Feasibility Study on Establishment of Secured Transactions Registry

March 2008
NEPAL
FEASIBILITY STUDY ON ESTABLISHMENT OF
SECURED TRANSACTIONS REGISTRY

NEPAL
<strong>Feasibility</strong> <strong>Study</strong> on
Establishment of Secured
Transactions Registry
March 2008
SEDF
A multi-donor facility managed by the
International Finance Corporation of the
World Bank Group

Disclaimer
The Organizations (i.e., IBRD, IFC and MIGA), through FIAS, endeavour,
using their best efforts in the time available, to provide high quality services
hereunder and have relied on information provided to them by a wide range of
other sources. However, they do not make any representations or warranties
regarding the completeness or accuracy of the information included this
report, or the results which would be achieved by following its
recommendations.
About FIAS
For almost 21 years, FIAS has advised more than 130 member country
governments on how to improve their investment climate for both foreign and
domestic investors and maximize its impact on poverty reduction. FIAS is a
joint service of the International Finance Corporation, the Multilateral
Investment Guarantee Agency and the World Bank. We receive funding from
these institutions and through contributions from donors and clients.
FIAS also receives core funding from:
Australia
Canada
France
Ireland
Luxembourg
Netherlands
New Zealand
Norway
Sweden
Switzerland
United Kingdom
About SEDF
Launched in 2002, SEDF is based in Dhaka, Bangladesh. SEDF focuses on the
needs of small and medium enterprises (SMEs) in Bangladesh, Bhutan, Nepal
and North East India, and has an additional office covering Sri Lanka and the
Maldives. The objective of SEDF is to reduce poverty through SME
development. In addition to funding from the IFC, SEDF receives funding
from the Asian Development Bank, Canada, the European Commission, the
Netherlands, Norway, and the United Kingdom.

Contents
Foreword...........................................................................................................iii
Executive Summary...........................................................................................1
1 The Legal Framework for Establishing the Secured Transations
Registry............................................................................................................11
Secured Transaction Act, 2006: Overview .........................................13
Secured Transactions Registration Office ...........................................13
Establishing the Secured Transactions Registry..................................15
Accountability and Oversight of Registry ...........................................15
Transactions Subject to the ST Act......................................................16
Registration of Notices in Registry Database: Contents......................16
Inspection of Registry Records: Searches............................................17
Mode of payment of fee.......................................................................18
Concerns with the ST Act: Recommendations ...................................19
2 Registry Design and Related Issues.....................................................23
What entity should host the Secured Transactions Registry................23
Registry Host: Public-Private Partnership? ........................................25
Registry Database: Principles for Design and Implementation...........27
Registry Software: Procurement and Design Issues ................37
Administration of the Registry: staffing, hardware
specifications, facilities............................................................37
3 Implementation Plan: Regulations, Time-line and Budget.................40
What Regulations Should the Government of Nepal Adopt?..............40
Implementation Time-line: Costs .......................................................41
Estimate of Ongoing Costs and Revenues: Profits? ............................45
Ongoing Operational Costs......................................................46
Revenues..................................................................................48
Motor Vehicle Registrations....................................................49
Profits.......................................................................................45
A APPENDIX..........................................................................................50
Particulars of Notice Filing..............................................................................50
Original Notice: Contents .......................................................50
Statement of continuity............................................................52
Establishment of Secured Transactions Registry Content i

B
C
D
Amendments ............................................................................52
Termination statement .............................................................53
Correction statement ................................................................53
Rejections: Refusal to register the notice.................................54
APPENDIX..........................................................................................56
Detailed Evaluation of Potential Registry Hosts .................................56
Credit Information Bureau (“CIB”).........................................56
Office of the Companies Registrar ..........................................58
Department of Land Registration.............................................60
Securities Exchange Board ......................................................61
APPENDIX..........................................................................................64
World Bank - Nepal Rastra Bank Survey on the Use of And Filing of
Notices into the Secured Transactions Registry ..................................64
APPENDIX..........................................................................................67
Nepal Secured Transactions Registry Business Model and Procurement
Issues
Establishment of Secured Transactions Registry Content ii

Foreword
In 2006, the Government of Nepal enacted the Secured Transactions Act (ST
Act). The overarching goal of ST Act is to reduce risks associated with
extending credit, thereby increasing opportunities for economic expansion. At
its core, the ST Act allows use of all types of movable assets as collateral and
stipulates the creation of a Secured Transactions Registry. While the Act has
been in force, it can not be fully implemented as the Secured Transactions
Registry, as stipulated by the Act, has not yet been established.
In this respect, Government of Nepal requested a World Bank-FIAS- IFC
SEDF team to conduct a feasibility study and provide recommendations as to
the necessary steps to establish the Secured Transactions Registry. The
assessment team was lead by Sevi Simavi (FIAS) and included Anthony
Frazier and Sumant Batra (consultants). Aurora Ferrari (SASFP), Rajeev
Gopal (IFC-SEDF), Roger Handberg (IFC-SEDF), Sabin Shrestha (SASFP),
Mahesh Uttamchandani (LEGPS), Everett Wohlers (FIAS) provided
invaluable guidance and comments at different stages of the assessment.
Abhishek Basnyat (SASFP) and Carlotta Saporito (FIAS) assisted with the
design and implementation of the financial sector survey. Mark Zeydler
(consultant) provided guidance on procurement issues. The assessment team
examined the legal mandates in the ST Act with the goal of establishing a
registry system. Numerous government officials, private sector parties
(including several anticipated users of the registry system), and IT
professionals were interviewed in order to create set of recommendations on
how Nepal should proceed.
Establishment of Secured Transactions Registry Foreword iii

Establishment of Secured Transactions Registry Foreword iv

Executive Summary
In 2006, the Government of Nepal enacted the Secured Transactions Act, 2006
(ST Act). The ST Act provides the legal framework for: (i) the establishment
of an entity to be called the “Secured Transactions Registration Office;”
(hereinafter the “STRO”) (ii) the creation of a registration database in which a
public record of obligations secured by movable property can be made; (iii)
the establishment of priorities in case multiple obligations of the same security
giver are secured by the same collateral; and (iv) a means to uniformly enforce
security interests, should the security giver default.
Although the ST Act was enacted in 2006, it has not become operational as the
STRO has not been established, nor has any entity been designated to perform
the function of registering notices. Therefore, Nepal does not currently have a
mechanism for the registration of security interests in movable properties and
determining priority in a security giver’s collateral. In the absence of such
mechanism, lenders find it risky to accept movable property as collateral for
loans. This limits access to capital by individuals and small and medium
enterprises which may not have adequate real estate to offer as collateral.
Upon the request of the Nepalese government, a World Bank - FIAS-IFC
SEDF team visited Nepal from June 3, 2007 to June 15, 2007 to investigate
what steps need to be taken in order to implement the ST Act and provide a
detailed roadmap for the establishment of the registry. These include:
Chapter 1- Analysis of the Legal Framework for Establishing the
Secured Transactions Registry
Chapter 2- Registry Design and Related Issues
Chapter 3- Implementation Plan: Regulations, Timeline and Budget
Detailed information addressing each of these areas, particularly on design
specifications, is addressed in detail in this report. However, the executive
summary will focus on those issues that must be addressed by the GoN before
the implementation of the registry can move forward. Accordingly, five
primary items require some affirmative action by the Government of Nepal
(GoN) as preconditions to establishing the registry database.
These areas are:
1. Determine if any changes need to be made to the ST Act prior to
implementation.
2. Establish the Secured Transactions Registration Office and designate
an entity that will host the Secured Transactions Registry database
Establishment of Secured Transactions Registry 1 The Legal Framework 1

3. Determine whether the Registry system will be solely electronic or also
conduct business using paper;
4. Select which language will be used in the Registry database; and
5. Then, the STRO, in conjunction with the Registry database host, must
decide whether to develop software from the ground up, or whether an
off-the-shelf product should be purchased and then modified to fit
Nepal’s specific ST Act.
Below are a series of recommendations addressing these issues:
A. Recommended Changes to ST Act prior to
implementation
While the ST Act is largely compliant with international best practice
principles and facilitates the creation of a modern secured transactions
registry, there are a few areas in the law that would benefit from revision.
Though no additional acts of Parliament are absolutely required in order to
begin implementation of the Registry database, amendments to the Act in two
areas would be particularly helpful to a successful deployment of the Registry.
Transition Period
Nepal currently has no equivalent to the ST Act, yet lenders have in the past
extended credit to borrowers secured by movable property. It is anticipated
that these existing secured transactions will be brought into compliance with
the new ST Act by filing notice of them in the Registry to be established. The
issues presented by these circumstances are: 1) how these pre-exising interests
will be treated under the Act with regard to priority; 2) how lenders will
“transition” their existing loan portfolios into compliance with the Act; and 3)
how much time lenders should have to enter their existing interests in movable
property into the registry system. The Act answers each of these issues, but in
a way that could have detrimental impacts on the marketplace.
As a general principle, the ST Act contemplates that priority in a security
giver’s assets is determined by the time and date of filing of the Initial Notice:
the first to file gains priority in the underlying collateral. However, during an
initial “transition period,” the ST Act contains language that is aimed at
shepherding the change from the pre-Act law to the new system under the ST
Act. Section 57 of the ST Act provides that a security holder has one year
from the “date of establishment of the registration office” to file its Notice for
any pre-existing interest. If such a Notice is filed within that one year, it will
be given an effective date equal to the date that the Registry opened.
While the intent may be good, this transition language may cause great harm
in the marketplace. Consider the following example:
Establishment of Secured Transactions Registry 1 The Legal Framework 2

