To help promote discourse on credit diversification and to support increased access to finance,the Confederation of Banks and Financial Institutions Nepal (CBFIN) and International Finance Corporation (IFC), a member of the World Bank Group, organized a workshop on Secured Transactions Reform and Movable Asset Finance. In Nepal, the private sector, particularly Micro, Small & Medium Enterprises (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 percent 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. However, a reform to develop a movable asset finance market will help promote credit diversification for financial institutions while increasing access to much-needed finance for Nepali firms.
“In the more advanced markets, movable assets are the primary type of collateral that firms can usedto obtain bank financing,” said Babacar S. Faye, IFC Resident Representative in Nepal. “A developed movable asset finance market promotes financial deepening, reduces the risk and cost of credit and increases overall access to credit for MSMEs.” 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. “It will also strengthen the competitiveness of Nepalese value chains both locally and internationally and could open new business avenues for Nepalese businesses in the long run.”
Golyan, President of CBFIN further reiterated the 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. He also stated that all stakeholders in the country should come together to promote movable asset financing with a view to increase access to finance to the MSME and corporate sector and meet the larger agenda of financial inclusion and import substitution.
Technical experts from the International Finance Corporation presented business case of Secured Transactions Law, Role of Collateral Registry in Movable Assets Finance, and how the country can work towards better Secured Transactions Law in Nepal. The presentations were followed by a multi-stakeholder panel discussion comprising of industry association, local experts on access to finance, Secured Transaction Registry, and IFC experts. The participants highlighted need for coordinated efforts from all sides including government to create a conducive environment for the promotion of movable assets financing.