Employee Savings Fund Act Amendment Bill Under Consideration in Parliament

Kathmandu. The 'Bill to Amend the Employee Savings Fund Act, 2019' is under consideration in Parliament. The bill, registered in the House of Representatives Secretariat on July 14, proposes expansion in the areas of the fund's board of directors, organizational structure, authority, and investment. It also includes provisions for adjusting the fund according to the federal structure. However, the government appears to have increased its control over the fund. The ultimate authority of the fund has been further curtailed by law, and a controlled system is being institutionalized in the selection of the fund's leadership. Previously, the government could not interfere in the work done by the fund's board of directors as per the act. It was mandatory to consult before giving any directive. Provisions have been made that decisions made by the board of directors can be invalidated based on the directive of the Ministry of Finance. How is the fund being controlled? The provisions of the currently implemented act did not allow for direct government intervention in the fund. According to those provisions, the government could only give any directive to the fund after consulting the board and if deemed necessary for the national interest. This protected the fund's policy autonomy. However, the proposed bill has removed both these conditions. According to the new provision, it is clearly written that the government can give necessary instructions to the board from time to time. This means that the Council of Ministers or the Ministry of Finance can give direct instructions to the fund at any time, the implementation of which will be binding. Former administrators say that if this provision is passed, political and administrative interference in the fund's policy decisions will increase. They say that the fund's ultimate autonomy will be lost, and the risk of the institution operating at the government's discretion will increase. Similarly, the provision for appointing the fund's chairman has also been modified to prevent anyone other than a secretary-level employee from becoming the leader. Since the person representing in this way can be removed at any time, it appears that the leadership can only be selected and changed at the government's discretion. Currently, anyone appointed by the government can become the chairman of the fund, but in practice, the secretary of the Ministry of Finance has been leading the fund. Expansion of Internal Operations and Management Authority Although the government has tightened its control at the upper level, it has provided significant relief in the daily operations and management aspects of the fund. Previously, the fund did not have clear legal authority to create and implement internal procedures and regulations necessary for organizing its work. It was mandatory to look to the government even for making minor rules. Now, the board of directors has been given the authority to create and implement its own regulations and procedures, subject to the act and rules. This will enable the fund to set its own service delivery rules according to market demand and needs. Similarly, a new provision for delegation of authority has been added to make the decision-making process faster and more effective. The board of directors can delegate authority to the administrator or sub-committees, and the administrator can delegate authority to the officers under them. This is expected to significantly increase autonomy in the fund's daily administration. Expansion of Investment Scope The proposed bill has given the fund the freedom to make commercial decisions. The investment areas of the fund, which manages billions of rupees in capital, have been widely expanded. In the current act, the fund was only allowed to invest in limited sectors such as hydropower, agriculture, and tourism. The new bill has opened the way for the fund to enter the stock market and financial market directly. If this bill is passed as is, the fund will be able to mobilize its funds in the capital market and financial market, either on its own or in collaboration with other institutions, in accordance with the prevailing laws. In addition to operating mutual funds with the participation of savers and self-employed individuals, provisions have also been made to invest in private equity and venture capital funds approved by the Securities Board. Breaking the traditional scope of investment, the bill has also made the communication and information technology sector a new destination for investment. In addition, the fund has been given the authority to directly invest shares or loans in teaching hospitals, medical colleges, universities, and pharmaceutical industries. The fund's role in the real estate sector will also increase. The bill ensures the authority to provide loans for housing projects deemed appropriate and to provide loans to savers for purchasing houses and land constructed from such projects. The provision that the fund itself can correspond with the relevant bodies for the release of collateral after the loan is repaid will reduce hassle. Reduced Hassle for Savers to Take Loans Addressing the complaints of employees, the legal provisions for taking loans have been made very flexible. According to the current arrangement, savers can withdraw loans from the fund only after depositing regular amounts for at least five years. Similarly, once a loan is taken, there was a condition in the act that one had to wait for two years to take another loan even after repaying it. The proposed bill has removed all these conditions. Now, the board of directors can decide how often loans are given or how many times they are given. After repaying the loan, savers can take another loan immediately if they wish. This will allow savers to easily mobilize funds according to their needs. The proposed bill is expected to increase the fund's expenditure. This is due to the provision of continuous interest on the accumulated amount. Under the current law, the fund does not pay interest on the accumulated amount kept in a separate account for a long time by savers, but the new bill has made a provision that the fund must continuously pay interest on the accumulated amount, regardless of how long it remains in the fund. This appears to be an attempt to do justice to the savers. Transformation of the Fund into a Federal Structure Provisions have also been made in the proposed bill to make the fund's structure federal in nature. By amending the preamble and definitions of the bill, it has been ensured that employees of provincial governments and local levels will be affiliated with the fund. The fund will also open avenues for operating offices according to the federal structure as needed. In addition, the fund will be able to operate funds of other types besides its own. A new provision has been added that the government can assign the operation and management of any fund established in accordance with the prevailing laws to the Employee Savings Fund. The term of the fund's administrator has also been changed. Currently, the administrator's term is five years, which has been reduced to four years. The reduction in the administrator's tenure is mentioned in the proposed amendment to bring it in line with appointments in other government bodies. Generally, it is believed that funds like the Employee Savings Fund, which contain public money and no government investment, should be given operational autonomy. However, the government's proposal includes provisions to further increase interference.