FMO encourages the adoption of digital banking solutions by financial institutions in Nepal.

Michael Jongeneel
CEO, FMO: Dutch Entrepreneurial Development Bank  

Michael Jongeneel, Chief Executive Officer of FMO: Dutch Entrepreneurial Development Bank, (Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden), was recently in Kathmandu where it has partnered with NMB Bank. As the CEO of FMO, he occupies a prominent position in the world of sustainable finance, and his insights and experiences offer a unique perspective on the intersection of finance, development and sustainability in Nepal and beyond.

FMO, with its illustrious history spanning over half a century, is a renowned Dutch development bank specialising in sustainable private sector investments in emerging markets. With a commitment to promoting economic development, fostering inclusive prosperity, and championing environmental and social responsibility, FMO has established itself as a global leader in sustainable finance.

In this interview, Jongeneel shares his knowledge and expertise on a diverse array of topics, providing deep insights into FMO’s extensive engagement in Nepal. From its pioneering role in financing vital infrastructure projects to its steadfast commitment to sustainable finance principles, FMO’s impact on Nepal’s economic landscape is profound. Excerpts:

Nepal has ambitious goals for renewable energy and sustainability. How can financial institutions like NMB Bank and FMO: Dutch Entrepreneurial Development Bank contribute to accelerating Nepal’s transition towards a green economy?

In Nepal, the transition towards a green economy is not just a matter of environmental sustainability; it’s a pathway to economic growth and prosperity. NMB Bank and FMO recognise the critical role we can play in catalysing this transformation. Firstly, we understand that Nepal has vast untapped potential in renewable energy, particularly hydropower. It’s an abundant resource that can not only meet Nepal’s energy demands but also provide an opportunity for export revenues. Our financial support to hydropower projects in Nepal, starting from the Upper Bhotekoshi project in 1996 to more recent investments, reflects our commitment to harnessing this potential.

By providing funding and expertise, we help these projects meet international environmental and social standards, ensuring that the benefits extend to local communities and the environment. Secondly, the financial sector is the lifeblood of any economy. NMB Bank, in which FMO holds the largest stake, has been at the forefront of implementing sustainable finance agendas. We have trained our staff to consider environmental, social and governance (ESG) factors when financing projects or private companies. This approach not only mitigates risks but also encourages businesses to adopt sustainable practices. By leading in this aspect, we set an example for other financial institutions in Nepal and inspire them to incorporate ESG considerations into their lending decisions.

Thirdly, supporting a green economy requires more than just capital; it demands a comprehensive approach. Nepal’s commitment to achieving net-zero emissions by 2045 is commendable but it also necessitates significant foreign investment. FMO can be a key player here, actively lending and investing in projects that align with Nepal’s net-zero targets. However, achieving net-zero emissions must be equitable, considering the social aspects of the transition. We are dedicated to ensuring that our investments in Nepal support a just and inclusive transition to a green economy. Lastly, we understand the importance of financial regulations and frameworks that promote sustainable finance.

Also, FMO is supportive of these initiatives and actively engages with regulators, both in Nepal and in the European Union, where similar discussions are taking place. In summary, NMB Bank and FMO are committed to Nepal’s journey towards a green economy. Through responsible financing, capacity building and support for regulatory frameworks, we aim to be catalysts for sustainable development, ensuring that Nepal harnesses its potential while safeguarding the environment and improving the lives of its people.

NMB Bank’s partnership with FMO has been pivotal in promoting sustainable finance. Can you elaborate on some specific projects or initiatives that have had a significant impact on Nepal’s sustainable development?

Our partnership with NMB Bank has been instrumental in driving sustainable finance initiatives in Nepal, and we are proud of the positive impact we have had on the country’s sustainable development. Allow me to elaborate on some specific projects and initiatives that stand out:

Hydropower Projects: One of the most significant contributions has been our support for hydropower projects in Nepal. Hydropower is a critical component of Nepal’s energy infrastructure, and it has the potential to provide clean energy and export revenues. Starting with our financing of the Upper Bhotekoshi project in 1996, we’ve continued to invest in various hydro projects. These initiatives not only contribute to Nepal’s energy needs but also align with global efforts to combat climate change.

