NRB tightens screws on micro-credit dev banks

By Milan Mani Sharma

KATHMANDU, Feb 24 - Nepal Rastra Bank (NRB) today issued a set of directives to the micro-credit development banks, binding these institutions in its standard for the first time. The directives, which came into effect from Monday, were endorsed on Thursday.

The directives is in line with the prudential norms that the NRB issued to other financial institutions earlier and provisions the micro-credit development banks (MCDBs) to maintain sound financial condition.

"However, it provides leverages on certain provisions as the scale of strictness and standard is relatively toned down," said Trilochan Pangeni, Director at Bank and Financial Institution Regulation Department (BFIRD).

With the new NRB directives, the MCDBs now need to be sensitive to its capital adequacy, liquidity and loan portfolios, among others. They would also need to maintain cash reserve ratio (CRR).

The NRB has asked the micro-credit institutions to maintain a capital adequacy at 4 per cent by the fiscal year end 2003/04, raise it to 6 per cent by 2004/05 and 8 per cent by the year end 2005/06. The capital adequacy ratio is lower than what has been stipulated for other financial institutions. Banks and other financial institutions need to maintain it at 12 per cent.

The MCDBs have been allowed to mobilise resources up to twenty-fold of their total primary capital. They can use tools like borrowings from group members and debentures for the purpose. These banks are not allowed to mobilise capital from general public.

Given the scenario, wherein the development banks working in micro-credit are found facing resource constraint, the new provision is expected to relieve them of capital mobilisation, say the NRB officials.

With the new directives, the micro-level development banks need to maintain cash reserve ratio of 0.5 per cent of their respective deposits and lending funds from April 13 this year. "This can be maintained at the central bank or any other commercial banks authorised by the NRB to do so," states the directives.

From the same date, the MCDBs also need to maintain liquidity of 2.5 per cent. "This provision has been incorporated to maintain a sound reserve for their account settlement," said officials. In case of default, the new directives have provisioned to fine the defaulters up to three-fold of the highest refinance rate on the shortfall amount.

The central bank has also asked the micro-credit institutions to classify their loans as good, inferior, doubtful and bad and provision for loan loss at 25 per cent, 50 per cent and 100 per cent respectively for inferior, doubtful and bad loans. For this fiscal year, the MCDBs need to classify loans not settled up to three months of loan maturity as good, from three to nine months of maturity as inferior, from nine to two years as doubtful and over two years as bad loans.

However, from the next fiscal year loans unpaid even after the passage of nine months and before a year of loan maturity need to be classified as doubtful and that crossing over a year as bad from the next fiscal year. The provisions for good and inferior loans are not changed.

The central bank has asked the MCDBs to confine their micro-enterprise credit provided on group guarantee to Rs 30,000 per person. In case of collateral-based loans, the amount could go as high as Rs 100,000. "In any case, single credit or investment of the MCDBs should not cross over 25 per cent of its total loans investment," the directives state.

The micro-credit institutions are allowed to fix the interest rate and service charges themselves. Owing to higher risk and cost of delivery, the interest rates of the MCDBs are on a higher side.

Currently, nine MCDBs including five rural development banks are operating in the country. Such institutions, primarily working with lower section of the society at the grass-roots level, are perceived as crucial instruments for poverty reduction.

US Senator prepares preferential bill for Nepal

Post Report

KATHMANDU, Feb 24 - Office of the United States Senator Dianne Feinstein has completed the preparation of the first draft of a preferential trading bill that seeks to provide duty- and quota-free market access to Nepal-manufactured apparels and textiles products.

The draft bill was sent to Nepal recently for necessary changes. Experts last week made the requisite suggestions and amendments, and sent the amended draft back to be given a final shape, sources talking to The Kathmandu Post said.

"A draft bill has been prepared for free market facilities to Nepal in the US. We have sent our comments and we hope that it will get through the US Congress soon," said Purushottam Ojha, joint secretary at the Ministry of Industry, Commerce and Supplies.

The bill is similar to the African Growth and Opportunity Act (AGOA) endorsed by then US President Bill Clinton in 2000, which, among others, provides free market access to apparels and textiles manufactured in the sub Saharan African bloc.

The bill is being prepared to be moved in the US Congress. Sources said that Feinstein has even convinced two other Senators to back the bill to put up in the Congress. Rule requires that two Senators endorse bills before they are presented for debate.

However, the bill prepared for Nepal focuses only on textiles and apparels as a least developed beneficiary, unlike the AGOA that also contains other provisions relating to the entry of African manufactured goods under the Generalized System of Preferences.

If cleared by the US Congress without a hitch, the preferential bill can come into force in October. The draft has set October 1 as the date of implementation and September 30, 2005 as the date until which the arrangement will remain in force.

"If the bill gets through the Congress that would be of immense relief to garment sector," said Kiran Prakash Saakha, president of Garment Association Nepal (GAN). The real relief will come in the waiver of an average 17 per cent duty that Nepali garments are subjected to in the US.

