BFI employees not interested to join Social Security Fund

Banks and financial institutions (BFIs) expressed their reservations on Social Security Fund (SSF) despite the government and central bank’s direction last week on mandatory enrollment.
The members of the Nepal Financial Institution Association (NFIA) – an association of people working in banks and financial institutions – threatened to launch protests, if the central bank forces then and does not roll back its direction of mandatory participation in the scheme.
“The regulatory body has issued a circular without consulting BFIs,” according to a press note issued by the association. “It is not under the jurisdiction of the central bank to direct BFIs to join the scheme,” the press note reads, adding that financial institutions will not join the social security programme as it does not ensure basic rights of workers in the financial sector. “We will be compelled to protest, if central bank does not roll back its direction.”
They have been demanding that the government include insurance policy for dependent family members of the banking staffers. Likewise, they are also demanding that mandatory registration of staffers in the Social Security Fund for those who had joined the institution after the fund has been established.
The government fixed November 30 deadline for the private sector to get listed in the scheme, which aims at providing pension to retired employees of the private sector as well. Though, government is planning to extend the deadline to convince more private sector institutions – especially BFIs – in the scheme, the private sector employees are not much interested in joining the scheme.
Meanwhile, commercial banks have also expressed their concern in the scheme. They, though, claim that the scheme is good, the bank employees are not interested as they think they are not ensured of the basic facility that they have been getting.
“We are already registered at the Employees Provident Fund (EPF) and Citizen Investment Trust (CIT),” the association said, adding that they are not interested in joining the scheme as they are not ensured of facilities that they have been already getting through EPF and CIT.
Likewise, Nepal Bankers Association (NBA) is going to held meeting with the central bank to rely their concerns. Some 131,577 workers and 11,797 employers have been listed in the social security scheme till date.

Experts blame licensing policy

The experts blame haphazard distribution of licence for the mushrooming of incompetent financial institutions in the country.
“The licence for finance companies were awarded based on paid up capital alone without any consideration for the capability of licence seekers — to run a financial institutions — and their background," said immediate past president of Nepal Financial Institutions Association (NFIA) Ram Shanta Shrestha, in an interaction programme organised here by the association today.
"The government grew wary that no finance companies had started business despite the encouragement and it started doling out licence since early 1990s," he added.
Shrestha also blamed directors and promoters, who has no knowledge of banking and corporate governance for the current volatile state of the finance companies.
Similarly, the association's president Rajendra Man Shakya also attributed the large number of financial institutions in a small size market for current situation.
There are 219 financial institutions, according to the central bank, competing in the market that has created distortions in the financial market including 31 commercial banks, 87 development banks, 79 finance companies, 21 micro-credit development banks, 16 NRB-licenced Saving & Credit Cooperatives and 38 NRB-licenced-NGOs.
On one hand the number of banks and financial institutions have been increasing, and on the other access to finance has not made any significant progress across the country. A visiting International Monetary Fund (IMF) team has also suggested the central bank that the country is overcrowded with banks and financial institutions. It has suggested to reduce the number of banks and finance companies to the half — from the current 219 — encouraging mergers.
"Though merger has been forwarded as the solution by the central bank, it has yet to be tested either merger can transform two weak financial institutions into a stronger one overnight," Shakya said, adding that the egos among the board of directors have been posing a big hurdle in the merger process.
Recently, four finance companies ran into trouble denting the public image of the class 'C' financial institutions as untrustworthy. Samjhana Finance that is in liquidation process and other three — Nepal Share Markets and Finance, Capital Merchant Banking and Peoples Finance — got themselves into trouble solely due to misappropriation of funds by their chairmen.
The companies themselves were not in bad financial shape but the bad corporate governance in the institutions damaged them.
"The directors push the management for higher profit and dividend even violating corporate governance code," he said, adding that the directors, who come from various backgrounds, need to be educated to maintain good corporate governance that has reinstate public trust in finance companies that are struggling to deal with present liquidity crunch amid the shrinking deposit due lack of public trust.
The over dependence on institutional depositors has also created most of the liquidity troubles for finance companies. "When such institutional depositors withdraw deposits, finance companies find themselves in deep liquidity problem," he said, adding that the finance companies need to focus more on retail depositors now on.