Financial Sector Development: In 2008, we expanded our involvement in Nepal by investing in the financial sector. Our support for banks like Clean Energy Development Bank, which later merged into NMB Bank, has been instrumental in strengthening the financial landscape. NMB Bank has emerged as a leader in implementing sustainable finance practices. We have trained NMB Bank’s front office staff to consider environmental, social and governance (ESG) factors when evaluating potential projects. This has not only improved risk management but also incentivised businesses to adopt sustainable practices.

Private Equity Funds: Weve also contributed to Nepal’s sustainable development by supporting private equity funds like the Dolma Impact Fund. These funds provide much-needed growth capital to small and medium-sized businesses in Nepal. By facilitating access to finance for these enterprises, we empower them to thrive and contribute to the country’s economic growth.

Nepal Invests: Together with the Business Initiative Investment (BII) and the Swiss Agency for Development and Cooperation (SDC), we initiated ‘Nepal Invests’. This collaboration between development finance institutions and development partners aims to accelerate investment in Nepal while simultaneously raising environmental and social standards. By leveraging our expertise and resources, we are fostering an environment that attracts sustainable investments into the country.

Environmental and Social Risk Management (ESRM): Nepal’s central bank introduced ESRM guidelines in 2018, and FMO, both directly and through Nepal Invests, is actively supporting the implementation of these guidelines with local banks. We are particularly proud of NMB Bank’s proactive role in this area, setting an example for others in managing environmental and social risks effectively.

In conclusion, the partnership between NMB Bank and FMO in Nepal has been characterised by a commitment to sustainable finance and development. Through strategic investments in critical sectors, capacity building and collaboration with local stakeholders, we have made a tangible impact on Nepal’s journey toward sustainability and economic prosperity.

In the context of Nepal’s growing tourism industry, what opportunities do you see for sustainable investment and development in tourism, and how can FMO play a role in this sector?

Nepal’s tourism industry holds tremendous potential for sustainable investment and development. As the country’s natural beauty and cultural heritage continue to attract travellers from around the world, there are several opportunities for sustainable initiatives that can benefit both the industry and the nation. Nepal’s rich biodiversity and stunning landscapes provide a unique platform for eco-tourism.

FMO recognises the potential in supporting eco-friendly tourism initiatives that emphasise conservation, minimise environmental impact, and provide meaningful experiences for tourists. Investments in eco-lodges, wildlife conservation and responsible trekking operations can enhance Nepal’s eco-tourism offerings.

Sustainable tourism requires well-planned and developed infrastructure. FMO can play a crucial role in financing infrastructure projects that improve accessibility to tourist destinations while maintaining environmental and cultural sensitivities. This could involve investments in road networks, airport facilities, and sustainable transportation options. Empowering local communities to participate in and benefit from tourism is key to sustainable development. FMO can support tourism projects that provide training and resources to local entrepreneurs, helping them establish businesses related to tourism, such as handicrafts and local cuisine. This not only generates income for communities but also preserves their traditions and cultures.

Sustainable tourism facilities require a reliable and eco-friendly energy supply. FMO has extensive experience in renewable energy investments, which can be applied to the tourism sector in Nepal. By financing solar power installations, for instance, we can help tourist facilities reduce their carbon footprint while ensuring uninterrupted service. FMO can encourage responsible tourism practices by partnering with tour operators and travel agencies that prioritise sustainability. This can involve supporting initiatives that educate tourists about the local environment and culture, encourage responsible behaviour, and promote ethical wildlife experiences. To fully harness the potential of sustainable tourism, capacity building is essential. FMO can facilitate training programmes for tourism professionals, guides and local communities to enhance their knowledge of sustainable practices and customer service.