But despite the euphoria in the garment circle, it would be imperative for the government to follow up on the latest developments to obtain real achievements. Saakha said that the government must play an active role, at least now.

Stating what the government’s present stance and strategy is, Ojha said that diplomatic missions have been mobilized and the government is seriously pursuing the cause of garment entrepreneurs.

The garment sector has passed through a slump since the AGOA came into implementation. Against US$ 164 million worth of garments exported to the US in 2000, exports dwindled to US$ 106 million in 2002. The US absorbs over 85 per cent of the total carpets exported from Nepal.

The fall in exports has hit hard the levels of employment. While over 150,000 workers were engaged in the sector, employment levels have gone down almost 40 to 50 per cent since the downfall began.

The AGOA, and another similar bill passed in favour of the Caribbean countries, has caused mass diversion in the US garments order from South Asia. So far, only the Caribbean and African blocs enjoy unrestricted market access to the US.

The Multi-Fibre Arrangement (MFA), which has been guiding global apparels and textiles trade since 1974 and expires in December 2004, came as the greatest challenge for Nepal’s garment industry.

If the preferential trading bill for Nepal’s apparels and textiles are given a green signal by the US Congress, that could help cushion the impact of the revocation of the MFA considerably. "However, to ensure the survival of Nepal’s garment industry, competitiveness is a must," Ojha said.

The AGOA presently applies to 38 African countries. However, only the lesser-developed beneficiary countries, which have per capita Gross National Product of under US$ 1,500 in 1998, are eligible to the duty-free access for apparel made from fabric originating anywhere in the world.

Revival of sick industries sought

KATHMANDU, Feb 24 (PR) - Representatives of Sick Industries of Makawanpur District led by acting President of Makawanpur Chamber of Commerce and Industry Madhav Prasad Risal today met with Binod Bahadur Shrestha, acting President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and apprised him of the problems of the sick industries.

The delegation also warned that they would resort to revolt if their problems are not solved by the concerned agencies.

FNCCI Vice-President and representative of Narayani Zone Rajendra Kumar Khetan said that in a recently held meeting with the Finance Minister and Nepal Rastra Bank, they had decided to form a committee comprising Nepal Rastra Bank, FNCCI and representatives of bankers association to deal with the problem. Acting President Shrestha added that after numerous discussions, recommendations had been made and the government had vowed to act on them.

Shrestha said that the FNCCI had demanded with the government to set aside a certain amount for the reconstruction of small and medium sick industries. Madhav Risal demanded a 90 per cent cut in interest of loans provided to sick industries, revaluation of fixed collateral assets and revoking compound interest. Black listing, closure and auctioning of industrial enterprises should be scraped, he demanded.

Internal borrowing surges in first half

Post Report

KATHMANDU, Feb 24 - The internal loan absorption of the government increased significantly during the first half of the current fiscal year, compared to the similar period last year. The surged domestic borrowing is attributed to increased fiscal imbalance resultant of low rate of revenue mobilisation compared to the increased regular expenditure.

According to central bank statistics, the internal loan collection increased by almost 25 per cent during the first half of the current fiscal year, up from Rs 1.92 billion of the first half of last year to Rs 2.39 billion this year. In addition, the government has also drawn an overdraft of Rs 280 million with the central bank on half-yearly endings.

"The increase in internal loan collection is the result of surge in government’s regular expenditure, which was significantly higher than revenue mobilisation," says Dr Govinda Bahadur Thapa, a renowned fiscal analyst. The decline in foreign support – both grants and aids, has also helped to shoot up the internal loans, he adds.

The government has targeted to collect Rs 12 billion from internal loans during this fiscal year, as against the collection of Rs 9 billion during the last fiscal year. "As the total target is 33 per cent above last year’s, the half yearly internal loan mobilisation is justifiable," Dr Thapa adds.

The figure for total internal borrowings is 20 per cent of the current year’s target.

Experts say that it is the increasing security expense that has contributed to the upsurge in the volume of internal borrowings. "Despite heavy decline in development expenditures, the government’s fiscal imbalances could not get improved due mainly to increased security expenses fuelled by the Maoist violence," they say.

Latest figures of the central bank reveal that the total development expenditure is as low as Rs 2.9 billion during the first five months, while the regular expenditures has increased to Rs 19 billion. The revenue mobilisation, however, was at Rs 17.7 billion during the same period.

Going by the sectoral mobilisation, the entire volume of internal loan collected in the period was raised through banking sector. Only in the last month, the central bank collected Rs 300 million through non-banking sectors. As pointed out by experts, the attraction of banking sector on these sources of investments is not an encouraging sign.

