The proposal was forwarded to the cabinet secretariat by the Ministry of Labor and Employment (MoLE).
The secretariat returned the proposal to MoLE on Monday, stating that the proposal should have come through the Ministry of Finance.
Surya Shrestha, joint secretary of MoLE, said the process of establishing the labor bank has come to a halt after the cabinet secretariat refused the register the proposal. He said the cabinet secretariat returned the proposal arguing that it should have come through the finance ministry as it was related to the banking sector.Shrestha said the finance ministry had given nod to the proposal to establish labor bank last month and that MoLE had started the process to register it in the cabinet secretariat accordingly.
"MoLE had taken the proposal to the cabinet secretariat as the bank was related to labor and laborers. However, it could not be registered," said Shrestha.
MoLE has been preparing to establish labor bank for the past one year. Its draft concept was approved by the finance ministry last month only.
Though the finance ministry was initially against establishing bank with majority government stake while it was offloading its share-holding from other banks, it had given green signal later on.
According to a high level source at MoLE, the finance ministry was reluctant to open labor bank due to pressure and influence of banks and financial institutions as well as some remittance companies who fear formation of such bank would affect their remittance and other business. Such institutions were lobbying strongly against formation of labor bank, the source added.
Now MoLE plans to consult with the finance ministry about the proposal yet again after cabinet secretariat refused to register it. Joint secretary Shrestha said the ministry would now ask the finance ministry to table the proposal to the cabinet secretariat.
While giving consent to the proposal to establish labor bank last month, the finance ministry had asked the MoLE to follow Company Act and Bank and Financial Institutions Act. However, the MoLE was pitching for a new law to open the bank for providing banking services to laborers and aspiring migrant workers.
Earlier, a team led by Chiranjivi Nepal, who was working as an economic advisor to Prime Minister Sushil Koirala then, had visited Japan and Bangladesh to study the practices of labor banking there. The team had recommended to the government to form a bank like 'Prawasi Bank' of Bangladesh and 'Labor Bank' of Japan in Nepal.
Though Nepal Rastra Bank, the central bank, has stopped licensing new BFIs, MoLE argues that it would not be a problem for the government. MoLE become more optimistic about the formation of the labor bank as incumbent Governor Chiranjivi Nepal was the one who had recommended to the government for formation of such bank.
MoLE had started preparation to open labor bank under the coordination of Foreign Employment Promotion Board in May last year. The government had announced plan to open labor bank through budget for fiscal year 2014/15.
According to MoLE, the proposed bank intends to mobilize welfare fund collected from migrant workers, social security fund and other fund from businessmen and government agencies. It also plans to extend loans to aspiring migrant workers and other laborers at cheaper interest rates.
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