In essence, FMO sees significant opportunities for sustainable investment and development in Nepal’s growing tourism industry. By aligning our financial resources, expertise and commitment to sustainability, we can play a pivotal role in nurturing this sector while preserving the country’s natural and cultural treasures for generations to come.

Risk management is crucial in the banking sector. How does FMO collaborate with NMB Bank to address financial and operational risks while pursuing sustainable financing in Nepal?

Risk management is paramount in the banking sector, especially when it comes to pursuing sustainable financing in a dynamic market like Nepal. Our collaboration with NMB Bank is underpinned by a shared commitment to ensuring that we effectively address financial and operational risks while advancing sustainable finance initiatives. This involves a comprehensive and multifaceted approach. To begin with, we engage in a meticulous risk assessment process. FMO and NMB Bank work closely to identify and evaluate the unique risks associated with sustainable financing in Nepal. This involves a deep analysis of environmental, social and governance (ESG) factors in potential projects. By gaining a holistic understanding of these risks upfront, we are better equipped to develop and implement strategies for their mitigation.

Our commitment to effective risk management extends to capacity building. We understand that empowering NMB Bank’s staff with the knowledge and skills needed to evaluate and manage ESG-related risks is paramount. To this end, we provide training programmes tailored to enhance their capabilities in this domain. This not only improves the quality of decision-making but also fosters a culture of responsible lending within the bank. Due diligence is another critical component of our risk management efforts. Before committing to any sustainable financing project, FMO and NMB Bank conduct rigorous due diligence. This process involves on-site visits, stakeholder engagement and comprehensive analysis to ensure that all ESG risks and opportunities are thoroughly assessed. This meticulous approach allows us to make well-informed lending decisions that align with our sustainable finance objectives.

Our risk management practices don’t conclude upon securing financing for a project. We maintain ongoing monitoring and evaluation mechanisms to ensure that financed projects continue to adhere to sustainability goals. Key performance indicators related to sustainability are tracked and any emerging risks are promptly identified and addressed. This commitment to post-financing monitoring ensures that projects stay on course towards their sustainability objectives. Furthermore, our risk management efforts extend to stakeholder engagement. We believe that transparent and constructive relationships with local communities and regulatory authorities are integral to effective risk management. FMO and NMB Bank work together to foster these relationships, ensuring that stakeholder concerns and perspectives are considered in project risk assessments.

Compliance with regulations, including the environmental and social risk management (ESRM) directives introduced by Nepal’s central bank, is a fundamental aspect of our risk management approach. FMO actively supports NMB Bank in implementing these directives to ensure that our operations align with local regulatory requirements. In some cases, risk-sharing mechanisms may come into play. FMO may share risks with NMB Bank to encourage sustainable financing in challenging sectors or projects. This approach not only promotes responsible lending but also provides financial support to projects that might otherwise face difficulties in securing funding.

Lastly, we recognise that risk management is an ongoing process that must evolve with changing market dynamics and sustainability standards. FMO and NMB Bank engage in continuous improvement efforts, learning from past experiences and incorporating best practices to enhance our risk management frameworks. In summary, our collaborative approach to risk management with NMB Bank in Nepal encompasses risk assessment, capacity building, due diligence, monitoring, stakeholder engagement, compliance, risk sharing and a commitment to continuous improvement. Through these comprehensive efforts, we aim to ensure the long-term success of sustainable finance initiatives in Nepal, while delivering positive social and environmental impacts.

The Covid 19 pandemic posed unique challenges for businesses worldwide. How did FMO and NMB Bank support Nepali businesses during this crisis, particularly in terms of access to finance?

The Covid 19 pandemic brought unprecedented challenges to businesses worldwide and Nepal was no exception. During this crisis, FMO and NMB Bank were dedicated to supporting Nepali businesses, especially in terms of ensuring access to finance and helping them navigate these turbulent times. First and foremost, we recognised the immediate financial strain that businesses faced as the pandemic unfolded. To address this, FMO worked to provide emergency financing solutions worldwide. We offered financial relief measures such as loan moratoriums and flexible repayment terms to ease the burden on businesses struggling with cash flow disruptions. These measures were designed to provide some breathing space for businesses grappling with the sudden economic shock.