Suppose that on January 1, 2004, Lender A extended credit to Security
giver that is secured by a security interest in Security giver’s assets.
Then, suppose that the Registry is started on August 1, 2008. Lender
A does not immediately file a Notice. Then on January 1, 2009,
Lender B conducts a search of the Registry and does not find any
security interests against Security giver. Based upon this clean search,
Lender B extends credit to the Security giver, and files a Notice with
the Registry. Lender A then files its Initial Notice of its pre-existing
security interest on July 1, 2009. Under the transition language in
Chapter 57 of the Act, Lender A’s notice will “spring” into existence
as of the first date the Registry went live, and Lender A’s security
interest would have priority over Lender B.
Given the problem illustrated by this example, during the transition period any
lender will be even more wary of extending credit secured by movable assets
than under the current non-system. Under the current non-system, even if
there are multiple security interests against the same security giver’s property,
a lender has a fair chance of being the first party to seek self-help against the
security giver, thereby rewarding the vigilant lender. This is not the case
under the ST Act. Lenders, aware of the possibility of a “springing interest”
that will grant legal priority to a hidden security holder, will likely be very
hesitant to make loans secured by movable property until the transition period
has passed. Given that the transition period is for a full one year, this could
have severe detrimental impacts in the marketplace, as the availability of
credit could be severely curtailed. The risk to Nepal’s economy is sufficiently
great that the ST Act should be amended to shorten the one-year transition
period to no more than three months.
Fees and the Impact on Financial Sustainability
It is critical that the Registry be financially self-sufficient. This point is
equally true whether the host entity is a public or private sector party. The
financial sustainability of the Registry is dependent upon only two factors:
revenues generated and operating costs. On the revenue side of this equation,
Section 19 of the Act establishes the fees that are to be paid for either the
filing of various documents into or the retrieval of information from the
Registry. With regard to filing, this Section states that all notices shall be
assessed a fee of Rs500. Calculating the fees for searches is slightly more
difficult. Section 19 states, in pertinent part:
(1) “The fee payable for...searching for any record, shall
amount to Rs500.”
(2) “Notwithstanding anything contained in Sub-Section (1), no
fee shall be charged for searching for any record by utilizing
the electronic facility made available by the Registration
Office.”
Establishment of Secured Transactions Registry 1 The Legal Framework 3

(3) “No fee shall be charged for other services made available
under this Act.”
Two concerns arise in regard to this language. First, it is not a common
practice to prescribe fees in the actual statute. Instead, laws often contain an
enabling provision which allows authorities to prescribe the fee in regulations.
This provides the authorities with the flexibility to revise the fee without
Parliament having to amend the statute. Under the ST Act, if it is later
determined that the fee structure must be changed, then Parliament must
amend the ST Act, a process which can take considerable time in Nepal.
In order to assure long-term financial sustainability of the Registry and
provide flexibility, it is recommended that Section 19 be amended to allow the
fee schedule to be set forth in regulations promulgated under the Act.
Amending Versus Correcting a Name
During the life of a security interest, the name of a business entity security
giver may change due to any number of circumstances (sale, merger, etc.). In
such an event, the notice that names the security giver must be updated to
reflect the new name. Subsection 2 of section 9 of ST Act should be amended
to provide that a change in the name of a security giver would require filing of
an “amendment,” not a “correction” as is presently stated. As provided by
section 16 of the ST Act, a correction statement is filed by a security giver to
challenge the existence or content of a filed notice that names the security
giver. If there is truly a subsequent change in the security giver’s name, the
change in the record of registry should be made by way of an amendment filed
by the security holder to reflect the new name.
Confirmation of Filing
In most other jurisdictions, filing of a secured transaction notice causes the
registration office to issue a receipt or acknowledgment in the prescribed form
containing the particulars of the notice. The ST Act does not contain any
provision for the issuance of such receipts or acknowledgments. Further, the
ST Act does not specifically provide for a confirmation of filing, amendment,
continuity or termination by the STRO to the person filing the notice. A print
out of the filed notice with the file number and the date and time of filing
would meet this need. This issue can be addressed in the regulations.
Technical Corrections
There are two technical corrections to language in the Law that are necessary
to avoid potential legal issues after implementation. The first of these is to
amend Section 7(2) to provide that the security holder, not the security giver,
is the appropriate party to file a notice. This is necessary to reflect best
practices used in registries in all other countries, and to prevent a dishonest
Establishment of Secured Transactions Registry 1 The Legal Framework 4

security giver from altering or failing to file a notice that names him/her. The
second technical correction is to add a clause to Section 18(2) to provide the
searching criterion for security givers that are corporate entities. This appears
to have been a mere oversight in drafting of the law, but it could have legal
consequences if a search for a corporate entity is put in question in litigation.
B. Establishment of the Secured Transactions
Registration Office and Determination of Entity To Host
the Secured Transactions Registry Database
Chapter 2 of the ST Act requires the GoN to establish a registration office to
be known as the “Secured Transactions Registration Office” (STRO). The
STRO can be established by the Ministry of Finance. The STRO is
contemplated as a public body responsible for performing the functions and
duties prescribed in the ST Act. The ST Act further provides for the
appointment of a person as “Registrar” who is to be a government employee
with a rank of “Gazetted Officer of Class II or equivalent.” The Registrar shall
be responsible for managing all of the STRO’s tasks under the ST Act.
The ST Act provides that the STRO can either operate the Registry itself or it
can enter into a contract with a private entity pursuant to which the private
entity would be authorized to implement the Registry and related functions.
Based upon these provisions, there are two separate paths that could be taken.
First, the STRO itself could be staffed and equipped to handle all registry
functions. This is a viable option. However, starting an entirely new
government agency from the ground up is time consuming under any
circumstances, and especially under those that currently prevail in Nepal.
Therefore, a different approach would be needed to quickly and efficiently
deploy the registry.
In this second approach, the STRO would be formed under the Ministry of
Finance, but would only act in an oversight role, while the actual registry
functions would be handled by an existing entity. It should be noted that this
approach met with widespread acceptance amongst the GoN officials and the
stakeholders interviewed.
Four different entities were examined as potential hosts for the Registry
database. All four of these entities currently undertake duties that are at least
partly similar to those contemplated by the ST Act. These entities are:
1. The Credit Information Bureau.
2. The Office of the Company Registrar;
3. The Department of Land Registry; and
4. The Securities and Exchange Board.
Establishment of Secured Transactions Registry 1 The Legal Framework 5

GoN officials that oversee each of these four existing entities were
interviewed and field visits were conducted to assess the entity’s capability to
house a new registry. Objective criteria were employed in formulating
evaluations of each of these entities, and it was agreed that the Credit
Information Bureau would be the most suitable entity to host the Registry.
The selection criteria are discussed in detail in Chapter 2.
Accordingly, it is recommended that the STRO should enter into a contract
with the Credit Information Bureau (CIB) under which the CIB will carry out
all day-to-day registry functions. While the dividing line between the
functions of the STRO and those of the CIB is not abundantly clear in the ST
Act, this issue can be addressed in both the contract to be entered and the
regulations to be promulgated under the ST Act. For example, the contract
could provide for such items as: the regulatory authority will reside with the
STRO; the STRO will have full inspection rights over the database and the
broader functions related to the Registry; the STRO would have the right to
demand removal of objectionable employees that work on the Registry; and
the CIB will maintain the electronic database and web site.
CIB is a credible organization, and it is currently involved in a technology
upgrade that will result in the on-line filing of information by member
institutions. This project is scheduled to be operational within the next few
months. Therefore, the CIB has already dealt with the issues that arise from
an automation implementation process.
The other agencies are not feasible options for the registry host. The Office of
the Company Registry’s primary charge has been to register corporate entities
that seek to do business in Nepal. The Company Registry has recently been
assigned numerous additional duties, including those under the recently
enacted Insolvency Act, and is also wrestling with implementing a database to
hold company registration information. Because of these added
responsibilities and its ongoing automation project, officials with the
Company Registrar expressed a reluctance to take on additional duties
associated with the ST Act.
Department of Land Registry officials expressed a disinclination to take on
additional tasks. These officials believed that the Land Registry was already
overburdened and did not have the capacity to take on another major initiative.
Not only due to the reluctance of the officials to take on the responsibility of
implementing the ST Act, but also because the current model used by the
Department of a decentralized filing system does not coincide with the
centralized filing model envisioned by the ST Act.
The Securities and Exchange Board (SEBO) was established in 1993 to
regulate the securities industry in Nepal. SEBO might best be characterized as
a quasi-governmental entity as it has both public and private sector attributes.
Establishment of Secured Transactions Registry 1 The Legal Framework 6

