Bankers have expressed serious concern about the lawmakers’ proposal to amend the proposed Banks and Financial Institution Act (BAFIA), saying that the proposal, if implemented, would lead the banking sector to a disaster.Lawmakers, especially from the UCPN (Maoist), recently made such proposal to the Parliament.
Concern Number one : - Bankers’ opposition starts from amendment proposal that seeks to replace the term ‘economic liberalisation’ by ‘self-reliant mixed economic system’ in the preamble of the proposed BAFIA. “Progress achieved so far in the banking sector is due to the economic liberalisation policy,” bankers said at a press meet on Monday. “Are we heading back towards the old controlled system?” asked Nepal Bankers’ Association Vice President Rajan Singh Bhandari.
My Take: term it economic liberalisation’ or ‘self-reliant mixed economic system,Does it really matter ? No matter what you term your "banking ideology model" in this age of globalization, Nepal has to comply by the global financial rules ( WTO agreement , IMF,BASEL III) .......... Remember the recent " No string attached loan" from IMF ??
Concern Number TWO : Bankers are mainly concerned about some preventive measures and compulsive provisions in the proposal. As per the proposal, banks should lend to projects by putting up the same project as collateral.Bankers said this provision proposed by lawmaker and industrialist Padma Jyoti was impractical in Nepal’s context as it would lead to huge defaults. Currently, banks in Nepal lend against the collateral of other fixed assets.
My take: Little financial innovation can help .... Think about how private equity/ venture funds capital structure works ......Equity investment, quasi equity investment,strong due diligence ..... As of now Nepali regulation does not allow Non banking financial institution,accepting the provision will give Banks first mover advantage in private equity space....This provision will also help cash strapped startup or existing businesses to flourish ......This provision if amended can catalyze innovation and entrepreneurial revolution in the country.....Bankers also need to realize that high risk = high returns ......
Concern Number Three :Lawmaker Sapana Pradhan Malla has proposed that BFIs will have to invest at least 5 percent of their total loans to rural and economically disadvantaged groups. She has also proposed that BFIs should allocate at least 5 percent of their total loan exposure for venture capital to encourage new entrepreneurs. Malla said her proposal is aimed at making banks socially responsible. “D Class financial institutions alone should not be made accountable to reach to the rural poor,” she said.However, Nepal Credit and Commerce Bank CEO Ratna Raj Bajracharya said the government should create a conductive environment for banks to go to the rural people instead of imposing conditions. Bankers also sought a clear policy on venture capital.
My take: Venture capital focusing on rural sector can attract huge foreign direct investment.... Investments that provide capital, expecting financial returns, to businesses (fund managers or companies) designed with theintent to generate positive social and/or environmental impact is called Impact investment....A variety of investor types currently participate in the impact investment field , including development finance institutions, foundations, private wealth managers, commercial banks, pension fund managers,boutique investment funds, companies and community development financeinstitutions. These investors operate across multiple business sectors, including agriculture, water, housing, education, health, energy and financial services."According to the JP Morgan bank over the next 10 years urban affordable housing, rural access to clean water, maternal health, primary education, and micro-finance - serving the population at the "base of the economic pyramid have potential profit opportunity between $183 and $667 billion and a potential investment opportunity between $400 billion and $1 trillion (globally).