KATHMANDU, MARCH 26

FMO, a Dutch entrepreneurial development bank with more than 50 years of expertise in sustainable private sector investments in emerging markets, has worked since the late 1990s to empower Nepalese entrepreneurs by providing them with loans and outlets. of participation for the environmental and social management system.

It took a stake in Clean Energy Development Bank in 2008 as a 14% shareholder and increased its stake to 20% after the bank merged with NMB Bank in 2015. Arno DeVettethe main representative FMO Representative Office in Singaporespoke with Kiran Lama of The Himalayan era on how FMO collaborates with NMB Bank to work in renewable energy, hydropower and project finance.

Excerpts:

What is the primary purpose of FMO and how is it related to NMB?

We are the AAA rated bank supervised by the Dutch central bank. We invest and disburse loans and equity investments in emerging markets, in more than 85 countries. We aim to support the private sector to accelerate the growth dynamic of the countries where we operate. This includes Nepal. We mainly focus on three areas: renewable energy, the financial sector and agriculture. We believe that other commercial banks are not yet willing to invest in these areas. But our role goes beyond financing, as we help businesses operate and grow seamlessly in an environmentally and socially responsible way. We also aim to improve local prosperity in emerging markets.

We have been active in Nepal since the late 1990s. We started providing loans and equity investments.

We were one of the participants in the first syndicated loan for a project in Nepal – Bhotekoshi Hydropower.

And we entered the financial sector with a stake in Clean Energy Development Bank (CEDB) in 2008 as a 14% shareholder.

This bank has grown wonderfully, with a nice portfolio in hydroelectricity and solar panels. And in 2015, CEDB along with other smaller banks – Pathibhara, Bhrikutee and Prudential – were merged into NMB. And with the backing of Nepal Rastra Bank, FMO increased its stake in NMB to 20%, becoming the largest shareholder.

However, due to subsequent mergers, our holdings have now been diluted to approximately 14%.

After becoming the largest shareholder, how did FMO help NMB realize its vision?

FMO has tried to support NMB through technical assistance and connections with our network and reinforcement in various areas, such as ensuring better access to credit for SME customers instead of corporates, helping to establish NMB as the preferred bank and the best for renewable energy/hydropower financing, setting up a good environmental and social management system (ESMS) to avoid lending to companies that do not bear the risks associated with this type of large investment but complicated, digitalization of the bank and introduction of the NMB to other international institutions to attract financing. FMO has appointed a member of the NMB Board of Directors to support good corporate governance. We are proud that NMB is growing robustly under the leadership of Managing Director Sunil KC and has been named by the Financial Times as “Bank of the Year” for Asia and Nepal for many consecutive years.

Can you enlighten us on the Currency Exchange Fund (TCX)?

TCX is the fund founded and initiated by FMO. Our bank was a founding shareholder.

Today, many Development Finance Institutions (DFIs) like us do a lot of TCX.

Basically, what TCX does is it protects the investments of shareholders and their customers by hedging currency risk. Let me explain it in a simple way.

For example, if a business in Nepal generates revenue based on the local currency, it is a huge risk if they seek a dollar-denominated loan from a foreign bank like ours due to exchange rate volatility. So basically what TCX does is hedge currency risk, which means there is a contract between the foreign bank and the local company to exchange hard currency funds for local currency loans.

What are the challenges and opportunities for a sustainable bank in Nepal?

Instead of opportunities, I think sustainable banking is a necessity in Nepal. This would ensure that banks do not grant loans to companies that abuse them by investing in sectors that pollute the environment or do not treat their employees properly. In Nepal, it is essential to exploit the hydroelectric potential. If the hydroelectric infrastructure is not implemented efficiently, it will create problems, especially for people living in rural parts of the country.

Thus, the only way to ensure proper guidance is for banks in Nepal to adopt the ESMS.

We have a very keen eye on the Sustainable Development Goals. And we are very proud to be a shareholder of NMB, which is to date one of the few banks in the country to have implemented the ESMS.

Are there other areas where FMO is involved?

Yes. We also try to support equity investments in small SMEs by supporting private equity funds like Dolma Impact Fund 1 and 2 where we are an investor.

We actively support all banks in Nepal in the implementation of the ESMS where the hydropower sector is involved through training programs.

Additionally, together with the Swiss government and the UK CDC, we have established a company – Nepal Invests – which will become a platform to attract more funding from DFIs (Development Finance Institutions) to Nepal. A priority area for NI is to make more banks in Nepal eligible for loans from DFIs, where a good ESMS is often a necessary condition. The other focus area of ​​this platform will be to improve the infrastructure and quality of local and international private equity funds in Nepal, so that investors come to Nepal and capital investments in SMEs can take place. An overall stable macroeconomic and political environment is essential for the economy to grow and make investments.

A version of this article appears in the March 27, 2022 printing of The Himalayan Times.