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Wings for Nepal’s cash soon
KATHMANDU, APR 21 -
The over four-decade long restriction on Nepali investors going abroad is coming to an end. The government is currently giving the final touches to the draft of Mutual Fund Regulation to permit Nepali mutual funds to be invested in the foreign capital market.
If things go according to plan, institutional investors from Nepal can invest in foreign capital markets. According to the proposed regulation, a maximum of 25 percent of the paid-up capital of mutual funds can be invested in foreign capital markets.
Clause 37 of the proposed regulation says that such investments can be done in countries where Securities Board of Nepal (SEBON) has a Memorandum of Understanding (MoU) with the regulators. So far SEBON hasn’t signed any MoU with other capital market regulators
The regulation is being drafted at a time when Nepali business houses are looking for a legal window to invest abroad. However, it comes at a time when the banking system is grappling with liquidity crunch amid fears of huge capital flight from the country. Economists see this step as a good one for the future but are also of the view that it should not be executed at a time when the banking system is witnessing decline in deposit. “If it is immediately executed, it would have a negative impact on the economy,” said economist Biswombhar Pyakurel. “Statistics show commercial banks’ deposit declined by Rs. 2 billion last month.”
According to the proposed regulation, the paid-up capital of mutual funds should be a minimum Rs. 500 million. That means Nepali mutual funds can invest a maximum of Rs. 120 million in foreign markets.
According to SEBON Director Neeraj Giri, the purpose of allowing investment in foreign capital markets is to minimise risk. “There might be concentration of mutual fund investment in one particular sector i.e. banks and financial institutions, and that won’t minimise the risk,” said Giri. “If we allow investing abroad, it would diversify the risk and make mutual funds viable and attractive.”
Since some years, the government has been working to amend the Ban on Nepali Investment in Foreign Countries 2021 Act. The first attempt regarding this was made in the budget of 2007-08 which had proposed three ways of allowing investment abroad. The first was allowing Nepali investment abroad for those industries that transfer technology from Nepal through legal provisions. The second was establishing mutual funds that would invest in portfolio instruments of foreign capital markets. And, the third was permitting Nepali holding companies to establish their subsidiaries in foreign lands.
The current budget also has said that laws would be formulated for the expansion of Nepali entrepreneurship and technology abroad to allow Nepali companies open access for investing abroad.
Posted on: 2010-04-22 08:15
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