Moreover, understanding that small and medium-sized enterprises (SMEs) often form the backbone of many economies, including Nepal’s, we took specific initiatives to support this crucial sector. FMO and NMB Bank actively facilitated access to credit for SMEs, which were disproportionately affected by the pandemic. We ensured that businesses had access to working capital loans and other financial instruments that were vital for their survival and recovery. We also understood that the crisis required a multifaceted response. Beyond financial support, FMO and NMB Bank engaged in knowledge-sharing and capacity-building efforts. We provided guidance and resources to businesses on adapting to the changing market dynamics brought about by the pandemic. This included helping businesses explore digitalisation and e-commerce opportunities, which became increasingly important during lockdowns and social distancing measures.

In addition to supporting businesses directly, we actively engaged with regulators and industry stakeholders to advocate for policies that would facilitate access to finance and foster economic resilience. We recognised that a coordinated effort was necessary to create an enabling environment for businesses to weather the crisis. Furthermore, the pandemic underscored the importance of sustainable finance and responsible business practices. FMO and NMB Bank continued to emphasise environmental, social, and governance (ESG) considerations in our lending decisions, even in the midst of the crisis. We encouraged businesses to integrate ESG principles into their operations, recognising that sustainability would play a critical role in the long-term resilience of businesses and the economy.

How can FMO’s expertise in agribusiness finance contribute to the modernisation and sustainability of agriculture in Nepal?

Nepal’s agriculture sector plays a vital role in its economy, employing a significant portion of the population and contributing substantially to its GDP. FMO’s expertise in agribusiness finance holds the potential to contribute significantly to the modernisation and sustainability of agriculture in Nepal. We recognise that modernising Nepal’s agriculture sector is essential to enhancing productivity and ensuring food security. FMO has extensive experience in financing agribusiness value chains globally. We can bring this expertise to Nepal by providing tailored financial solutions to agribusinesses, farmers and related enterprises. This includes financing for the adoption of modern farming practices, such as mechanisation, improved irrigation and the use of high-yield seeds. These investments can significantly boost agricultural productivity in Nepal.

Sustainability is a core pillar of FMO’s agribusiness approach. We understand that sustainable agriculture is not only about increasing yields but also about safeguarding the environment and supporting local communities. FMO can collaborate with Nepali agribusinesses to implement sustainable farming practices that minimise the sector’s environmental footprint. This may include promoting organic farming, efficient water management, and responsible pesticide and fertiliser use. By doing so, we contribute to the long-term health of Nepal’s agriculture sector while protecting its natural resources.

Further, FMO can facilitate access to financing for smallholder farmers in Nepal who often face challenges in securing credit. We can work with financial institutions and agribusinesses to develop innovative financial products that cater to the specific needs of small farmers. These could include microfinance options, crop insurance and credit facilities to help them invest in modern farming technologies and inputs. We also recognise the importance of agribusiness value addition and diversification in Nepal’s agricultural sector. FMO can support the development of agro-processing industries and help farmers access markets for value-added products. This not only increases farmers’ income but also reduces post-harvest losses, contributing to food security.

In addition to financing, FMO can provide technical assistance and capacity-building programmes. We can facilitate knowledge transfer and best practices from our global agribusiness portfolio to Nepal. This may involve training programmes on sustainable farming techniques, quality control and market access strategies. By building the capacity of local actors, we empower them to drive the modernisation and sustainability of Nepal’s agriculture sector independently. Also, we understand that the agriculture sector in Nepal is closely linked to rural livelihoods. FMO can support initiatives that improve the livelihoods of rural communities by creating employment opportunities in agribusiness value chains. This not only fosters economic development but also encourages young people to stay engaged in agriculture, preventing rural-to-urban migration.

