Impact of Global Economic Crisis on Nepalese Economy and Deposit

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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
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• 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.

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• 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.

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• 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

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• 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.

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• 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)

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• 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.

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• 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.

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• 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.

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• 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.

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• 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.

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Thank You