'Diversity credits for better financial access'

 Kathmandu, June 1

Experts of the banks and financial markets said that a reform to develop a moveable asset finance market will help promote credit diversification for financial institutions while increasing access to finance for Nepali firms. 

"A developed movable asset finance market promotes financial deepening, reduces the risk and cost of credit and increases overall access to credit for micro, small and medium enterprises (MSMEs)," Resident Representative of International Finance Corporation (IFC), in Nepal, Babacar S. Faye said at a workshop on 'Secured transactions reform and movable asset finance', jointly organised by the IFC and Confederation of Banks and Financial Institutions Nepal (CBFIN) in the capital the other day.

In the more advanced markets, movable assets are the primary type of collateral that firms can used to obtain bank financing.

At present, the share of commercial lending involving movable assets in Nepal is estimated to be below 10 percent. If movable asset finance market is developed, the share can be raised to 60 percent in the long term.

"A fully functional movable asset financing mechanism will fundamentally change the shape of financing for MSMEs, agri-business operators, traders and infrastructure companies, among others," said Pawan Kumar Golyan, President of CBFIN.

He added that it will also strengthen the competitiveness of Nepali value chains both locally and internationally and could open new business avenues for Nepali businesses in the long run.

The event was organised to help promote discourse on credit diversification and to support increased access to finance.

The private sector, particularly MSMEs, a key pillar of the economy, routinely report access to finance as one of the major constraints for growth. The credit gap for MSMEs is estimated to be around $3.6 billion.

MSMEs account for approximately 98 percent of all establishments, employing approximately 57 per cent of the workforce. Despite this contribution, MSMEs in Nepal face significant access to finance challenges due to lack of adequate real estate collateral, which is the main current basis for accessing credit in the country, read the statement.

According to Golyan, there is a need for the push for the reform on the current Secured Transactions Act to accommodate new developments in the movable asset financing area and local needs. 

Published in The Rising Nepal daily on 2 June 2022.