Decentralisation
Fight Against Poverty 

NOBEL Laureate Amartya Sen wrote long back hypothesising that the famines and starvations do not occur in a democratic and independent country where free press is guaranteed. However, this has not always been the case in the South Asian countries, including Nepal, where free press functions. The role of press has been more or less found to be reactive, not proactive. And the governments seldom pay heed to the issues raised in the press, nor do views propagated in the mass media jolt the attention of the responsible authorities. Let us take the case of India first.

The independent mainstream media in India is now awash with stories relating to starvation deaths in Orissa. The issue has been discussed widely and government is blamed summarily for the poor state of the affairs only after the deaths did occur in Kashipur village of the Orissa state. The starvation death issue was taken to the Supreme Court of India reputed world wide for the seminal role it has played in upholding the socioeconomic rights of the people. The apex court censured the government -both centre and state-for failing to provide food to starving millions despite a sixty million tonne surplus of food grains rotting in godowns countrywide. Indian prime minister Atal Behari Vajpayee is reported to have remarked that democracy and hunger cannot to together. A hungry stomach questions and ensures the system’s failures to meet what is a basic biological need of every human being. There can be no place for hunger and poverty in a modern world in which science and technology have created conditions for abundance and equitable development.

Despite the fact that the government and its leaders at the helm are committed to alleviate poverty and end hunger, this is not happening in India. The reasons cited in the media for the poor results in the direction are callousness, corruption and apathy resulted from centralisation and bureaucratisation. Food corporation of India is a central government undertaking doing the job. Moreover, the government agencies are responsible for identifying people below poverty line and issuing cards entitling them benefits provided through targeted public distribution system. The target group is not identified properly leading ultimately to mismanagement of the resources.

Decentralised management and distribution of food grains has been suggested as a measure for correcting the distortions. In India there are three hundred fifty thousand Gram Panchayats-elected local government entitites at the village level. These Panchayats can be mandated to maintain good grains storage and also be properly mobilised for identification of the poorest of the poor in the communities. Local government institutions are in a vantage position to identity the poor and local people have easy access to them. In some states like West Bengal and Madhya Pradesh decentralised procurement of food grains has been started and it is giving good results. In Madhya Pradesh state of India a grassroot based solution has been devised for solving the problem. According to an article contributed by Gurucharan Dan in the Time’s of India recently, the democratic grassroot based solution has worked well. When a food for work programme is announced, all village adults assemble together, and vote for an asset they want to create in the village-a water tank, a school building or a road. Those who want to work in exchange for food come forward in the assembly. Although the Gram Panchayat executes the poverty project, the Gram sabha meets to ratify the Panchayat’s accounts. The incidence of corruption and mismanagement has declined substantially.

Let us take the case of our country Nepal. In our country starvation deaths are not reported. However, there have been allegation that people have died in the remote food deficit hills of Nepal due to insufficiency of food and malnutrition. Our press reacts only when the incidents occur. We have not been able to bring the truth to fore to alert the authorities so that they can take proper steps and measures. Ours is also the centralised way of tackling local problems. The food supply and distribution reaches to the target group if local bodies are empowered and equipped to handle the tasks and responsibilities. Local bodies should be made answerable to the local problems. This is the only way to address to the human problems like famine and starvation. Even the measures like and redistribution can be better handled if the local bodies are involved in the process. The local bodies have the actual information to identify the target groups.

Guarantee Of Loan & Its Recovery

By Vijaya Ram Mathema

DEPOSIT Insurance And Credit Guarantee Corporation (DICGC) was established in 1974 with an objective to encourage the Commercial Banks (CBs) to divert certain percentage of their investment in the development sector of the country by providing guarantee on the loans disbursed for agriculture, industry and service sector which is defined as priority sector. With an agreement between DICGC and the CBs there is automatic guarantee system in the priority sector loan and DICGC guarantees upto the limit of Rs. 2 million per loan in agriculture and service sector and Rs. 2.5 million in industry sector. The CBs has to pay 0.25 per cent as premium on the quarterly outstanding balance of the priority sector loan, which comes to one per cent per annum. On the other hand, DICGC pays to the CBs 75 per cent of the outstanding balance of the guaranteed loan as of due date as compensation and out of this 50 per cent is paid to the CBs after checking the received documents and is approved for payment and the rest 50 per cent is paid only after the auditor and is approved for payment and the rest 50 per cent is paid only after the auditor of the CBs certifies that the loan is doubtful of recovery. In case of loan given to the deprived sector the compensation is given the one instalment if the chief of the concerned priority sector department of the CBs certifies the loan as doubtful of recovery.

The CBs can file for claim with DICGC before the due date of the loan only in such conductions as in case of failure of the project due to natural calamities. If any instalment of the loan is misused and the CBs stops giving further instalment and also fails to recover the loan with due effort and if the loan is misused and the CBs takes action to recover the total outstanding balance of the loan. The CBs can also file for claim after the due date of the loan if the loan is not recovered within the due date of the loan. In any case the CBs can file for claim within our years of due date of the loan of by presenting to DICGC the supervision report before and after the approval of the loan, and ledger documents of the loan at the time of filing for claim. If the CBs fails to present any such documents within the specified period DICGC is not liable to pay compensation to the CBs.

