Land Use Regulations 2022 Nepal: Borrowers of BFIs fail to receive loans on land collateral due to mandatory rule of classifying land plots

 June 15: Borrowers, who sought to take loans from banks and financial institutions (BFIs) by maintaining land plots as collateral, have been unable to get loans due to the recently-enforced Land Use Regulations 2022.

The BFIs have stopped issuing loans against land collaterals after land revenue offices denied to ‘put on hold’ the transaction of land plots that have been used for securities. According to the new regulations, the land plots cannot be used as securities unless they are classified as agriculture or non-agriculture categories.

The new law has divided land into 10 categories based on their features and geographic situations. The land categories include agricultural, residential, commercial, industrial, mines, forests, public use and cultural-archeological, among others.

Previously, the land revenue offices had been issuing ‘halt transactions’ orders against any land plots that were considered fit for being kept as securities, based on which BFIs would provide loans to their clients. Now, the land revenue offices issue such orders only after the land plots receive the approval of being classified from the local governments.  

According to bankers, the dilemma in the procedure to separate types of land plots at the local levels has led to the difficulties in providing loans. The records of Nepal Rastra Bank show out of collateral-based loans provided by the BFIs, about 90 percent use land plots as fixed assets for collaterals.   

source: republica, 15 June 2022