For example, while its governing Board is intended to grant SEBO some
degree of independence, a majority of its members come from the
government’s ranks. Further, SEBO is subject to yearly appropriations, and
SEBO officials stated that this dependency adversely affected SEBO’s
autonomy.
SEBO officials indicated that they did not have the resources to undertake new
duties. They underscored this point by stating that they had plans to
implement technological advances to address current legislative directives, but
lack the funding necessary to carry out these mandates. These officials also
questioned whether the goals of the ST Act were in congruence with SEBO’s
mission to augment and regulate Nepal’s capital markets. However, SEBO
officials did not go so far as to assert a specific lack of desire to take on the ST
Act. Instead, it may be fair to say that while they would prefer not to have this
responsibility, they would accept it if it was assigned to them. The
Assessment Team believes that SEBO would be capable of handling the duties
that would be imposed upon them under the ST Act.
C. The Registry system: solely electronic or paperbased?
It is strongly recommended that a solely electronic registry system be put in
place and that paper notices not be accommodated. The ST Act clearly states
that the Registry is to be electronic. Therefore, the database holding Registry
information should by all means be in such a format, and in turn this electronic
database should be available on-line via the internet for all users to both file
documents and retrieve information. This format allows the public access to
all functions of the database called for in the Act in the quickest and most
efficient manner. A detailed argument against the deployment of a paper
based registry is discussed in Chapter 2.
D. Language
In most jurisdictions, the language used for registration is the official national
language. However, Nepal is one of several countries where the language of
commercial transactions is different from the national language. While Nepali
is the nation’s official language, English is pervasive and is used in most
commercial transaction documents.
The private party lenders interviewed universally agreed that English should
be the language of choice for notices filed in the Registry database. There are
certainly practical reasons to adhere to this view, including: commercial
institutions use English in their contracts and loan documents; English is much
easier to type, making on-line filing more accessible; it is much easier to
translate a Nepali surname into English to enter it into the Registry database
than it is to translate an English name into Nepali; foreigners doing business in
Establishment of Secured Transactions Registry 1 The Legal Framework 7

Nepal will not be able to use Nepali to do searches; and it would be costly to
adapt off-the-shelf software used by the Registry if Nepali were used for
registration.
The assessment team specifically questioned officials from the Nepal Debt
Recovery Tribunal, an arm of the judicial branch that has jurisdiction over
borrower–lender disputes, on this issue. These officials stated that in the event
of a priority dispute between the parties, print-outs in English would be
admissible to the Court, and that there are no legal requirements that such
evidence should be presented in Nepali.
As a result, it is concluded that an English database will facilitate broader
access to users, and there are no legal restrictions against doing so.
E. Registry database: software be developed or
purchased off-the-shelf?
The quickest and safest means by which to implement the Registry is to
acquire an “off-the-shelf” software product that is already in use in other
jurisdictions that have implemented a secured transactions law similar to the
ST Act in Nepal. There are several reasons why this approach is
recommended, including: 1) there will be much less likelihood of “bugs” in
such software, as it will have already been in production elsewhere; 2) it will
already contain many back-end functions (such as statistical reports, audit logs
and accounting features) that are harder to design than simple web pages; and
3) certain time calculations related to effective periods for notices called for in
the ST Act will already be in place. The vendor should modify its application
to fit the specific needs of the Nepal Law, in addition to helping train local
developers on the application software. The purchase agreement by which the
software is acquired should provide for this arrangement, and should expressly
provide for a warranty of the software for the first year of operation to be
included in the price.
G. Action Plan to move the project forward
The following two steps must occur at the outset before other steps may be
taken. They are:
• The GoN must establish the STRO (and appoint a person to the
position of Registrar) and determine that the CIB (or some other entity)
will operate the Registry.
After those actions have been taken, a host of other activities can begin. They
are listed below in sequential order. However, not all are directly dependent
Establishment of Secured Transactions Registry 1 The Legal Framework 8

upon one another, so some of them may proceed along parallel tracks in order
to move the process along. Obviously, these tasks are listed at a high-level,
and many subtasks will need to be completed under each one. This list should
provide a general roadmap describing all the necessary steps required for the
project to start.
• The STRO, in conjunction with appropriate GoN Ministries, must
determine whether to amend the ST Act as recommended herein.
• A contract must be entered into between the STRO and the CIB, as the
entity.
• The STRO, in conjunction with appropriate GoN Ministries and the
Registry host entity, must prepare a draft of the regulations to be
promulgated under the ST Act.
• The procurement process for the off-the-shelf software product must
be undertaken.
Task Deliverable Responsible
Entity
Timing
1. Establishment
of STRO
Establishment of
STRO and
Appointment of
Registrar
Finance
Ministry
• Upon
announcement of
the budget (by July
2008)
2. Contract
finalized and
signed between
STRO and CIB
3. Establishment
of the drafting
committee,
drafting and
issuance of
Registry
Regulations
4. Amendment of
the ST Act
5. Procurement of
software and
hardware
Concession
contract
Registry
regulations
covering
location,
accounts,
payment
functions, search
logic etc.
Exclusion of fee;
modification of
transition period;
technical
amendments
Preparation of
procurement
documents for
software and
hardware
Finance
Ministry/
STRO and CIB
Finance
Ministry/
STRO
Finance
Ministry
CIB
• By August 2008
• Drafting team
established by May
15, 2008
• Draft finalized and
circulated for
comments by
October 1, 2008
• Regulations issued
before the Registry
is launched.
• Drafting team
established by May
15, 2008
• Proposed
amending Bill
drafted – by July
2008
• Enactment of the
Bill - TBD
• Begins by August
2008 once the
contract is signed
btwn STRO and
CIB
Establishment of Secured Transactions Registry 1 The Legal Framework 9

Task Deliverable Responsible
Entity
Timing
6. Installation,
Testing and
Launch
7. Training, Public
Awareness Events
Installation of
Hardware and
software, testing
systems and
launching.
Training of
lenders, legal
community and
public at large.
CIB
CIB
Once regulations have been promulgated and procurement has been
completed, then the project will move into an operational phase, with activities
such as completing the design of the database and staffing of the Registry to
be undertaken. These functions will be handled by the Registry host and not
directly by the GoN. The roadmap for these activities is contained in Section
3 of this <strong>Feasibility</strong> <strong>Study</strong>.
H. What are the key components to a successful
implementation of the Registry as envisioned in
this Feasiblity <strong>Study</strong>?
Once the legal framework is in place and after the information technology
system has been developed, CIB must: 1) establish the office space in which to
house the Registry; 2) the select and train the Registry staff; and 3) ensure the
financial viability of the Registry. Each of these is discussed below.
Office Space
As the Registry will be an electronic operation, there is no need for extensive
office space. All that is required is that adequate space exists to house the
hardware necessary to support the Registry (with sufficient electrical
connectivity, grounded circuitry, automatic gaseous fire suppression,
conditioned power, UPS, back-up generator with fuel supply, physical access
controls to server area, protection against natural disaster, server rack space
and climate control) and the minimal Registry staff.
Staff
The Act calls for the establishment of a “Secured Transaction Registry Office”
(“STRO”) and for the appointment of a person to serve as the “Registrar,”
with such person having the job title of “Gazetted Officer of Class II or
equivalent rank.” There are no other explicit requirements pertaining to
staffing within the Act.
Establishment of Secured Transactions Registry 1 The Legal Framework 10