It can be observed that from the Fy. 1980/81 to Fy. 2000/2001 i.e. in a span of 21 years there has been a total claim of Rs. 1357 million from the CBs and DICGC has settled Rs. 1096 million (80.76 per cent) and the remaining balance left to be settled is Rs. 251 million (19.24 per cent). The claim from the CBs upto Fy. 1998/99 has all been settled and out of the total remaining balance to be settled Rs. 48 million (18.39 per cent) is of Fy. 1999/2000 and Rs. 213 million (81.61 per cent) is of Fy. 2000/2001. It can be observed that there was heavy increasing trend in the claim from the CBs reaching the highest of Rs. 253 million in Fy.2000/2001 that has led to the outstanding claim to remain at a high level.

After the payment of compensation by DICGC to the CBs it is the responsibility of the CBs to recover the loan from the borrower. The CBs has to take legal action within one year of the receipt of the compensation and in case the CBs fails to do so within the specified period the amount received as compensation by the CBs has to be refunded to DICGC. After the recovery of the loan from the borrower, the CBs has to refund to DICGC and equivalent percentage of compensation received within three months of the recovery date of the loan.

It is can be observed that the compensation accepted by DICGC is at an increasing trend each year and the total amount at the end of the Fy 2000/01 has reached Rs. 479 million. Out of this Rs. 255 million (53.23 per cent) has been paid as compensation to CBs and the remaining amount will be paid to the CBs as and when the CBs present the auditors certificates stating that the loan is doubtful of recovery. As for the refund side the CBs has refunded only Rs. 134 million (52.55 per cent) and there is still Rs. 121 million (47.45 per cent) to be refunded to DICGC. Eventhough the percentage of refund to DICGC shows an increasing trend each year DICGC has to seek the appropriate ways and means to make a situation still more favourable to increase the flow of refund from the CBs.

There are various reasons for the loans of the CBs to be overdue and they can be categorised as factors directly or indirectly related to borrower’s capacity of repay, borrower’s willingness to repay, CBs related factors such as CBs management and policy environment. Here, it is seen that the CBs are lagging behind in the recovery of the loan because of one or multiple reasons specified above. The CBs must take precautions before advancing the loan so that the reasons for overdue can be minimised. This will naturally lead to less expenditure in the recovery sector and add to timely fund to the CBs for future investment. Further, DICGC will have to face less tress in the claim sector with the decrease in the outstanding claim amount of DICGC, which is a good sign for the CBs as well as for DICGC.

The CBs tries to recover the overdue loans from the borrower by notifying the borrow to clear the dues within a specified period, giving notice to the borrower that if the borrower fails to pay the outstanding loan within the specified date, his pledged property will be auctioned, giving some amount of interest rebate to the borrower if the overdue outstanding loan is paid in full amount and giving public notice for auction of the pledged property. But sometimes, in the auction there may be nobody to bid and in such a circumstances the CBs can also accept the pledged property for the recovery of the loan. If the CBs does so it has to use the pledged property by itself or dispose it within seven years from the period of takeover of ownership. Here, it is not possible for the CBs to take over the ownership of the pledged property where there is no one to bid in the auction. In such a case, the loan of the CBs is left as it is and there is no recovery of the loan.

Recovery of the loan is a big problem of the CBs and the problem is not so easy to solve. There is every possibility for the CBs loan to be totally misused if not partly because of poverty the socio-economic habit of the borrower. Such misuse of loan will result in the non repayment of the loan which is not at all favourable to the CBs as well as to DICGC.

There is no access to many places of the hilly region of Nepal in comparison to the tarai region where transport facilities are available. The CB have to take as collateral security of their loan such accessible and non accessible land and building and if there is default of such loan the CBs will be helpless if there is no bidder at the time of auction of the pledged property and such cases are many. Here, there is no sense for the CBs to takeover the ownership of all the pledged property because later on in the course of time the CBs will not be able to dispose if off to recover the loan. In such cases the loan of the CBs is left as it is and sometimes it is transferred to bad debt and later on it has to be written-off as well. This no doubt is a big loss to the CBs and a heavy liability to DICGC.

The loan policy should look after the following norms and also should be designed in such a way that would carefully consider the recovery aspect as well. The selection of the genuine borrower, who actually wants to work with the CBs loan to increase his economic status. Schedule must be developed for close and regular monitoring, inspection and supervision of the project and it should be followed in due time to see that the loan is properly used. Instalment payment of the loan must be made regular and follow-up actions must be immediately taken up if there is failure in every instalment payment. Sufficient loan must be given by CBS as per requirement of the project and the instalment period also must be sufficient. If necessary, grace period must also be given to the borrower to make himself financially sound for the payment of the loan instalment. If possible, marketing of the produce goods should also be arranged so that the borrower can sell his product for a good price and if it is a industrial loan, the provision of availability of raw materials for the industry, if possible, must be arranged at a good reasonable price.

Conclusion

It can be concluded that the success of the CBs depends not only on increasing lending and investment but also the successful recovery performance of such loans and advances. Further, to keep the viability of the CBs the overdue loan percentage should be kept at the minimum level whether it is for commercial loan or priority sector loan. If such a success is achieved by the CBs it reduced the liability as well as the problem of recovery aspects of the CBs and it also helps DICGC to reduce the liability of the Corporation to a reasonable extent and also to make its performance more effective.

The recent steps taken by the Government to introduce Nepal Rastra Bank Act 2058 and Debt Recovery Act 2058 will provide more authority to Nepal Rastra Bank to function as a central bank. The Acts will provide Nepal Rastra Bank more power in the monitoring, inspection and supervision of the Banks and Financial Institutions. This will no doubt decrease the ratio of default loans of the CBs and at the same time recover the default loans within a specified time. With all these the CBs will also be alert as well as the refund to bad loans will add positive impact in the financial status of the CBs.