Overview
The Deposit and Credit Guarantee Fund (DCGF - Nikshep Tatha Karja Surakshan Kosh - निक्षेप तथा कर्जा सुरक्षण कोष), initially established as the Credit Guarantee Corporation on September 20, 1974, is a pivotal entity in Nepal's financial landscape. It came into existence through the combined efforts and financial backing of Nepal Rastra Bank, Rastriya Banijya Bank, and Nepal Bank Limited. The fund was initially set up with an authorized capital of 10 million and a paid-up capital of 3 million. However, following the introduction of the Deposit and Credit Guarantee Fund Act in 2017, not only did its name change to DCGF, but its authorized and paid-up capital also experienced a significant boost, reaching 10 billion.
Scope and Services of DCGF
Over the years, DCGF has expanded its services and streamlined its operations. Initially, its focus was on supporting priority sector lending for Rastriya Banijya Bank and Nepal Bank Limited, with a cap of 2.50 million. Presently, DCGF operates in several sectors:
- Deposit Guarantee
- Credit Guarantee which includes:
- Micro Finance and Deprived Sector Credit Guarantee
- Agricultural Credit Guarantee
- Educational Credit and Educated Unemployment Business Credit Guarantee
- Small and Medium Enterprises Credit Guarantee
- Livestock Guarantee
Deposit Guarantee: A Safety Net for Savers
The Deposit Guarantee is a government-backed program aimed at safeguarding public savings. This program plays a crucial role in strengthening public confidence in the banking system and encourages the flow of money into formal banking channels. This, in turn, facilitates economic growth.
Importance of Deposit Guarantee
- Ensures the protection of depositor interests
- Contributes to financial system stability
- Shields small depositors' funds
- Enhances competitiveness in the financial sector
- Reduces dependency on state funds for financial bailouts
Credit Guarantee: Empowering the Underprivileged
The Credit Guarantee scheme is a national initiative designed to enhance financial accessibility for underprivileged and marginalized communities. It provides banks and financial institutions with a safety net for investments made in these sectors.
Significance of Credit Guarantee
- Motivates banks to finance high-risk and deprived sectors
- Aids in providing financial access to remote regions
- Offers banking facilities to the underprivileged
- Addresses capital shortages in banks
- Fosters self-employment opportunities
- Contributes to poverty reduction
- Supports overall economic development of the nation
Enhancing Financial Security: The Role of DCGF in Nepal's Deposit Guarantee Scheme
Financial stability is a paramount concern for various stakeholders, including central banks, governments, market players, borrowers, and deposit insurers. In this context, the Deposit and Credit Guarantee Fund (DCGF) in Nepal has played a significant role since the inception of its deposit guarantee scheme in 2010.
Global Significance of Deposit Guarantee
Deposit guarantee, also known as deposit insurance, is globally acknowledged as a vital part of a country’s financial safety net. Implemented in over 120 countries, it serves as a protective measure for depositors, securing their guaranteed deposits in banks and financial institutions (BFIs). This protection is especially crucial in the unlikely event of a BFI's failure.
DCGF’s Dual Functionality
Under the "Deposit and Credit Guarantee Fund Act, 2073," DCGF is statutorily responsible for both deposit and credit guarantee functions. The governance of DCGF features a board with six government representatives and one from Nepal Rastra Bank, emphasizing its nature as a government-sponsored and administered entity.
Scope of Deposit Guarantee Scheme in Nepal
In Nepal, the deposit guarantee scheme is applicable to various types of BFIs:
- Commercial Banks
- Development Banks
- Finance Companies
- Micro Finance Institutions
Premium Rates and Coverage Limits
DCGF has set a premium rate of 0.16% on guaranteed deposits for all member BFIs. The coverage of the deposit guarantee is capped at Rs 5,00,000 per natural individual depositor per member institution. This limit applies to a combination of savings and fixed deposits.
This scheme not only provides a safety cushion for individual depositors but also enhances public confidence in the financial system. By securing deposits up to a certain limit, it mitigates the risk of bank runs and maintains stability in the financial sector. Moreover, the involvement of a variety of financial institutions under this scheme reflects its comprehensive approach to financial safety in Nepal.
In essence, DCGF's deposit guarantee scheme is a critical component in maintaining financial stability in Nepal. It reassures depositors and strengthens the overall trust in the banking system, contributing significantly to the country's economic resilience.
Deposit Guarantee by DCGF
The Deposit and Credit Guarantee Fund (DCGF) plays a vital role in safeguarding the deposits of individuals in Nepal, fostering confidence in the country's financial system. Here are the key elements of the deposit guarantee provided by DCGF:
Coverage of Deposit Guarantee
- DCGF guarantees deposits up to Rs. 5 lakhs for natural person depositors.