Financial inclusion is a significant concern in many developing countries. How is FMO working to expand access to financial services in Nepal, especially in rural and underserved areas?

Financial inclusion is a significant concern in many developing countries, including Nepal, where access to formal financial services can be limited, particularly in rural and underserved areas. FMO is deeply committed to addressing this issue and is actively working to expand access to financial services across Nepal, with a particular focus on reaching those who have been traditionally excluded from the formal banking sector. Our approach involves supporting local financial institutions in Nepal to enhance their capacity and outreach. We provide financing and technical assistance to these institutions, enabling them to expand their operations into rural and underserved areas. This helps extend financial services to previously unreached populations.

Digital financial services play a crucial role in overcoming geographical barriers. FMO encourages the adoption of digital banking solutions by financial institutions in Nepal. We provide funding for the development of digital platforms and mobile banking applications that enable individuals to access financial services conveniently, even in areas with limited physical infrastructure. Capacity building is also a core component of our strategy. We offer training programmes and technical assistance to financial institutions and their staff, equipping them with the skills and knowledge needed to effectively serve rural clients. This includes training on risk management, customer engagement and the use of digital technologies.

Furthermore, collaboration is key to expanding financial inclusion, and by working together, we can create a more comprehensive and coordinated approach to reaching underserved communities. In conclusion, FMO is dedicated to expanding access to financial services in Nepal, especially in rural and underserved areas. Our approach encompasses supporting financial institutions, promoting digital financial services, building institutional capacity, fostering inclusive business models and forging strategic partnerships. Through these concerted efforts, we aim to create a more inclusive financial ecosystem in Nepal, one that empowers individuals and communities, fosters economic development, and ultimately improves the livelihoods of those who have historically been excluded from formal banking services.

Climate change resilience is critical in Nepal’s context. How does FMO support initiatives aimed at building climate resilience within the banking and business sectors?

Climate change resilience is a paramount concern, particularly in Nepal’s context, given its vulnerability to the impacts of climate change. At FMO, we recognise the urgency of addressing these challenges and are committed to supporting initiatives that strengthen climate resilience within the banking and business sectors in Nepal. Our approach to building climate resilience is multifaceted, reflecting the complexity of the issue and the diverse needs of the Nepali economy. First and foremost, we understand that financial institutions play a pivotal role in facilitating climate-resilient investments. To this end, we collaborate closely with our partner banks, such as NMB Bank, to integrate climate considerations into their operations. We actively engage in capacity building, providing training and technical assistance to banks and financial institutions to enhance their understanding of climate risks and opportunities.

One notable initiative in this regard is our support for the implementation of environmental and social risk management (ESRM) systems. Nepal Rastra Bank introduced ESRM guidelines in 2018, which mandate that the financial sector implements robust risk management measures related to environmental and social factors. FMO, both directly and through initiatives like Nepal Invests, is committed to aiding Nepal Rastra Bank in effectively implementing these guidelines across the banking sector. By doing so, we aim to ensure that climate and environmental risks are adequately addressed in financial decisions, reducing vulnerabilities within the banking sector. Furthermore, we recognise the importance of promoting climate-resilient business practices. Nepal’s economy encompasses various sectors, including agriculture, which is susceptible to climate-related disruptions. FMO’s expertise in agribusiness finance is instrumental in supporting the modernisation and sustainability of agriculture in Nepal. By providing financing and technical assistance to agricultural enterprises, we enable them to adopt climate-resilient farming techniques, invest in irrigation systems, and implement sustainable practices that enhance their resilience to changing climate patterns.

Another critical aspect of our climate resilience strategy is the promotion of renewable energy projects. Nepal’s commitment to achieving a net-zero target by 2045 underscores the significance of renewable energy in the country’s climate agenda. FMO can be an active lender and shareholder in projects that contribute to this ambitious goal. We believe that investments in renewable energy not only reduce greenhouse gas emissions but also enhance Nepal’s energy security, making it more resilient to external shocks. In addition to these efforts, we actively engage with businesses and stakeholders to foster a broader understanding of climate resilience and its importance for long-term sustainability. We connect our clients with specialists and experts in relevant fields to build their expertise in climate risk management, carbon disclosure, and sustainable finance practices.