Dr Thapa says, it is a huge mismatch between excess liquidity with the banking sector and low investment opportunities for the bank that has forced them to invest in such types of risk-less investment. "Though it is not good for an economy to collect a big volume of internal loans through the banking sector, in the current situation of resource-crunch, the utilisation of bank’s idle fund is also not bad," he says.

Gokul Ram Thapa, Director at the Public Debt Department of Nepal Rastra Bank pointed out that Nepal has been practising the reverse trend of internal loans collection, i.e. mobilising more loans through banking sector. "Of the total estimation for the current fiscal year, almost 63 per cent would be mobilised through banking sector and the remaining through non-banking sector."

Meanwhile, the cumulative internal loans at the half-yearly end of the current fiscal year has reached to Rs 77.37 billion. More than half of the total borrowings is comprises the loans taken through treasury bills.

According to the central bank figures, government owes Rs 47 billion in treasury bills, Rs 13.1 billion in development bonds, Rs 11.25 billion in national savings certificates, Rs 5.1 billion in special bonds and Rs 931.1 million in citizen saving certificates.

Of the total collection, almost Rs 2 billion (83 per cent) was collected on September last year following the possible threats of Maoist insurgency. The government then had collected the fund through development bonds, issued for the banking sector.

Registration of foreign employment agencies soars

Post Report

KATHMANDU, Feb 24 - Department of Labour and Employment Promotion (DLEP) has issued licenses to 63 foreign employment agencies in the first half of current fiscal year 2002/03. The registration is record high compared to the figures of the first half of past fiscal years.

According to official statistics, the registration of such employment agencies during the corresponding period of last year was only 36.

The surge in manpower suppliers’ registration though is not surprising as an increasing number of Nepali youths are leaving the country for foreign employment due largely to limited domestic employment opportunities worsened by stagnant economic activities resultant of escalating domestic violence.

"The record high registration of employment agencies is not surprising as more and more people are leaving the country for foreign employment, most of them to gulf countries," said Lalit Bahadur Thapa, Director General of DLEP.

The surge in the registration directly corresponds with the rising number of foreign job seekers, he added.

While 83 foreign employment agencies were allowed to supply manpower for foreign employment during the last fiscal year, the registration in the first half of the current fiscal year alone has reached to 63.

The number of registration of manpower suppliers, despite the all time high registration during the first half of the current fiscal year is expected to increase further as more people will be leaving the country in coming days as well, given the current trend.

According to the official data, around 51,104 Nepalis left the country during the first half of the current fiscal year which actually is marginal increment in the number of Nepalis people going abroad for jobs during the like period last year.

Malaysia is the most preferred country by Nepalis. A total of 22,659 people out of 51,104 left for Malaysia during the first half of the current fiscal year.

Qatar follows Malaysia in terms of preference of Nepali workers during the period. Likewise, Saudi Arabia and the UAE come as third and fourth most preferred countries by Nepali workers which attracted 8,612 and 5,283 Nepali youths respectively in the first half of the current fiscal year.

Besides allowing a large number of manpower agencies for supplying Nepali manpower abroad, the department has revoked the registration of seven foreign employment agencies during this period on charges of fraud.

The seven manpower agencies are Dip Oversea, Dragon International, Regency Recruitment, Aachal International, Honey Overseas, Al Sultania International and Hollywood Manpower Agency.

GARDEP to rescue coffee, ginger farmers of Gulmi

By Madhav Aryal

PALPA, Feb 24 - Gulmi-Arghakhanchi Rural Development Project (GARDEP) has announced of working to developing and managing the market for coffee and ginger, the major products of Gulmi.

Co-director of the GARDEP, Narayan Prasad Kafle, said that the project would be assisting the farmers in marketing their produce and accessing them with the external market from this year. "This is aimed at increasing the level of coffee production and promoting wider women participation in coffee farming," he said.

The latest announcement has elated the farmers who have failed to get return of their production in the absence of product-market linkages. Farmers are attracted to coffee and ginger farming at a commercial level as it could give higher return.

"The involvement of the project in the marketing is aimed at encouraging the farmers, who are frustrated due to low return because of lack of market access," said Burno M Francis, European co-director of the project. "This is important to exploit the high production potential of cash crops like coffee and ginger in the district."

The GARDEP officials informed that the project would conduct an intensive study on potential markets and production areas and expand the programme accordingly.

Thirty-seven coffee nurseries have been established in the district with the assistance of the project. Although the production of these two major cash crops are good, farmers have not been able to clear their loans. "Given the existing scenario, the announcement of the GARDEP will definitely relieve the farmers," said Ramananda Kharel, a local farmer.

Over 500 families in Gulmi are currently involved in coffee farming, according to statistics of District Agriculture Office. Many farmers are enthusiastic of clearing their lands for coffee plantation, if the GARDEP addresses their marketing problem, said Kul Mani Kharel of Anpchaur.

Even the project officials said that the effective enforcement of the project would help farmers get the much-deserved return for their produce and assist in poverty reduction.