As stated above, the Assessment Team recommends that the STRO enter into
a contract with the CIB, under which the CIB will run the Registry. If this
scenario is followed, then the STRO itself would not require significant
staffing; it should be sufficient to utilize one person part-time, for perhaps two
hours per month on average. It may be advisable to assign the Registrar
office and another nearly full-time office of similar rank to one person.
With regard to operation of the Registry itself, there will not be a need for
significant staff to oversee its operation. It is anticipated that no more than
three part-time staff would be required to handle all related operations. These
individuals would be:
1) One database administrator (1/5 of total time);
2) One junior-level IT expert(1/5 of total time); and
3) A “help desk” person to respond enquiries about the Registry (1/12 of
total time).
All of these positions are discussed in more detail in Section 3 of this
<strong>Feasibility</strong> <strong>Study</strong>. Estimates on the number of staff and the amount of time
each would have to devote to Registry functions are based upon international
experience in the establishment of movable collateral registries. By way of
comparison, Cambodia has implemented a solely electronic secured
transactions registry, and has only two employees.
Financial Considerations
The following table summarizes the major ongoing expenses associated with
running the Registry:
Item Nepalese Rupees/month US Dollars/month
Database 20,000 391
administrator
Jr. IT Person 13,000 203
Public Help Desk 4,167 65
Staffing Costs 37,167 659
Bandwidth 5,760 90
Co-location 9,600 150
Daily Back-ups 2,560 40
Maintenance Costs 17,920 280
Capital Reserve Fund 160,000 2,500
Total Monthly Costs 215,087 3,361
Establishment of Secured Transactions Registry 1 The Legal Framework 11

With regard to expected revenues, the the ST Act currently calls for the
payment of NRs500 for various notices that are filed in the Registry. The Act
prohibits charging fees for access to information via the web.
To cover total estimated monthly costs, and thus generate NRs 215,087
(US$3,361) per month, the Registry would require 430 notices per month.
This is not an extraordinary amount of business to expect for the Registry. In
order to gauge the number of notices that should be expected, a survey was
conducted. The survey suggests that, even using a very conservative scenario
and including only filings by the eighteen largest commercial banks, a
substantially more than sufficient number of notices will be filed with the
Registry, such that its operation will be entirely self-sufficient. Aggregate
totals indicate that there will be a minimum of 28,454 initial notices
(during the transition period), followed by an average of at least 480
notices per month in the next five years. (See detailed results in Appendix
C).
Establishment of Secured Transactions Registry 1 The Legal Framework 12

1 The Legal Framework for
Establishing the Secured
Transations Registry
This chapter provides an analysis of the legal framework of the secured
transactions law of Nepal relevant to the establishment of the secured
transactions registry. Overall the Act is largely in compliance with
international best practice principles. However, there are a few areas in the law
that would benefit from revision. This Chapter One provides an overview of
how the Act envisions the secured transactions registry, and then discusses
those shortcomings within the Act that may require revision.
Secured Transaction Act, 2006: Overview
In 2006, the Government of Nepal notified the Secured Transactions Act,
2006 (ST Act). The ST Act provides the legal framework for:
1) the establishment of an entity to be called the “Secured Transactions
Registration Office;” (the “STRO”)
2) the filing of notice of secured transactions in which movable assets
serve as collateral;
3) the perfection and establishment of priorities of security interests; and
4) the enforcement of a security interest by a security holder, should the
security giver default.
Although the ST Act has been enacted by the GoN, it has not become
operational as the STRO has not been established nor has any entity been
designated to perform the functions of filing of notices. Therefore, currently,
Nepal does not have a mechanism for filing notices of security interests in
movable properties and determining priority in a security giver’s collateral. In
the absence of such mechanism, lenders find it risky to accept movable
property as collateral. This impacts the public’s access to finance, in
particular limiting access to capital by individuals and small and medium
enterprises which may not have adequate real estate to offer as security.
Secured Transactions Registration Office
The ST Act calls for the establishment of a registration office to be known as
the Secured Transactions Registration Office (STRO) 1 . The STRO is
contemplated as a public body responsible for performing the functions and
duties prescribed in the ST Act. The STRO can be established by the Ministry
of Finance by issuing a notification in the official Gazette of Nepal. The
1 See Chapter 2 and 4 of the ST Act
Establishment of Secured Transactions Registry 1 The Legal Framework 13

government could have designated any of its offices to perform the functions
of registering notices under the ST Act till the STRO was established, but this
has not occurred.
Functions and duties of STRO
In general terms, the STRO will be responsible for performing the following
functions and duties under the ST Act:
• Keeping the Secured Transactions Registry
• Filing notices of security interests and liens
• Provide information from the records of the STRO to any person who
requests it
• Make an annual report of operations
In carrying out these functions, the ST Act does not provide specific details as
to what the day-to-day functions or duties of the Registrar would be. These
functions and duties may be provided in the implementing regulations to be
framed under section 59 of the ST Act. Importantly, the ST Act does state that
these functions and duties may be performed either by STRO itself, or that the
STRO may outsource any or all the functions of the STRO to a private body.
Such a private body must, however, satisfy the following two criteria provided
for in the ST Act:
• It should have “adequate means, manpower and financial and technical
resources needed for assisting the STRO in its task of registering
notices.”
• It should have “the capacity to gain access to the electronic registry
kept by the STRO according to suitable professional practices.”
Geographical location of the Registry
The Registry is contemplated as a national Registry. As such, the law does
not require a network of branches in other locations to be established. Instead,
the ST Act contemplates that the Registry database will be accessible by the
public via the internet, eliminating the need for branch offices. However, the
ST Act does not specifically prohibit the establishment of branch offices if this
step if considered necessary.
Officers and staff of STRO
The ST Act provides for the appointment of a “Registrar” for
systematizing the functions and activities of the STRO. The Government of
Nepal must appoint or designate any Gazetted Officer of Class II or equivalent
rank as Registrar. The Registrar is responsible for administering all STRO
functions and duties prescribed under the ST Act.
Establishment of Secured Transactions Registry 1 The Legal Framework 14

Establishing the Secured Transactions Registry
The key function of the STRO is to cause the creation of a Secured
Transactions Registry (Registry), which in practical terms is simply a
database. Lenders (i.e., clients of the Registry) can register their notices of
security interests into this database and then retrieve information from such
database to determine if a particular security giver has already given a security
interest in its movable property.
The ST Act contains provisions indicating that the Registry database is to
be electronic. 2 Importantly, the ST Act also calls for the delivery of
information from the Registry database to the public through “any medium”
chosen by the STRO. In practical terms, this means that information held in
the Registry database may be posted to a website accessible by all. Further,
while the ST Act does not specifically prohibit the filing of notices via paper,
the relevant provisions of the law strongly suggest that the intention of the law
makers was to provide for a solely electronic registry. This aspect is discussed
in more detail later in this report. Because both the submission of notices to
and the retrieval of information from the Registry will be performed on-line by
the customers themselves, the operation and maintenance of the Registry is
largely an IT function, and the entity hosting the Registry should be staffed
accordingly.
The STRO can either operate the Registry itself or it can enter into a
contract with a private entity pursuant to which the private entity would
be authorized to implement the Registry and related functions. As will be
seen later in this report, it is recommended that Registry functions be
outsourced to a private entity. If the government decides to proceed in this
manner, such private body may be contracted to perform all or some portion of
the whole Registry related functions.
The contract entered into between the STRO and the private party Registry
host can provide that the ownership of the Registry, its hardware and software,
and the records therein would remain with the government. However, the use
of these assets by the private body may be authorized under the contract
subject to such terms and conditions as may be provided therein.
Accountability and Oversight of Registry
The Registry, whether kept and maintained by a public office or a private
body, would remain subject to regulatory supervision under the ST Act. If
a private entity is to house the Registry, adequate provisions regarding STRO
oversight of the private should be placed in the private-party contract. It
should also be noted that Chapter 6 of the ST Act provides that certain actions
will constitute an offence and the offender will be liable for punishment with a
fine ranging between Rs. 50,000 and Rs. 500,000 or with imprisonment for a
2
See clause (a) of sub-section (1) of section 5 (1) of the ST Act.
Establishment of Secured Transactions Registry 1 The Legal Framework 15

term not exceeding six months, or with both, depending upon the degree of
offence. These actions are:
• Act of intentionally inserting false particulars in the notice presented
before the Registry;
• Act of obstructing the function of registering a notice under the ST
Act; and
• Act of obstructing any person's right to use, exercise title to, possess or
give a security interest in his property.
Similarly, in case the Registrar or his representative issues a bogus certificate
or destroys or renders incorrect any of the records kept at the STRO, the
Registrar shall be deemed to have committed an offense under the ST Act. A
private entity hosting the Registry would be subject to these penalties in the
event of malfeasance, and the contract should clearly underscore this point.
Transactions Subject to the ST Act
The ST Act provides the following transactions can be registered with the
Secured Transactions Registry:
• All transactions, including pledge, hypothecation and hire-purchase
transactions, to be made for securing obligations with a collateral;
• Sale of accounts and secured sales contracts; and
• Lease of goods.
The following transactions are excluded from the applicability of the ST Act:
• Transactions involving transfer of an employee's claim to
compensation;
• Transactions in relation to sales where the accounts or secured sales
contracts connected with any business have been sold in the course of
selling the business;
• In relation to accounts, secured sales contracts, or instruments which
have been transferred for the purposes of collection; and
• In relation to the transfer of the right to receive payment under a
contract by the transferee who also has to perform an obligation under
the contract.
Although the ST Act lists the transactions subject to its jurisdictions, it is not
the place of the registry host to check each notice to see if the underlying
transaction falls within the scope of the ST Act.
Filing of Notices in Registry Database: Contents
Who can register?
Establishment of Secured Transactions Registry 1 The Legal Framework 16

