Nepal Rastra Bank is considering licensing companies that deal with payments of social media advertisements from Nepal in order to bring the informal transactions to a formal channel, officials at the central bank and advertising agencies say.

Most advertising agencies are making payments of advertisements posted on social media such as Facebook, Instagram, Twitter and YouTube through foreign currency cards held by their relatives and friends abroad while reimbursing the amount to the families of the card holders back home.

Finding that a large amount of foreign currency is being siphoned off through informal channels, the central bank in February had directed companies involved in sending foreign currency abroad to route all such payments through the local banking channel.

According to the notice, such payment would be deemed illegal and punishable as per the Foreign Exchange Regulation Act. In response, advertising agencies have demanded a specific policy on how to make payments for the foreign services.

“We are discussing the option of allowing licensed institutions to make payments for advertisements placed from Nepal on social media sites,” a senior official at the central bank told the Post on condition of anonymity because the official is not authorised to speak to the media. “They can get licences from the central bank like money transfer agencies.”

The official said that the idea is still in the conceptual phase and has not taken any concrete form.

The Nepal Rastra Bank has also conveyed the same idea to advertising agencies.

“The central bank has floated the idea of licensing certain agencies that would facilitate payment for social media advertisements,'' said Raju Kuinkel, general secretary at the Advertising Agency Association of Nepal, a grouping of advertising agencies. “I heard that some companies have already approached the central bank for a licence.”

One of the options advertising agencies had suggested in response to the central bank’s notice is that they should be provided international cards worth up to $5,000 to pay for social media advertisements.

However, the official said that Rastra Bank was alarmed by the possibility of losing foreign exchange in large amounts not only for social media advertisements but also to procure films and books online as most people now own smartphones.

“So we don’t want everybody to be able to make payments for what they purchase in foreign currency,” the official said.

As per the central bank’s circular, the country’s commercial banks can provide up to $3,000 for service imports against payment in Nepali rupees. The banks can also provide between $3,000 and $10,000 for service imports, based on the recommendation of the regulator for the sector the company is operating in.

For making payments valued higher than $10,000, the central bank’s approval is mandatory. However, the central bank directive does not specify whether the payment for advertisements on social media could be considered payment for service imports.

“Due to the lack of clarity over whether it is legal to make payments for social media advertisements, advertising agencies are using informal channels such as through friends and relatives living abroad for making payments,” Santosh Shrestha, managing director of Mars Advertising and Research Private Limited, told the Post in February.

According to Shrestha, Nepali advertisers prefer informal payment for such advertisements to avoid taxes too. “For using the banking channel, taxes should be levied on social media companies. As a result, the client will have to pay more, which they don’t want,” he said.

Amid growing use of social media in the country, agencies are increasingly placing advertisements on social platforms to promote their clients’ products and services. Website developers also have to make payments for purchasing space on the web and many of them are involved in boosting social media presence.

Advertising agencies, however, say some of their clients have started to discontinue with, or cut spending on, social media advertising after the central bank’s notice in February. “Some commercial banks are my clients. They are not spending to boost their presence on social media fearing that the central bank could take action against them,” said Shrestha, demanding that the central bank introduce the payment policy for social media advertisements as soon as possible.

According to Kuinkel, since the central bank’s notice in February, most Nepali social media advertisers have been asking them to boost their products and services within the limit of $3000, the amount that can be paid through the banking channel.

According to advertising agencies, the central bank’s notice brought down the business of social media advertising due to the fear of action. “Business has largely recovered now as the central bank delayed introducing new rules,” said Som Prasad Dhital, senior vice-president of the Advertising Association of Nepal.

“As rules are not in place, payments are being made through both banking and informal channels.”