- This guarantee applies to deposits held with commercial banks and financial institutions that are licensed by Nepal Rastra Bank.
Premium Rate and Payment Structure
- The premium rate for the deposit guarantee is set at 0.16% annually.
- This premium is paid on a quarterly basis, calculated at a rate of 0.04%.
- The calculation is based on the average deposit amount over the last three months of each quarter.
Procedure in Case of Bank/FI Liquidation
- Preparation of Depositors’ List: In the event of a bank or financial institution's liquidation, the appointed liquidator prepares a list of depositors eligible for compensation.
- Submission to DCGF: This list is then submitted to DCGF.
- Payment of Compensation: DCGF, upon receiving the list, pays the compensation amount to the concerned depositors. This payment is facilitated through the liquidator.
Member Institutions under DCGF
- A Class Commercial Banks: 21 members
- B Class Development Banks: 17 members
- C Class Finance Companies: 17 members
- D Class Micro Finance Institutions: 2 members
Impact of DCGF's Deposit Guarantee
This deposit guarantee scheme by DCGF is instrumental in:
- Protecting Individual Depositors: By guaranteeing deposits up to a certain limit, it protects individual depositors from total loss in the event of financial institution failures.
- Strengthening Financial Stability: The scheme contributes to the overall stability of the financial system by preventing panic withdrawals and maintaining depositor confidence.
- Promoting Responsible Banking Practices: The requirement of a premium payment encourages financial institutions to manage risks effectively.
DCGF Credit Guarantee Schemes
The Deposit and Credit Guarantee Fund (DCGF) offers a range of credit guarantee schemes to bolster various sectors in Nepal. These schemes play a crucial role in providing financial security and promoting economic development. Here's a detailed look at each scheme:
Livestock Credit Guarantee
- Guarantee Limit: Loans for livestock purchases up to Rs. 1,50,000.
- Premium Rate: 5% annually, with the loanee paying 1% and 4% subsidized by the Government of Nepal.
- Compensation:
- 90% of the guaranteed amount in case of livestock death during the policy period.
- 50% compensation for unproductive livestock.
Microfinance and Deprived Sector Credit Guarantee
- Guarantee Limits:
- Up to Rs. 1 million under group or individual guarantee.
- Up to Rs. 2 million with collateral.
- Up to Rs. 1.5 million for women entrepreneurs' micro-enterprises.
- Up to Rs. 1 million for Dalits and skilled foreign returnees.
- Premium Rate: 0.8% annually, with 50% covered by the member institution and 50% subsidized.
- Claim Tenure: Claims must be lodged within two years of the loan's due date.
- Compensation: 75% of the loan's outstanding balance at the due date.
SME Credit Guarantee
- Guarantee Limit: Up to Rs. 10 million, with prior approval required for loans above Rs. 10 million to Rs. 30 million.
- Premium Rate: 0.6% annually, with equal sharing between the member institution and government subsidy.
- Claim Tenure: Maximum of two years from the loan's due date.
- Compensation:
- 80% for loans up to Rs. 5 million.
- 70% for loans above Rs. 5 million to Rs. 30 million.
Agricultural Credit Guarantee
- Guarantee Limit: Up to Rs. 10 million, with approval needed for loans above this up to Rs. 30 million.
- Premium Rate: 0.6% annually, 50% subsidized.
- Compensation:
- 80% for loans up to Rs. 5 million.
- 70% for loans over Rs. 5 million and up to Rs. 30 million.
Educational Loan and Educated Unemployed Business Credit Guarantee
- Guarantee Limit: Up to Rs. 1 million for education loans and Rs. 5 lakh for business loans to educated unemployed individuals.
- Premium Rate: 1% annually, with a 50% subsidy.
- Compensation: Up to 80% of the loan's outstanding balance at the due date.
Export Credit Guarantee
- Guarantee Limit: Up to Rs. 30 million for export-oriented businesses, with prior approval for loans above Rs. 5 million.
- Premium Rate: 1% annually, with a 50% subsidy.
- Compensation:
- 80% for loans up to Rs. 1 million.
- 70% for loans over Rs. 1 million up to Rs. 30 million.
Impact and Significance
These diverse guarantee schemes by DCGF are instrumental in:
- Enhancing Financial Accessibility: They make it easier for individuals and businesses in various sectors to secure loans.
- Risk Mitigation: By providing a safety net, these schemes encourage lending to sectors that might otherwise be considered risky.
- Economic Empowerment: From agriculture to SMEs, these schemes contribute significantly to the economic empowerment of various segments of society.