A notice can be registered either by the borrower itself or by a person
authorized to act on their behalf. Where the borrower has signed a security
agreement, they shall be deemed to have granted authority to the lender to file
in the Registry. The practical effect of this language is that lenders will be the
ones filing notices in the Registry: security givers simply have no incentive to
file Notices, and it is an extremely poor lending practice to rely on them to do
so. The Registry office is not responsible for verifying whether the person
filing the notice has the authority or not to file the same.
The ST Act does not require the applicant filing the notice to make a
declaration as to the accuracy of the contents of the notice. Instead, this
concern is policed by making the act of intentionally inserting false
information into the Registry a criminal offence under the ST Act.
The following types of notices can be registered with the Registry under the
ST Act:
1. Original notice;
2. Statement of continuity;
3. Amendment relating to notice;
4. Termination statement;
5. Correction statement; and
6. Notices of lien holders' rights.
Please see Appendix A at the end of this report for a detailed discussion of the
data elements for each of these notice types.
Inspection of Registry Records: Searches
In general, all information included on the face of any notice maintained by
the Registry under the ST Act is deemed to be a public record and shall be
available to any person. The following sections discuss the parameters of this
general obligation.
What are the valid search parameters?
A search request may be made by any person by explicitly mentioning the
following particulars:
• The file number of the original notice;
• The serial number of the serially numbered vehicle;
• The citizenship certificate number of a security giver, if he is a Nepali
national; or
• The name and passport number of a security giver, if he is a non-
Nepali national.
Establishment of Secured Transactions Registry 1 The Legal Framework 17

What information is to be provided from the Registry?
• The Registry is obligated to provide the following information:
• Whether or not any notice mentioning the name of any particular
security giver has been registered by the Registry on any specified date
and time;
• Whether or not any notice which has not expired as to all security
holders has been registered by the Registry on any specified date and
time;
• The file number of every notice, and the date and time of its filing;
• The names and addresses of the security giver and the security holder
mentioned in every notice;
• Description of the collateral mentioned in every notice or amendment
notice; and
• The file number of each document connected with every original
notice, the date and time of its filing, and particulars which help to
identify whether the document is an amendment, correction statement,
statement of continuity, or termination statement.
How is the information to be supplied?
The ST Act provides that the information from the Registry database can be
supplied through any medium. Therefore, the entity hosting the Registry may
make some or all of this information available on a website accessible by the
public and thereby be in compliance with the ST Act. There is no requirement
that the host entity provide information in paper form.
What fees may be charged for providing information?
No fees may be charged for providing information through a web site.
Internationally, a majority of jurisdictions provides information sufficient to
identify security givers for free over the internet, but then fees begin to accrue
when additional search services are provided through the website. It does not
appear that this model is available under the current ST Act. This issue is
discussed in more detail below in the section on fees.
Mode of payment of fee
The ST Act does not prescribe the mode and manner in which the applicable
fee is to be received by the entity hosting the Registry. As discussed in more
detail in the next section of this report, in practice, secured transactions
registries in the majority of jurisdictions permit fees to be paid over the
internet by use of a credit card or, for frequent users, by establishing a user
account. The ST Act is broad enough to permit both of these payment types.
Establishment of Secured Transactions Registry 1 The Legal Framework 18

In the event that paper notices are also to be permitted, then the ST Act is
broad enough to allow payment by cash for walk-in clients.
Concerns with the ST Act: Recommendations
To ensure the sustainability of the ST registry, four issues need clarification in
the ST Act: (i) how to manage the transition period from the pre-ST Act law to
the ST Act; (ii) fees; (iii) how to amend and/or correct a name on a notice; and
(iv) technical corrections to the Act relating to the appropriate party to register
and to searching criterion for corporate security givers and .It should be noted
that while it is recommended that certain changes be made to the ST Act, these
changes are not required in order to actually deploy the Registry. Rather, the
amendments will facilitate smooth transition to the new system and mitigate
complications that may arise in the future.
The following is list of the most critical issues with recommendations for
further action.
Transition period
While this issue resides largely outside the scope of implementation of the
Registry itself, it is critical to the overall success of the implementation of the
Secured Transactions Act. The issue pertains to the length of time that lenders
are granted within which they may register notices of pre-existing interests.
The issue is specifically tied to the inordinately long one-year transition
period. Suppose that on January 1, 2004, Lender A extended credit to Security
giver that is secured by a security interest in Security giver’s assets. Then,
suppose that the Registry is started on August 1, 2008. Lender A does not
immediately file a Notice. Then on January 1, 2009, Lender B conducts a
search of the Registry and does not find any security interests against security
giver. Based upon this clean search, Lender B extends credit to the security
giver, and files a Notice with the Registry. Lender A then records its Initial
Notice of its pre-existing security interest on July 1, 2009. Under the
transition language in Chapter 57 of the Act, Lender A’s lien will “spring” into
existence as of the first date the Registry went live and would have priority
over Lender B.
Given the problem shown in this example, during the transition period any
lender will be even more wary of extending credit secured by personal assets
than under the current system. At the moment, even if there are multiple
security interests against the same security giver’s property, the lender has at
least a fair chance of being the first party to seek self-help against the security
giver, thereby rewarding the vigilant lender. This is not the case under the ST
Act. Lenders, aware of the possibility of a “springing lien,” will likely be very
hesitant to take security interests secured by movable property until the
transition period has passed. Given that the transition period is for one year,
this could have severe detrimental impacts on the marketplace.
Establishment of Secured Transactions Registry 1 The Legal Framework 19

Given this problem, the Act should be amended to provide for no more than a
three-month transition period in which pre-existing secured transaction can be
placed in the Registry. The period is deemed to be sufficiently long in light of
the following:
• Lenders will have had ample time within which to organize their files
in anticipation of the start-up of the Registry.
• The information to be entered into the Registry is minimal: the filing of
an original notice via the web can be accomplished in less than 10
minutes.
• Any burden upon any individual lender must be weighed against the
overall burden on Nepal’s economy discussed above that would result
from a long transition period.
Fees
The schedule of fees to be paid are set forth in the ST Act. It is not a common
practice to prescribe the fee in the statute. Instead, the enabling act typically
contains an enabling provision which allows the authorities to prescribe the
fee in regulations. This provides the authorities with the flexibility to revise
the fee without needing Parliament to amend the statute.. If at any stage it is
considered necessary by the Government of Nepal to revise the fee schedule
stated above, an amendment of section 19 of the ST Act by the Parliament
would be needed, which can take considerable time in Nepal.
The reason why the issue of fees is so important is that there exists a direct
nexus between revenues to be derived from the Registry and the business
model to be adopted for operation of the Registry. As discussed in more detail
herein, a public/private partnership should be established, pursuant to which a
private entity will enter into a contract with the GoN to run the day-to-day
functions of the Registry. In order to entice a private entity to act in this
capacity, the revenue earned out of the fee receipts must be sufficient to at
least cover expenses.
In Nepal, unless otherwise prescribed by law, the revenues received by a
public office are deposited in the State treasury and flow into the common
general fund maintained by the government. The expenses associated with
such public office are then met by the yearly budgetary allocation made by the
government. Presumably, this same principle would apply to the fee receipts
under the ST Act if the STRO were to operate the Registry.
Correcting a Name
During the life of a security interest, the name of a business entity security
giver may change due to any number of circumstances (sale, merger, etc.). In
such an event, the notice against that security giver must be updated to reflect
the new name. Subsection 2 of section 9 of ST Act should be amended to
provide that the change in name of the security giver would require the filing
Establishment of Secured Transactions Registry 1 The Legal Framework 20

