Government Proposes Rs 100 Billion Alternative Development Finance Fund with Insurance Companies’ Participation

The Government of Nepal has announced plans to establish a Rs 100 billion Alternative Development Finance Fund, incorporating participation from insurance companies. The Ministry of Finance has proposed a bill to regulate the mobilization of this fund, which has been submitted to the Council of Ministers. According to the bill, the fund will include investments from the Citizens Investment Trust, Employees Provident Fund, and Social Security Fund.

Capital Structure of the Fund

The bill stipulates that the authorized capital of the fund will be Rs 100 billion, divided into 1 billion ordinary shares of Rs 100 each. The paid-up capital will be Rs 25 billion, represented by 250 million ordinary shares of Rs 100 each. The Government of Nepal will hold a 51% stake, while the Employees Provident Fund, Citizens Investment Trust, and Social Security Fund will collectively own 25%, and life insurance, non-life insurance, and reinsurance companies will hold the remaining 24%.

The government and other subscribing entities must fully pay their allotted share amounts in up to two installments within two fiscal years. The number of shares among shareholders will be determined by mutual consent; if no agreement is reached, shares will be distributed equally. Any unsubscribed shares will be sold as per the government’s decision.

Share Sales and Investment Provisions

If a shareholder wishes to sell their shares, other groups within the same structure can purchase them. If no group opts to buy, the shares will be sold as determined by the government. International governmental or intergovernmental financial institutions interested in purchasing shares can do so based on a committee’s recommendation and the Council of Ministers’ approval, with such transactions published in the Nepal Gazette.

Means of Finance Mobilization

The government will mobilize funds through bonds, equity, or hybrid financial instruments. These tools will be used to identify, study, develop, or implement projects that promise high economic returns, create additional employment opportunities, or contribute to national economic growth. The bill allows for raising funds for specific projects through bonds, equity, hybrid instruments, or public contributions.

Funds can also be raised for specific projects by securing guarantees from the Government of Nepal, international financial institutions, or implementing entities, or through the fund’s own guarantee. Capital will be mobilized from domestic and foreign investors, by establishing a remittance fund with investments from Nepali citizens in foreign employment or non-resident Nepalis, by monetizing project assets, or by creating a unified fund (fund of funds) for investment in infrastructure projects.

Areas of Investment

The alternative development finance will be channeled into sectors such as energy, electricity, infrastructure, industrial parks, dry ports, information technology, tourism, urban infrastructure, and public digital infrastructure. Investments will also be made in other feasible projects identified by the fund as offering high economic returns. Priority will be given to nationally significant projects listed in the National Project Bank, annual government programs, projects recommended by the Investment Board Nepal under public-private partnerships, or initiatives deemed viable by the fund itself. However, projects with an estimated cost below Rs 1 billion, low financial returns, or insufficient collateral will not be eligible for investment.

Bond Transactions

Bonds issued by the fund will be treated equivalently to development bonds issued by the government or Nepal Rastra Bank and can be listed on the securities market for trading in the secondary market. Investors in the fund’s financial instruments will be eligible for tax exemptions and other incentives. Special concessions may be provided for instruments issued in foreign capital markets or for green projects.

Offenses and Penalties

Providing false or misleading information to obtain investments, loans, or benefits from the fund will be considered an offense, punishable by a fine equivalent to the loss incurred and up to one year in prison, or both. Investigations will be conducted by an officer designated by the government via a notice in the Nepal Gazette. The investigation must be completed within 60 days, and a report submitted to the relevant public prosecutor’s office for filing a case in the district court.

The establishment of this fund is expected to significantly contribute to Nepal’s economic development and job creation. If the bill is passed, it will open new avenues for investment in large-scale projects, marking a transformative step in the country’s financial landscape.