June 26: After the student graduates and starts working, the installment payment of the bank begins. With interest, which is usually lower than the ones of other types of loans, the creditor pays back the money to the bank.

Why can’t the same practice be implemented in the Nepali market?
Some five years ago, Nepali banks tried issuing remittance-related loans to workers going abroad to work which didn’t need collateral. The workers had to submit only their citizenship certificates to avail of this loan.

However, as 60% of the loans went bad, Nepali banks stopped issuing loans without collateral.

Apart from this, there are more reasons for issuing education loans with traditional features applied to other types of loan seekers.

Firstly, even if a student is a graduate from a good university, a good job is not certain to come by as wished.

“We don’t provide these features to students of Nepal because even MBA graduates are found unemployed here. Even if they get jobs, they are very less likely to get proper job placements to be able to pay back the installments,” said Diwakar Poudel, Head of Corporate Affairs at Standard Chartered Bank Nepal.

Again, according to bankers, the security system of Nepal isn’t strong enough to prevent loans from going bad. When a loan is not backed by collateral, it runs high risks for not being recovered in time or sometimes not recovered at all. The administration system of the nation itself is to be blamed, according to bankers.

No companies in Nepal are actively looking at the personal records of persons and taking actions against their fraud cases. In case the person doesn’t pay back the loans, no one can catch the person and make him/her pay the money back.

Banks here aren’t in the position to take such risks when they themselves are struggling for liquidity time and again.

The other reason behind it is that students who go abroad for higher studies aren’t likely to return to Nepal after the completion of their education. Because of this factor, too, they can’t be provided loans on their name or without any collateral.

When will the students of Nepal get proper features of education loans from banks?

The time is nowhere near, that’s what bankers say. The national regulator, Nepal Rastra Bank, also doesn’t have any provisions for education loans. Banks need to do 20% extra provisioning for loans that aren’t backed by proper collateral, which is hard for the banks.

Because of the present unemployment problems and a lack of proper administration in the country to keep personal records of every person, and a lack of proper links between the government, educational institutions and banks, and also due to the lack of proper laws backing this system, Nepali students don’t have the privilege to study without considering the financial position of the family.

In many cases, the inadequacy of the financial position of their families has acted as a limiting factor for many youngsters to pursue and complete their higher education.

source:UPADHYAY , AKANKSHA (2011),"Nepali students deprived of education loans ", republica, 26 June 2011