Nepal’s financial landscape is constantly evolving, and Nepal Rastra Bank (NRB), the country’s central bank, is taking decisive steps to ensure its stability and growth. In a recent move, the NRB has introduced stricter regulations regarding dividend distribution for payment service providers (PSPs) and payment system operators (PSOs). This significant development, outlined in the “Dividend Distribution Guidelines 2082,” directly impacts companies like eSewa, IME Pay, Khalti, Fonepay, and Nepal Clearing House, among others, all crucial players in Nepal’s digital payments ecosystem.
This new guideline underscores the NRB’s commitment to maintaining the financial health of payment service providers and safeguarding the interests of both consumers and the financial system. The primary focus is on prudent financial management and ensuring that companies have adequate resources to meet their obligations and support continued innovation in digital payments in Nepal.
What Does This Mean for Payment Service Providers?
The new guidelines set clear parameters for dividend distribution. Here’s a breakdown of the key changes:
- Profit-Based Dividends Only: Companies can only distribute dividends from earned profits. This prevents distribution from sources like share premium or bargain purchase gains, ensuring that the dividends are backed by actual financial performance. This also implies that no company can distribute dividends if it has accumulated losses.
- No Negative Accumulated Profits: Companies are now required to have positive accumulated profits before distributing dividends. This means that profitability is key to distributing to shareholders.
- Cash Flow Considerations: Any distribution of cash dividends will require the company to have sufficient cash reserves.
- Share Dividend Requirements: The net worth of the company must be positive to issue share dividends.
- Enhanced Due Diligence: Before distributing dividends, companies must submit several supporting documents, including audited financial statements, board of directors’ decisions, tax clearance certificates, and proof of no outstanding bank loans or being listed in the loan information center’s blacklist. This thoroughness helps to ensure proper compliance.
Reserve Funds:
The NRB is also mandating that all payment service providers and operators establish a risk mitigation fund and a reserve fund. This mandate seeks to strengthen the financial base of the institutions. A portion of annual profits must be allocated to these funds. The risk mitigation fund can be used to handle unforeseen risks, while the reserve fund is designed to enhance financial stability.
Infrastructure Development Fund:
In addition to the above, the NRB has also instructed payment system operators to set up an infrastructure development fund. Companies can use a portion of their profits for infrastructure expansion and must provide regular updates to the NRB on how these funds are used.
Impact and Implications:
These revised guidelines reflect the NRB’s commitment to promote a more robust, resilient, and sustainable digital payments ecosystem in Nepal. While these new rules may initially require adjustments for some payment service providers and payment system operators, the long-term benefits include increased financial stability, greater transparency, and enhanced trust in the digital payment sector. This move is a critical step in the ongoing development of Nepal’s financial system, encouraging responsible growth, promoting financial inclusion, and fostering a more secure environment for digital transactions. The regulations are put in place to protect the financial stability of all payment service providers and to maintain a safe and robust digital payment ecosystem.
