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To further empower small and micro enterprises (SMEs) and boost the green taxonomy system in the country, Michael Jongeneel, CEO of FMO, the Dutch entrepreneurial development bank, is in Kathmandu to sign a $20 million loan with the NMB Bank. According to Jongeneel, the loan amount will be partially dedicated to SMEs and climate-related projects. Sangay Sherpa from The Himalayan Times met with Jongeneel to gain insights into the country's banking sector and prospects of FMO's further collaboration with the NMB Bank. Excerpts:
Please share the purpose of your visit.
Nepal and the NMB Bank are important clients for us and we are here to meet with some of our shareholders and clients. During the visit, we will also be signing a new loan with the NMB Bank, which is something we want to give attention to. We have broader business in Nepal and also in the energy sector. We are supporting the broader sector initiative, which is called Invest for Impact Nepal (IIN), to uplift the banking sector to higher level, especially around current standards on environmental and social aspects.
What are the issues and challenges that are hindering banking sector's growth in Nepal? How can they be overcome?
The banking sector is very dependent on how the country is doing as a whole. As Nepal is facing macroeconomic challenges like any other country, this is also creating problems for the banking sector to grow. In general, the domestic banking sector is doing relatively well compared to other sectors in the country.
Still, banking services have not yet reached 100 per cent of the population and it is important to provide access to banking services to all. Also, some regulations surrounding the governance of banking are still pending and if implemented, they could further stimulate the professionalism in the banking sector of Nepal.
Could you elaborate on the key green banking practices followed by the NMB Bank and their impact on the environment and society? What steps should the Nepali banks consider to meet key climate, environmental, and sustainable goals?
The FMO has been providing loans for projects that have a high environmental impact and is ensuring that high standards are being maintained in the design and construction of such projects. Many banks here do not have the expertise yet, which is why FMO has been continuously hiring expert consultants who train the NMB employees in learning and identifying the environmental and social risks over the last couple of years.
For this reason, the FMO has collaborated with British International Investment (BII) and the Swiss government to set up IIN to support all Nepali banks to implement good environment and sustainability systems. Although Nepal's potential capacity to export hydropower is huge and generates millions in revenue, setting up the needed infrastructure also costs billions.
The Nepali banking market is not in a position to finance them on its own and needs to attract international finance institutions and commercial parties for whom the environmental and social criteria must be met.
In your opinion, what constitutes a good banking strategy model that aligns with sustainability goals in Nepal, and how can it be implemented effectively?
Maintaining Environment Sustainable Goals (ESG) at the heart of the banking strategy is crucial to achieve them. Some banks have CSR programmes where they help a couple of schools, which is nice but they are not taking it seriously. A good strategy is when you put ESG at the heart and not just set up a sustainability department with three people looking over them. Rather, it is important to make sure that everyone in the organisation understands it.
The total FMO financing in NMB is currently over three billion rupees, and the two are signing another loan of $20 million. Can you share some insights into the investments made and the outcomes so far?
We are both an investor and lender to the NMB and through our joint venture agreement FMO holds 13.69 per cent of the bank's shares and is the largest shareholder of the NMB. So we provide both capital and loans. We will be signing another loan of $20 million, of which $10 million will be dedicated to SMEs while the other half will be dedicated to climate-related projects.
If we look at the development of NMB, the bank is the first and only in Nepal to publish its carbon footprint report among other examples. We focus on environmental and social elements and have had many discussions and training sessions through which we have seen the bank going forward. Talking to other bankers, they also perceive NMB Bank as a front-runner which is exactly what we want.
So, we do see the NMB moving forward alongside developing their commercial model, which is another important aspect and we see the outcomes to be positive so far.
What is the way forward in FMO's collaboration with NMB?
NMB plays an important role in IIN and we think further collaboration there is important. We are also discussing exchanging staff between the institutions to better understand how we could further collaborate in the energy sector, which will be very important for Nepal. A lot of investment will be needed there and it will be interesting for FMO to collaborate with NMB in the clean energy sector as well.
Nepal, located between China and India, is in a very interesting position and is also a reason why FMO is keen to invest here. The country has a lot of opportunities in both the energy and agriculture sectors, which the FMO finances especially. Seeing the countless opportunities in Nepal, FMO is very much interested in further developing our relationship with the country and the NMB Bank.
A version of this article appears in the print on September 12, 2023, of The Himalayan Times.
