modernizing agriculture and strengthening food security. In the long run, this policy is expected to improve loan default rates due to flexible terms and build greater trust between banks and rural borrowers.
Conclusion
Nepal Rastra Bank’s new directive is a progressive reform aimed at strengthening financial inclusion in the country. By making loans up to NPR 1 million more accessible through the elimination of collateral valuation fees and by offering flexible repayment options tied to agricultural cycles, the central bank has taken a significant step toward empowering farmers and small entrepreneurs. This policy is expected to reduce reliance on informal lending, boost agricultural output, and foster more sustainable economic growth by ensuring that a vital sector of the economy has the capital it needs to thrive.
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