of an “amendment” and not a “correction” as presently stated. A correction
statement is filed by a security giver to object to the existence or content of a
filed notice that names the security giver. If there is a subsequent change in a
name, the change in the record of registry should be made by way of an
amendment reflecting the then-current name.
Filing and Search Records
In most other jurisdictions, a security transaction registration causes the
registration office to issue a receipt or acknowledgment in the prescribed form
containing the particulars of registration. Unfortunately, the ST Act does not
contain any provision for the issuance of such receipts or acknowledgments.
Further, the ST Act does not specifically provide for the issuance of an
evidence of registration, amendment, continuity or termination by the STRO
to the person filing the notice. A confirmation of the filing may be printed by
the registrant which would contain the basic information about the notice or
statement such as the file number, date and time of filing, name and address of
security giver and security holder or the authorized representative, description
of collateral, and any other information that the authorities may decide to
prescribe.
Also, it is critical that an electronic search report must be self-authenticating
under Nepalese law, meaning that the print out can be admitted into evidence
in a court proceeding without the need of a Registry official to authenticate the
record. Otherwise, every time that a dispute arises in which Registry
certificates are at issue, a representative of the Registry must appear in court to
authenticate the content of the certificate. This is unduly burdensome and
should be avoided.
Technical Corrections
The Law contains two provisions that amount to errors in drafting, but that
may have significant legal impacts. These provisions should be amended to
avoid potential legal problems when the law is implemented.
The first of these provisions is Section 7(2), which says in relevant part: “The
security giver himself/herself, or a person authorized by him/her to act on
his/her behalf, may register the original notice. . . .” In reality, the notice
should be filed by the security holder, not the security giver. The party whose
interest is served by filing the notice is the security holder. If the task were
given to the security giver, there is a strong likelihood that notices may not be
filed or that they may be altered by the security giver before being filed. In
every other country that has implemented such laws, the responsibility for
filing belongs to the security holder. Section 7(2) should be amended in
relevant part to read: “The security holder, or a person authorized by him/her
to act on his/her/its behalf, may register the original notice. . . .”
Establishment of Secured Transactions Registry 1 The Legal Framework 21

The second provision is Section 18(2), which sets out the criteria by which the
Registry’s archive may be searched. The criteria should match the indexing
criteria set forth in Section 8(1). However, it appears that the necessary
counterpart for last three criteria in that list, those being the name of different
types of corporate entities, was left out of Section 18(2) through inadvertence.
Since in each of the three types of corporate entities is identified and indexed
by its name, Section 18(2) can be corrected by adding a clause (e), to read:
“The name of the security giver if it is a corporate entity.”
Establishment of Secured Transactions Registry 1 The Legal Framework 22

2 Registry Design and Related
Issues
This chapter will first address the question of what entity should host the
registry, and will then turn to implementation issues.
What entity should host the Secured
Transactions Registry
The following four existing entities were evaluated as potential candidates to
host the Registry.
• The Credit Information Bureau, a private entity with both public and
private “owners”
• The Office of the Company Registrar
• The Land Registry
• The Securities and Exchange Board
Criteria for Evaluation
The following criteria were used in formulating this evaluation:
1. Principles Related to Governance / Organizational
Structure
• Willingness of Entity to Host the Registry
• Autonomy of the Entity
• Harmony of the Registry with Current Mission of Entity
It is essential that the host entity be willing to host the Registry and not have
the perception that it is an additional burden. If a proposed host entity is
already so overburdened that it views the Registry as beyond its current
capabilities, then implementation will not receive the attention that it deserves.
It is also important that the Registry have a degree of autonomy so as to
facilitate both the quick implementation of the Registry and to make certain
that it remains free from improper influences.
It is also preferred that the Registry be in harmony with the current mission of
the chosen entity. If such harmony exists, there will be less of a challenge in
obtaining organizational “buy in” from both administrators and staff, making
implementation much easier and more efficient.
2. Principles Relating to Operation of the Registry
• Efficiency in Handling Current Responsibilities
• Technological Capabilities
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 23

• Staffing Capabilities
• Physical Facilities
If for whatever reason (lack of capacity, lack of funds, etc.) a given entity is
currently not in a position to adequately fulfill its current duties, it does not
make sense to assign such entity new responsibilities.
The Act calls for the Registry to be in the form of an electronic database. It is
therefore proper to assess to current use of technology by each agency. This
could include such issues as infrastructure and the entity’s comfort level with
technology. Further, a review of current staff with regard to both capacity and
the use of technology are appropriate.
3. Evaluation of Credibility of Entity in the Affected
Communities
The credibility of each entity within the primary user group of the entity, the
lending community, is also an important consideration and therefore was
examined. This was accomplished by conducting meetings with various
lenders, most of whom have had experience with each of the four candidate
entities, as well as with business people outside of the lending community.
While the information gathered was of necessity anecdotal, the users who
attended meetings represented a fair cross-section of the most common
potential of users of the database, both lenders and borrowers.
Conclusion
Based on this objective analysis, CIB is the entity best situated to host the
Registry. There are three primary reasons for this conclusion:
a) First, the CIB is the only entity that actively seeks to host the Registry.
The Registry is most likely to be successful if it is assigned to an
enthusiastic host.
b) Second, the CIB is a private entity. Given the current political realities
in Nepal, a private entity will be able to start the Registry more quickly
than a governmental entity would, and also carry out its functions more
efficiently. A related issue to consider is that ninety percent of the
equity owners of the CIB are financial institutions, who have a direct
financial interest in the success of the Registry. As such, they are
motivated to see it succeed and will give it the attention it deserves.
c) Finally, the CIB already performs business functions that are closely
related to those that will be undertaken by the Registry host.
Therefore, there will be no need for substantial cultural changes or
acclimatization to entirely new technologies on the part of CIB staff in
order for it to succeed.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 24

The primary criticism levied against the CIB is with regard to its role in what
is termed the “blacklisting” process. This is a process by which security
givers that have defaulted are placed on a “blacklist,” which has serious
adverse economic consequences for that security giver. The CIB maintains
this blacklist. However, the CIB itself does not have discretion in this matter.
Rather, it is simply carrying out the mandates of the law and its member
institutions in performing this ministerial duty. Still, in order to dampen any
potential adverse public comment on this selection, a new division within the
CIB should be created to host the Registry. This division would only handle
Registry functions and not be involved in the functions that result in
blacklisting.
In the event that CIB is not chosen to host the Registry, then an entirely new
governmental entity should be established under the Ministry of Finance to
carry out these functions. This entity would be the STRO called for in the
Act. While SEBO is capable of handling the Registry and could potentially be
the second best choice for this operation, SEBO questioned whether the
Registry fits within their current mission, which is a valid concern.
We recommend against the selection of either the Office of the Company
Registrar or the Land Registry to host the Secured Transactions Registry.
These entities are either overburdened by current duties or have other
deficiencies in their operations. Further, due to their current workload, they
expressed an uncertainty as to whether they would be able undertake this
mandate.
Registry Host: Public-Private Partnership
As discussed above, it is recommended that the CIB host the Registry. This
does not end the discussion, however, given the way in which the Act is
written. Chapter 2, Section 4 of the Act requires the establishment of a
“Secured Transactions Registry Office” (STRO) as a governmental entity, and
for the appointment of a “Registrar” as a government employee. The STRO is
charged with either implementing the Registry, or with entering into a contract
with a private party for the purpose of having that private party carries out the
Registry functions.
If the CIB is selected to carry out the day-to-day operations of the Registry,
then it is clear that the STRO would enter into a contract with the CIB to host
the Registry. This would mean that the duties imposed upon the STRO would
generally be limited to regulatory and general administrative functions and
interacting with other governmental agencies on policy issues, while the CIB
would carry out all Registry functions.
The private sector parties interviewed almost unanimously believed that the
Registry should be operated by a private entity for the following reasons: a
private entity would be able to establish the Registry more quickly than a
governmental entity would, it would more efficiently carry out ongoing
Registry functions.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 25

It should be mentioned that there are private-party vendors that specialize in
housing database operations, and there are in fact international companies that
undertake the operation of secured transactions registries for governments.
Therefore, the STRO could enter into a contract with one of these entities as
opposed to the CIB. The primary advantages of proceeding in this manner
would be that such private entity:
• Would already have the corporate infrastructure in place to handle a
registry;
• Would have the basic software product available, which would require
little customization to comply with the Act;
• Would have a proven track record of operating a registry; and
• Given the first three factors, the deployment time would be greatly
reduced.
The primary drawback to proceeding in this fashion is that there are no such
entities in Nepal, meaning that the functions of the Registry would be
entrusted to a foreign company. Additionally, there may be political issues in
entrusting what is fundamentally a government function to a foreign private
company. In comparing this option to contracting with the CIB, the following
points are apparent:
• The CIB is owned by entities which will be the primary users and
beneficiaries of the Registry. Therefore, there will be great incentive
for the CIB to quickly implement the Registry and to ensure its
ongoing success.
• The Nepal Rastra Bank has an ownership interest in the CIB and has
representatives on its Board of Directors. This allows a form of direct
oversight that would not be found if a wholly privately-owned entity
operated the Registry.
• CIB already has 118 financial institutions as member-entities, and this
number continues to grow. These entities collectively represent the
vast bulk of expected users of the Registry. Further, these memberentities
already submit data to the CIB. Therefore, these entities would
be able to seamlessly transition to using the Registry if it is housed at
the CIB.
In light of these and of the CIB’s operational strengths noted above, it is
recommended that the STRO enter into a private contract with the CIB to
implement the Registry. If for whatever reason this recommendation is not
feasible, then the STRO itself should be tasked to put the Registry into service
as a governmental agency, whose sole mission would be to establish and
operate the Registry. This would be more likely to succeed than an existing
agency that is already charged with several other responsibilities.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 26

