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.