The central bank of Nepal has divided the financial institutions into 4 categories depending on their paid-up capital and other financial responsibilities. The finance company in Nepal is categorized as a “C” class financial institution following a development bank.
The categories of Financial institutions in Nepal
- A-Class (Commercial Banks)
- B-Class (Development banks)
- C-Class (Finance company)
- D-Class (Micro Finance company)
What types of financial transactions are carried out by a finance company in Nepal?
- Disburse credit for hire-purchase, leasing and housing loans,
- Make arrangements for jointly disbursing credits on the basis of consortium financing in collaboration with other banks or financial institutions. However, the mutual agreement requires the division of the collateral.
- Accept loans having mortgaged its movable and immovable assets,
- properly manage its assets, sell or rent as well as lease them out,
- the issue, accept, make a payment, discount or purchase and sell, such as bills of exchange, promissory notes, cheques, traveler’s cheques, in addition to other financial instruments,
- Carry on the transaction of foreign currencies by obtaining approval
from the Rastra Bank,
- Disbursement of the loan to any person, firm, company, or institution.
- Financing motor vehicles, machinery, tools, equipment, durable household goods or similar other movable property,
- provide leasing finance to any person, firm, company, or institution to hire vehicles, machines, tools or instruments, household durable goods, or similar types of movable assets.
- Issuing guarantees for their customers to execute bonds, for buying movable or immovable properties as collateral or on a mortgage.
- Sell off or leasing out whole or part of its assets
- Prescribe prices of goods on consent with the finance company and seller in case any goods procured to sell to another purchaser on the current price or deferred price.
- Carry out other functions as the prescription of the Rastra Bank.
Although there were over 100 financial companies participating in Nepal’s financial market, the number of finance companies has decreased in the last five years, because, the majority of those have already merged with a commercial bank in Nepal.
Since the NRB increased the paid-up capital for all types of financial institutions in Nepal that forced the C-class Finance to merge with another bank or financial institution.