DCGC guarantee fails to inspire

HIMALAYAN NEWS SERVICE

KATHMANDU: The microfinance institutions are not opting for deposit insurance in the absence of obligatory provision from the regulators.

“Deposit and Credit Guarantee Corporation (DCGC) has already undertaken all the necessary procedures for the insurance of the deposits up to Rs 2,00,000 of any micro finance institution whenever they come,” said Bhaskar Mani Gyanwali, spokesperson for Nepal Rastra Bank (NRB).

Gyanwali, who also served as the chairman of DCGC said the reliability of DCGC as the deposit guarantor is due to the backing of central bank and the government.

Though the regulation regarding the deposit guarantee for the microfinance institutions had come into effect from July 17, none of these class ‘D’ financial institutions have come to DCGC for insuring their deposits.

According to the regulation, in case of bankruptcy of a financial institution, a small depositor, who has a deposit up to Rs 2,00,000, will get the total deposit amount and interest within 90 days from the date the institution goes under liquidation.

Thus, the hopes are rested on the government and the central bank making it mandatory for the financial institutions to insure their deposits up to Rs 2,00,000. “There is no voluntary interest thus regulators have to make the provision obligatory,” added Gyanwali.

The annual budget for this fiscal year had also decided to invest additional Rs 250 million in DCGC as the contribution from government to increase the capital of the corporation to Rs 2 billion. The same budget had also announced the expansion of Small Deposit Guarantee Program introduced last year for class ‘D’ financial institutions to Class ‘C’ and Class ‘B’ financial institutions as well.

Earlier, the ‘D’ class financial institutions were not allowed to collect deposits from the public. However, the monetary policy for fiscal year 2010-11 opened up these institutions to collect deposits from their members to pave the way for implementation of the deposit guarantee schemes.

DCGC has set Rs 0.2 as guarantee fee for every Rs 100 worth of deposits held at micro-finance development banks.

The Ministry of Finance (MoF) has apparently finalised the draft and will soon forward it to the Ministry of Law and Justice. The proposed law has incorporated all classes of financial institutions including commercial banks for the deposit guarantee scheme.

The collapse of Nepal Bikas Bank was the alarm bell to all of the concerned bodies involved in regulating Nepali financial institutions, making them seriously think about the deposit security in Nepali banking system. Thus, formulation of this deposit guarantee scheme will be the government’s and central bank’s direct attempt at preserving the deposits of the depositors.