Registry Database: Principles for Design and
Implementation
Electronic vs. Paper Filing System
The Act clearly states that the Registry is to be an “electronic database.”
Therefore, the Registry should be devised in such format; in turn, this
electronic database should be available on-line via the internet for all users.
This format allows the public to access all functions of the database called for
in the Act. The question remains of whether a paper-based filing system
should also be put in place to augment the on-line system: a solely electronic
registry system is most appropriate and aligned with recent trends and
international best practice principles.
The following discussion is divided into two parts. The first part discusses in
general terms the advantages that a solely electronic system offers over a dual
system that also allows paper notices. The second section addresses in detail
the concern about internet access for small lenders in remote areas.
A. Advantages of a Solely Electronic System
At the outset, it should be noted that creating a parallel paper-based system
involves additional complexity and, in turn, cost. In general terms, to
accommodate a paper-based system, the host entity would, at a minimum,
need to: spend additional time in designing the database system; retain
additional staff to process the paper notices; secure and maintain additional
technology hardware (scanners and digital storage for scanned images); and
secure the office space needed to house this staff and hardware. There are
other jurisdictions, including the Federated States of Micronesia, the Marshall
Islands (soon to be operational), Cambodia, New Zealand, and three Canadian
provinces that successfully use an exclusive electronic filing system,
demonstrating that this approach can work. In light of this, a solely electronic
registry would also be viable in Nepal.
The advantages of and justification for a solely electronic Registry follow
below:
• Information held by the Registry will be in an electronic database.
Hence, when the public (i.e., lenders) desires to access the information
prior to extending credit to a particular borrower, there is no need for
the entity hosting the registry to make copies from paper for the
requestor. Instead, the requestor may simply access the information via
the Registry website, and they may print whatever they need.
• As discussed in above, the Act does not allow fees to be charged for
providing paper copies of notices. The Act does state, however, that
host entity, in response to requests for information, “may transmit
notices or information through any medium.” Because it is uncertain
whether the host entity can recover costs for providing paper copies, it
will choose to provide information in an electronic format, i.e., it will
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 27

make the most commonly requested information available on the web.
Therefore, even if users are able to file via paper, they will still be
required to access the internet in order to first determine if a proposed
security giver already has given a security interest to another lender.
Thus, in some sense, the entire issue of internet access is moot: if users
must access the internet to obtain information from the Registry prior
to taking a security interest, there is no additional burden in requiring
them to file evidence of their security interest via the internet.
• Filing of a notice in a secured transaction registry is not a pre-requisite
to effectiveness of a security agreement between the parties to it, but
only to establish priority with respect to other interests in the same
collateral. Therefore, borrowers have no practical need to file in the
registry. Only security holders, who are in nearly all cases businesses
that have access to the internet, have a need to file notices. It is,
therefore, not critical that every person in the country have access to
the registry, so lack of access to the internet by security givers is not a
critical shortcoming. This point is discussed in further detail below.
• A system that permits paper notices can be both more costly and more
time-consuming to implement. A paper-based system will require
additional infrastructure (office space, equipment for staff, scanners for
converting paper notices into digital images, media for storing digital
images) to implement and to maintain. As discussed elsewhere in this
report, there is a concern that the fee structure—and its limitations—
called for in the Act may not support a paper filing system.
• There is far less opportunity for corruption in a purely electronic
database system than in a paper-based system.
o With on-line filing, items such as filing date and time – where
corruption is most likely to occur – cannot be manipulated. The
software assigns a filing date and time to each transaction
submitted, and this function can not even be altered by a person
with administrator rights to the database. Further, each time the
administrator accesses the database, the software can be
configured to produce an internal log that will record the fact
that an individual notice record was changed.
o Even in the absence of corruption, staff must still enter
information from a paper notice into the Registry database.
This introduces an element of human error into the system.
There can be dire consequences in the marketplace for notices
that are errouneously entered. Although the Act does afford
some protection with regard to an assessment of liability against
the STRO (or private entity implementing the Registry) for such
errors, they can cause great embarrassment and result in adverse
political attention being brought to the Registry. This risk is not
incurred with electronic notices.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 28

• The electronic system poses a greater deterrent to the would-be bogus
filer than a paper system would. 3 A bogus filer may submit paper
notices to the office and pay the filing fee in cash. As such, there
would be no way to trace the identity of the bogus filer. However, with
an electronic system, each transaction conducted on-line generates an
entry into what is called an “audit log” in the database. The audit log
can be configured so that the “biographical information” of the
person/entity paying the filing fee can be captured and linked to the
appropriate transaction. For example, the name and address of the
credit card used for a filing fee would be retained (it is not
recommended that the credit card number be stored in the database for
other reasons). Thus, at least some evidence will exist as to the identity
of the bogus filer. If credit cards are not viable, a commercial bank can
be used for receipt of payments to the registry account. In that case,
the rules for receipt of payment can call for the bank to enter the
payor’s name from his official ID to achieve the end sought here.
• Even though the Registry itself would be an electronic database, there
would still be the need to maintain a business office, which would not
only carry out internal administrative functions, but would also serve as
the client contact point for the Registry. This business office would be
responsible for, amongst other things, collating and providing statistical
information, as well as providing accounting of revenues and
expenditures. The business office would also staff a help desk to help
customers with any problems that might arise.
B. Access for Small Lenders in Rural Areas
The private sector interviewees universally stated that they would use the online
electronic system. The business need for a paper-based system is thus
questionable, given that the primary user group would employ the on-line
system. Admittedly, these interviewees represented the larger institutional
lenders in Nepal. While these lenders would be taking the vast bulk of
security interests in Nepal, the section below addresses the needs of small
lenders.
• The user group for and the beneficiaries of this registry consist of
lenders as well as buyers of livestock, crops, equipment etc. In
practice, the database would not receive notices from the general
public, thus minimizing concerns about universal internet access to the
database.
• The Registry office itself could easily establish a dedicated public
workstation with internet connectivity, so that any person who does not
have a computer or internet access could access the registry from that
3 The term “bogus filing” refers to instances where third parties submit phony
notices to a secured transactions registry with the intent to harm another,
typically through the creation of false liens.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 29

workstation. This approach would be analogous to that used by the
Companies Registry, where a person (or their agent) desiring to form a
business entity must appear in person at the Company Registry in
Kathmandu.
• The existence of micro finance institutions and small finance
companies operating in rural areas does not justify the creation of a
parallel paper-based registry system. Many of the loans extended by
microfinance lenders are simply not secured by movable property
collateral for at least two reasons. First, microfinance loans are often
made to a group, and each member of the group acts as a sort of
guarantor for the other members, with these collective guarantees
effectively serving as collateral. Second, often the amount of the loan is
too small to justify the expense (in filing fees and internal
administrative costs) of perfecting the security interest. The filing fee
for a notice in the registry is Rs500. Consider a loan of Rs4,000, the
limit established by the Central Bank for loans to qualify as “Deprived
Sector Lending.” The perfection of this security interest by filing
would require 12.5% of the loan value to be paid in filing fees. This
fee would either have to be paid by the borrower, thereby effectively
raising the interest rate paid on the lent funds by a factor of 12.5%, or it
would have to be absorbed by the lender, thereby reducing the return
on their investment by 12.5%. Neither of these approaches is viable in
the marketplace, meaning that there is no economic incentive to
register small-value loans in the Registry.
• For loans above a certain threshold, lenders may currently require a
real estate mortgage as collateral. In order to perfect a mortgage
against real estate in Nepal, the borrower must personally appear at the
local land registry office. In rural areas, this office may be at some
distance from the residence of the borrower, thus requiring travel on
their part. The local office of the land registry will be located in a town
that has more modern amenities than would a remote village.
Therefore, the borrower that is forced to travel to a land registry office
to record a mortgage would pass by locations with internet access. If
the borrower can make such a trip to mortgage their land, then a lender
could be expected to make the same trip in order to file a notice in the
Registry via the web.
Required content of a notice
The Act establishes the information required in the Notice. In summary, for
an Initial Notice, the following information is required :
• Security giver Name (for an individual Nepali citizen, the
citizenship number suffices as the name)
• Security giver Address
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 30

