Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The government has been found to have assigned a microinsurance program to the Agricultural Development Bank and Sana Kisan Bikas Laghubitta Bittiya Sanstha in violation of prevailing insurance laws, according to findings by the Office of the Auditor General.
The audit report states that despite clear legal provisions restricting insurance-related activities to licensed insurers, the government entrusted financial institutions with the responsibility of implementing microinsurance programs.
Under Rule 40(5) of the Financial Procedures and Fiscal Responsibility Regulations, 2020 (2077 BS), grants provided to organized institutions require progress reporting, auditing, and monitoring. However, the Office of the Auditor General noted weaknesses in compliance and oversight in the implementation of the microinsurance scheme.
According to Section 24 of the Insurance Act, 2022 (2079 BS), institutions without official authorization are prohibited from conducting insurance business. The law also mandates compulsory reinsurance arrangements.
Despite these provisions, the Ministry of Finance reportedly disbursed funds to institutions lacking insurance licenses. The audit report identified the move as legally questionable, stating that assigning microinsurance operations to non-insurance institutions contravenes existing law.
Similarly, Section 3 of the Microinsurance Directive, 2019 (2076 BS) and the Insurance Act stipulate that only non-life insurance companies are authorized to conduct microinsurance business. The directive also limits implementation to designated and approved entities.
However, the Ministry of Finance released Rs 41.666 million (Rs 4 crore 16 lakh 66 thousand) to the Agricultural Development Bank and Rs 87.560 million (Rs 8 crore 75 lakh 60 thousand) to Sana Kisan Bikas Laghubitta, amounting to a total of Rs 129.226 million (Rs 12 crore 92 lakh 26 thousand) for microinsurance implementation.
The Auditor General concluded that both institutions are neither licensed insurance service providers nor registered agents under the prescribed directive, making the operation of such programs through them inconsistent with legal provisions.
The report further noted that the ministry failed to maintain verified, disaggregated records of beneficiary farmers and the number of insured livestock or crops supported through the allocated funds. Monitoring and follow-up mechanisms were also found to be inadequate.
Additionally, the audit raised concerns that the government disbursed payments for the microinsurance program without formulating a dedicated operational procedure and without fully complying with public procurement and financial management laws.
The Office of the Auditor General has directed the government to restructure the program so that microinsurance services are delivered exclusively through legally authorized insurance providers in accordance with the Insurance Act and existing directives.
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