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Impact of Global Economic Crisis on Nepalese Economy and Deposit & Credit Guarantee Management Presented by Anil Kumar Shrestha Krishna Prasad Subedi DCGC/Nepal. Deposit & Credit Guarantee Corporation DCGC, Nepal Introduction
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Impact of Global Economic Crisis on Nepalese Economy and Deposit & Credit Guarantee Management Presented by Anil Kumar Shrestha Krishna Prasad Subedi DCGC/Nepal
Deposit & Credit Guarantee Corporation DCGC, Nepal • Introduction • Established in 1974 to help the poverty alleviation program of the government. • To help to generating the activity and creating environment for an easy access to the finance to the rural entrepreneurs.
Objectives • To guarantee the loans advanced by the banks/financial institution in priority, SME, Micro Credit and Deprived sector, Foreign Employment Loan. • To guarantee the deposit of the individual depositors held in with the banks/financial institution. • To guarantee the livestock purchased by the farmers under banks/financial institutions' loan. • To guarantee the vegetable and cash crops planted by the loans advanced by the banks/financial institutions/co-operatives.
Capital Structure • Authorised Capital – NRs.100.00 million • Issued Capital – NRs. 70.00 million • Paid-up Capital – NRs. 70.00 million • Shareholders - The Government of Nepal 45.98% - Central Bank of Nepal 47.12% (Commercial Bank) - Nepal Bank Ltd. 4.60% (Commercial Bank) - Rastriya Banijya Bank 2.30%
Impact of Global Economic Crisis • Slow but steady negative influence on Nepalese Economy. • Unique situation – partly influenced by global crisis. partly influenced by local political instability and poor governance accompanied by the effects of climate change. • Low level of economic growth, only 3.8 percent. • High inflation growth 13.0 percent. • High level of unemployment – a major political, economic and social challenge. • No solid program to employ additional 400 thousands working force every year in Nepal.
Impact of Global Economic Crisis (Contd…) • Decline in remittance earnings – due to cut in employment in labor importing countries – adds up local unemployment rate. • Increased trade deficit. • Decline in number of tourist arrival and earnings from tourism sector. • Decline in foreign investment as well as domestic investment. • Low national saving ratio. ( 8 percent of GDP)
5. Deposit Guarantee System in Nepal • Concept was introduced back in early 1990s. • Several attempts were made to establish legislative framework. • As a result of open and liberal economic policy quite a number of banking and financial institutions are emerging – over 240 (excluding cooperatives). • Deposits at these institutions exceeds Rs.490 billion (US $6 billion). • High deposit risk is at the corner – particularly for small deposit holders.
5. Deposit Guarantee System in Nepal (contd….) • As of now no legislation in place. • Small saving groups and a few cooperatives have their own deposit insurance scheme. • Recent budget announces for the provision of deposit insurance in Nepal. • Deposit Guarantee Act is drafted and sent to the parliament for approval.
6. Credit Guarantee Management in Nepal • Nepal entered into a formal banking era in 1937 AD. • No necessity of Credit Guarantee was felt until 1974. • The Credit Guarantee Corporation was established in 1974 in an effort to extend credit facilities to the rural areas under the priority sector lending program sponsored by the government. • Later in 1987, Corporation introduced Livestock Guarantee Scheme. • Three years ago Central Bank of Nepal lifted the priority sector lending program – and now no banks and financial institutions are required to lend money under the guarantee scheme.
6. Credit Guarantee Management in Nepal (Contd…) • In the absence of legislation – all such guarantees are made (if any) voluntarily. • The Corporation performs: (1) Priority Sector Credit Guarantee (2) SME Sector Credit Guarantee (3) Micro Credit and Deprived Sector Credit Guarantee (4) Livestock Guarantee and (5) Foreign Employment Loan Guarantee only at a very low level. • Crop Insurance Scheme in being introduced. • Not all sector and geographic districts are covered by the Corporation. • The Corporation lacks resources and legislative support.
5. Future Prospects • Adverse effect of global economic crisis may not be as severe as in other countries – partly because it is bouncing back globally and partly because of Nepal's subsistence and non-monetized rural based agro-economy and low exposure to international trade. • Important factor of economic crisis being local in Nepal – overcoming of present crisis depends on Nepal's own situation.
