As Nepal aims to achieve carbon neutrality by 2045, or even sooner, a few banks have started adopting sustainable banking. In September 2016, NMB Bank made a joint venture agreement with Financierings-Maatschappij voor Ontwikkelingslanden (FMO), a Dutch development bank structured as a bilateral private-sector international financial institution based in the Hague, the Netherlands. FMO supports sustainable private sector growth in developing and emerging markets and has financed around US$15 billion worldwide in financial institutions, renewable energy and agriculture in over 80 countries. Nepal is one of the recipients. The Post caught up with Michael Jongeneel, CEO of FMO, currently in Nepal, to talk about Nepal’s sustainable banking practices, green banking, green bonds and green finance taxonomy. Excerpts:

How do you view Nepal’s banking system at the moment?

Well, I think from what we see, it goes through a typical development. For instance, if you look at digitalisation, I don't think Nepal is leading the way, but it's catching up there. And, of course, still, 30 percent of people do not have access to finance. The financial inclusion is only 70 percent. Well, that's a gap. It might be very expensive to reach the last 30 percent, but there is a rise in mobile penetration here. Mobile banking is very handy. So, how can you ensure that mobile penetration also goes up in rural areas and that there's network coverage for banks to provide services? That’s where the telecom providers come into play. The banking system cannot work without telecom providers because you will not open a branch for 20 people in a small village three hours from the next one. So, if you look at financial inclusion digitalisation, these are all steps that Nepal is on the way, but there's still a long way to go.

Do you think Nepali banks are heading towards a sustainable banking system?

Well, they should. I'm impressed by the Nepal government's targets to be net zero by 2045. It is ahead of the rest of the world basically. You need the banks and I think there's way more to do. So, I think NMB Bank is showing the way, but I hope that more banks will follow faster.

In a country like Nepal, which is vulnerable to climate change and its effects, how can climate finance help minimise its impact and support the economy?

If you look at climate finance, on the one hand, it helps to get clean energy by reducing the use of oil and gas. On the other hand, Nepal will be able to generate so much renewable energy that it goes beyond your own consumption. Nepal has a 10,000 MW electricity export agreement with India. So, that will also mean there is additional money flowing into the country, which is, I think, very good. And then, to the last point, it also creates jobs and reduces pollution. And if it's done well, I think everybody in Nepal can benefit. It needs to go faster and that means a lot of money needs to be made available. And I think the Ministry of Finance and Nepal’s central bank can play an important role.

Why is it important to raise awareness of green finance?

We as an international company can finance the need. But it would be even better if Nepali companies or Nepali people could finance these things. Then, you need to make people aware of the possibility of doing so. They need to realise why it is important because people might say they are not sure if it is really important or if it will make money. So, that's why I think the awareness of climate finance and green finance is important for the financial part. And I hope people are becoming much more aware that if they don't fight climate change, Nepal will have a problem. The world will have a problem, but Nepal will have more problems because the Himalayas will melt. And I don't think the rivers can handle that much water coming down. You see worldwide floods all over the place, and it will be the same here.

How do you observe your partnership with NMB Bank? What is FMO's plan with the bank?

We have had a relationship with NMB since 2016. I think it has been a very important partnership for us because we've supported NMB financially and provided technical assistance with projects to improve the environment, society, and governance. We are now the largest shareholder of NMB with almost 14 percent of the shares. We work a lot together and we now also want to extend that further. So, we signed yesterday [Monday] two kinds of memorandum of understanding. One is in the area of hydropower and the other in the area of solar. This is because FMO is a Dutch development bank, and we finance around $15 billion worldwide in over 80 countries, Nepal being one of them. But we do it in three sectors. We finance financial institutions, renewable energy and agriculture. So, it's very important for us, especially in Nepal, where climate change in the Himalayas is clear. All the renewable energy that needs to be installed, either hydro or solar, we are more than happy to contribute. I hope that gives a bit of an idea. And that's why we finance not only as a shareholder but we also give loans to NMB.

How does issuance of green bonds help to bring investment in Nepal?

The whole notion of green bonds is that there is a ring fencing of the money. There is a clear dedication to it, and I think it will also help create awareness. We are seeing worldwide that many of the green bonds are being oversubscribed because more and more people understand that the money is not just money, but it has an impact. So, I also think of the notion of, I want to do something meaningful with my money and not just kind of put it in a stock exchange. I think that is really helpful. And the more visibility these green bonds get and people get used to these financial instruments, that will be very positive for anywhere and so also for Nepal.

Nepal's central bank is working on a green finance taxonomy policy, a green investment to boost sustainable finance. How would you see this move?

It will increase the transparency of how banks specifically are acting on the elements of the green taxonomy. It will also help set some targets, and move on these targets. And it's just a first step, because transparency and these kinds of green targets are one thing, but I think there's much more to come. But it's a good first step.