Moreover, FMO remains committed to staying informed about emerging climate-related regulations and frameworks. For instance, the European Union’s introduction of green taxonomy serves as a model for categorising environmentally sustainable economic activities. While Nepal’s central bank plans to introduce its green taxonomy, FMO stands ready to provide support and share its experiences in navigating this critical aspect of promoting green financing and enhancing climate resilience within the business and banking sectors. In conclusion, building climate resilience is a top priority for FMO in Nepal. Our approach combines capacity building, risk management, support for climate-resilient business practices and investments in renewable energy. We are dedicated to collaborating with financial institutions, businesses and regulatory authorities to strengthen Nepal’s ability to address climate challenges effectively. By promoting climate resilience within the banking and business sectors, we aim to contribute to a more sustainable and prosperous future for Nepal and its people.

The digital transformation of banking is happening globally. How is FMO adapting to technological advancements and ensuring that Nepal’s banking services remain competitive and accessible to all?

The digital transformation of banking is a global phenomenon and FMO recognises its pivotal role in ensuring that Nepal’s banking services remain competitive, accessible and aligned with the digital era. Our approach to adapting to technological advancements centres around fostering innovation, enhancing financial inclusion and facilitating economic growth through digitisation. First and foremost, we view technology as an enabler of financial inclusion. In Nepal, as in many developing countries, a significant portion of the population lacks access to traditional banking services due to geographical constraints and limited infrastructure. To bridge this gap, we actively support and invest in fintech companies and digital financial service providers. These partnerships aim to deliver innovative solutions that can reach unbanked and underserved populations, making essential banking services accessible to all.

Mobile banking and digital wallets have emerged as powerful tools for expanding financial inclusion. Through our investments and collaborations, we strive to promote the development of user-friendly mobile banking applications and digital payment platforms that cater to the unique needs and preferences of Nepali consumers. These solutions empower individuals and businesses to perform transactions, access credit and manage their finances conveniently via their smartphones. Additionally, cybersecurity is a paramount concern in the digital era. As technology adoption grows, so do the risks associated with cyber threats and data breaches. FMO is deeply committed to ensuring the security and privacy of financial data. We actively engage with our partner banks and financial institutions in Nepal to reinforce their cybersecurity measures and compliance with international standards. This collaborative effort aims to safeguard customer information and foster trust in digital banking.

Furthermore, we recognise the potential of technology to drive efficiency and transparency in financial systems. We support initiatives that enhance the efficiency of payment and settlement systems, reducing transaction costs and increasing the speed of financial transactions. These improvements not only benefit consumers but also create a more conducive environment for businesses to thrive. Our involvement extends to advocating for regulatory frameworks that foster innovation while ensuring consumer protection and financial stability. We actively engage with regulatory authorities in Nepal to promote an enabling environment for fintech innovation and digital financial services. We believe that responsible regulation can strike a balance between encouraging innovation and safeguarding the interests of all stakeholders.

Nepal Rastra Bank introduced ESRM guidelines in 2018, which mandate that the financial sector implements robust risk management measures related to environmental and social factors. FMO, both directly and through initiatives like Nepal Invests, is committed to aiding Nepal Rastra Bank in effectively implementing these guidelines across the banking sector. By doing so, we aim to ensure that climate and environmental risks are adequately addressed in financial decisions, reducing vulnerabilities within the banking sector.

We view technology as an enabler of financial inclusion. In Nepal, as in many developing countries, a significant portion of the population lacks access to traditional banking services due to geographical constraints and limited infrastructure. To bridge this gap, we actively support and invest in fintech companies and digital financial service providers. These partnerships aim to deliver innovative solutions that can reach unbanked and underserved populations, making essential banking services accessible to all.