As per the Act, a collateral has to be registered with a registry office which will keep banks and financial institutions (BFIs) updated about whether a borrower has put up the same property up as collateral with another BFI.

The Act also enables borrowers to get loans by putting movable goods such as gold, silver, grain and cattle up as collateral. The provision is expected to help the poor people having no fixed assets.

“As the Credit Information Bureau Nepal (CIBN) will function as the registry office, the Finance Ministry has decided to implement the Act starting March 15,” said Krishna Prasad Devkota, joint secretary at the Finance Ministry.

The government has named Dilli Aryal, under-secretary at the ministry, as registrar of the registry office.

Bankers have been demanding implementation of the Act as soon as possible amid several multiple borrowing incidents, putting banks at risk. Recently, a delegation

of Nepal Bankers’ Association urged Finance Minister Shankar Prasad Koirala to implement the Act at the earliest.

Bankers said the implementation of the Act is also necessary to execute the Nepal Rastra Bank’s (NRB) directive that has asked BFIs to sign a pari-passu agreement before extending or renewing

working capital loans such as overdraft, cash credit, demand loan, trust receipt loan and short-term loans exceeding Rs 10 million to the same borrower.

A pari-passu agreement ensures proportional rights on collateral put up by the borrower with financing BFIs based on the size of loans. If such loans are not recovered, BFIs will have to recover the loans from the collateral based on the pari-passu agreement, according to NRB.

Although the government allowed the CIBN to function as the registry office three years ago considering its experience in keeping the details of credit history of borrowers, a failure to purchase required software resulted in a delay in the implementation of the Act. Moreover, the government also failed to appoint a registrar at the office after one assigned for the job was transferred from the Finance Ministry, further delaying the Act’s implementation.

“The CIBN prepared a document of the request for proposal by taking help from the International Finance Corporation (IFC), but the government refused to accept the document, asking to include a provision that gives preference to local vendors,” said a former CIBN board member.

“The government’s representative sought to change the criteria for the vendor that would suit their preferred local vender, but the CIBN refused to accept the change.”

The software was planned to be purchased with the budget under the financial reform programme, but the funds were inadequate. Later, the Asian Development Bank provided necessary budget and the CIB has now installed the software.