RENDEZVOUS
KATHMANDU, MARCH 26
FMO, a Dutch entrepreneurial development bank with over 50 years of expertise in sustainable private sector investments in emerging markets, has been working to empower entrepreneurs in Nepal providing loans and equity investment for environmental and social management system since the late 1990s.
It had equity investment in Clean Energy Development Bank in 2008 as 14 per cent shareholder and it raised its stake to 20 per cent after the bank merged with the NMB Bank in 2015. Arno De Vette, the chief representative at FMO Singapore Rep Office, spoke with Kiran Lama of The Himalayan Times about how FMO is collaborating with NMB Bank to work in renewable energy, hydropower and project financing.
Excerpts:
What is the main objective of FMO and how is it connected with NMB?
We're the AAA-rated bank supervised by the Dutch central bank. We're investing and disbursing loan and equity investments in the emerging markets, in over 85 countries. We aim to support the private sector to accelerate the growth momentum of the countries where we are involved. This includes Nepal. Our focus is mainly on three areas - renewable energy, financial sector and agriculture. We believe that other commercial banks are not yet willing to invest in these areas. But our role is beyond financing, as we help businesses to operate and grow transparently in an environmentally- and socially-responsible manner. Also we aim to enhance the local prosperity in emerging markets.
We have been active in Nepal since the late 1990s-started giving loans and equity investments.
We were one of the participants in providing the first syndicated loan for a project in Nepal - the Bhotekoshi Hydropower.
And we entered the financial sector with equity investment in Clean Energy Development Bank (CEDB) in 2008 as 14 per cent shareholder.
That bank grew splendidly, with a nice portfolio in hydropower and solar panels. And in 2015, CEDB along with other smaller banks - Pathibhara, Bhrikutee and Prudential - were merged into NMB. And with support from the Nepal Rastra Bank, FMO increased its stake to 20 per cent in NMB, becoming the largest shareholder.
Owing to subsequent mergers, however, our holdings have now been diluted to around 14 per cent.
After becoming the largest shareholder, how has FMO supported NMB to realise its vision?
FMO tried to support NMB via technical assistance and connections with our network and strengthening on various areas, such as ensuring better access to credit for SME clients instead of the corporates, helping to establish NMB as the preferred and best bank for renewable/hydro financing, setting up of a good environmental and social management system (ESMS) to prevent loans to the companies who do not take care of the risks involved with this kind of important but complicated investments, digitalisation of the bank and introducing NMB to other international institutions to attract funding. FMO has nominated a board member in NMB to support good corporate governance. We are proud NMB is developing in a robust manner under the guidance of Chief Executive Sunil KC and has been nominated by the Financial Times as the 'Bank of Year' for Asia and Nepal for many years in a row.
Can you shed some light on the Currency Exchange Fund (TCX)?
TCX is the fund that is founded and initiated by FMO. Our bank was a founding shareholder.
Now many development finance institutions (DFIs) like us make lots of TCX.
Basically, what TCX does is that it protects the shareholders' investments and their clients by hedging currency risk. Let me explain it in a simple way.
For instance, if a company in Nepal generates revenue based in the local currency, it's a huge risk if they seek dollar-denominated loan from a foreign bank like us because of the exchange rate volatility. So, basically what TCX does is hedge the currency risk, which means there is a contract between the foreign bank and the local company for exchanging hard currency funding into local currency loan.
What are the challenges and opportunities for sustainable banking in Nepal?
Instead of opportunities, I think sustainable banking is a necessity in Nepal. It would ensure that banks are not providing loans to companies that are misusing it by investing in sectors that are polluting the environment or not treating their employees properly. In Nepal, it is essential to tap the hydropower potential. If the hydro infrastructure is not efficiently implemented, it will create problems, especially for people living in rural parts of the country.
So the only way to ensure proper guidance is for the banks in Nepal to adopt ESMS.
We have a very sharp eye for sustainable development goals. And we're very proud of being a shareholder of NMB, which is so far one of the few banks in the country to have implemented ESMS.
Are there other areas where FMO is involved?
Yes. We also try to support equity investments in smaller SMEs by supporting private equity funds like Dolma Impact Fund 1 and 2 where we are an investor.
We are active in supporting all the banks in Nepal with implementation of ESMS where the hydro sector is involved through training programmes.
In addition, together with Swiss government and UK CDC we have set up a company - Nepal Invests - that will become a platform to attract more DFI (development finance institutions)- funding to Nepal. One focus area for NI is to make more banks in Nepal eligible for loans by DFIs, where good ESMS is often a necessary condition. The other focus area of this platform will be to improve infrastructure and quality of local and international private equity funds in Nepal, so investors will come to Nepal and equity investments in SME can take place. An overall stable macroeconomic and political environment is essential to let the economy grow and make investments happen.
A version of this article appears in the print on March 27, 2022, of The Himalayan Times.