• Security holder Name
• Security holder Address
• Description of the collateral
For subsequent related notices (amendments, continuations, terminations,
corrections), the file number of the Initial Notice and the name of the
authorizing security holder(s) must also be included.
Though it is not listed in the requirements for a notice in section 7 of the ST
Act as listed above, there is a requirement in sections 17 and 18 of the Act for
serial numbers of a serial numbered vehicle to be searchable. In order for
these numbers to be searchable, they must be entered into a searchable field.
It will, therefore, be necessary to provide in the database for a field for entry
of the serial number(s) of vehicle(s).
It should also be noted that, by necessity, the Registry will collect information
related to the person / entity who files via the internet with regard to payment
of the filing fee. A regular user may establish a “client account” that will hold
identifying information about the client (name, address, authorized individual
users, payment information, etc.). This information is not public, will be held
in a secure area of the database, and will only be accessible by the client’s
authorized users and Registry staff with appropriate security clearance.
An infrequent user may pay fees with a credit card or through a commercial
bank. International best practices suggest that, information related to the
identity of the credit card holder can be retained. This is quite typical in
online credit card transactions of all types. As noted above, this information is
not public, will be held in a secure area of the database, and will only be
accessible by Registry staff with appropriate security clearance. The identity
of the payor of fees through a commercial bank can also be captured and
retained.
Search Criteria: Security Giver Identification and
Collateral Types
Since the primary key by which the database is searched for information in the
secured transactions registry is the information that identifies a security giver,
the accuracy of that identifier is critical. The identifier for individual Nepali
citizens is the citizenship number of the security giver. In the cases of
foreigners and corporate bodies, the identifier is the name of the security giver.
There are two sections of the Act which relate to search criteria. First, the Act
provides that the Registration Office “shall supply” the following information
to any person who requests the same 4 :
• Whether there is on file, as of a date and time specified by the
registration office, any notice that designates a particular security giver
and has not lapsed with respect to all security holders.
4 Secured Transactions Act, Chapter 2, Section 18, subpart 1 of the Act.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 31

• The file number of every notice, and the date and time of its filing;
• The names and addresses of each security giver and security holder
mentioned in every notice;
• Description of the collateral mentioned in every notice or amendment
notice; and
• The file number of each document connected with every original
notice, the date and time of its filing, and particulars which help to
identify whether the document is an amendment, correction statement,
continuity statement, or termination statement.
Next, the Act establishes the search parameters that the public may use when
making queries through the Registry database. 5 It provides that the
registration office “may be requested to search for a document by explicitly
mentioning the following particulars:”
• File number of the Initial Notice
• Serial Number of a serial numbered vehicle
• Identification number of a security giver who is an individual and a
citizen of Nepal; or
• The name of a security giver who is an individual but not a citizen of
Nepal; or
• The name of a security giver that is a corporate body . 6
Cross-Link with Other Databases
In certain jurisdictions, the secured transactions registry database is crosslinked
to other governmental databases that may be of interest to lenders. This
allows lenders to visit only one site in order to extract needed information
about a given security giver. In Nepal there currently are no other
governmental databases containing comprehensive information to which a
cross-link can be established. When such other databases are created, the
needed integration can be done by building a simple business services portal
that is linked to all the relevant databases. That will permit all information to
be retrieved through the common portal without having to directly link
databases
Comment [w1]: I think this adds only
confusion to what is otherwise pretty
clear in the foregoing two bulleted
paragraphs. Recommend striking all of
this.
Determine Authentication Requirements
There are two instances where the concept of “authentication” arises in the
operation of a secured transactions registry. The first occurs with regard to the
time that a Notice is filed, and the second involves information that is
withdrawn from the database by the public. Each of these is discussed below.
5
Secured Transactions Act Chapter 2, Section 18, subpart 2
6 The law does not now provide for this, but it is implicit. It is recommended to fix this. See
comments above on the Act, Section 18(2).
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 32

Authentication of the Filing of Notices
While the Act does not require the Registry Office to authenticate the identity
of the person that files a Notice, there is a practical way in which the identity
of a filer may be established for electronic notices.
In order to complete an electronic notice, some method of payment must be
employed. Regular users will establish accounts with the Registry Office,
from which they may pay for services on an ongoing basis. Individual users
will be able to use a credit card or pay via commercial bank for one-time
transactions. In each instance, the software governing the database can be
designed so that the biographical information of the entity paying the filing fee
can be captured in an audit log and linked to the appropriate transaction. The
information maintained in this audit log is not public. However, it is
accessible by anyone in the registration office that has been given the proper
database permissions. That way, if a dispute arises over whether a notice was
submitted fraudulently, the registration office may provide information to the
parties regarding who actually paid for filing the notice. The database system
should be designed such that the audit log is retained as a permanent record.
While it may be counterintuitive, it is nonetheless true that the same level of
filer identity verification is not attainable through a paper-based system. If
paper notices are allowed, a mischievous person could elect to fill out a form
with false information, mail it to the registry via regular post with the filing
fee in cash, and thereby leave no tracking record.
Authentication of Information from the Database
All public information held within the Registry database should be accessible
to the public via the internet. The term “public information” refers to
information the Act requires to be submitted for the various notices. This
includes: security giver name and address, security holder name and address,
and collateral description. Any person may view and print this information as
displayed on the Registry website.
The key consideration with regard to whether any additional authentication
requirements exist is whether Nepali courts will require authentication in order
to admit into evidence information from the Registry database. During an
interview with the Debt Recovery Tribunal, members of the tribunal
confirmed that printouts from the Registry website would be admissible and
that no additional authentication or certification would be required unless the
printout were to be challenged as a forgery, in which case the Registry would
simply be asked to provide a printout.
It is recommended that the software used by the Registry be configured so as
to allow a certified search report to be produced.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 33

Technology Infrastructure for Intake and Payment
Functions
The technological infrastructure and capacity of the potential user groups as
well as the government were examined to determine the best path forward for
Registry to succeed. This also included examination of the infrastructure
available for intake and payment functions.
Meetings were held with private parties in both the financial sector and the IT
sector in Nepal. As for the financial sector, it appears that all significant
lenders have readily available internet access. For example, the CIB currently
has 118 member institutions, each of which can send information to the CIB
via the internet - although such information is currently in the form of e-mail
attachments and not entered directly into the CIB database by the filer. Still,
given that the vast majority of actual users have internet access, the
infrastructure needed to support an electronic registry is in place.
With regard to the broader population, these private parties explained that
internet access is widely available in all urban and suburban areas, and is not
uncommon in rural areas. Therefore, it appears that the basic infrastructure
needed to support a web-based system on a national basis is in place, keeping
in mind that the users and beneficiaries of the system are primarily lenders.
No Nepali governmental agencies currently conduct business on-line, as
contemplated by the Act. Certain entities enter information into a database
(see discussion in subpart 2 (i) above), but this entry is completed by staff and
not by the public over the internet. The CIB is nearly ready to deploy a
system that will allow users to enter information directly into a CIB database,
an activity analogous to accessing the Registry via the web. Also, there
currently are no governmental entities either accepting payment on-line or
maintaining pre-paid accounts for the payment of services. Given the lack of
comparable work being conducted by the GoN, it is difficult to assess
capacity. These functions are not difficult to implement, however, and should
not pose a significant hurdle to implementing the Registry, given that
sufficient infrastructure exists to process payments electronically. Similar
processes have been implemented in other countries with poorer technology
infrastructures than Nepal’s.
In basic terms, there are two ways in which payments can be processed for online
transactions. For individual transactions, the use of a credit card is likely
the most convenient method of payment. Alternatively, payment could be
made in cash through a commercial bank if credit cards are not practical. To
accept credit card payments, the Registry host can either directly enter into an
agreement with a card issuer(s), or it could use a third party entity to handle
credit card transactions. The credit card number submitted is forwarded by the
host software to the approving entity, and once approval is received, the
notices are able to be committed to the Registry database.
In the alternative scenario, frequent users of the Registry may desire to
establish accounts to which fees may be automatically charged, so that their
staff need not enter credit card information for each individual transaction.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 34

The registry design can provide for such accounts to be either pre-paid or paid
in arrears. Payment in arrears is administratively simpler, and experience in
other countries has shown there is a low risk of non-payment since regular
users, by definition, intend to use the service on an on-going basis. Therefore,
they will pay on their accounts so as to avoid being cut off from service for
non-payment. Unless there is some legal prohibition of arrearage accounts,
their use is generally the better course. The STRO will designate the entity
that will receives funds paid by users, which will most likely be a bank. A
user desiring to establish an account will enter into an agreement with the
private party implementing the Registry.
Financial and Accounting Systems
As to the appropriate financial and accounting reporting systems, international
best practices suggest that the software that manages the database will be
equipped with its own accounting functions. The accounting component of
the database software is not complicated, as it needs to track only basic
information that is consistent with any accounting software. Best practices
also dictate that the accounting component of the software be designed to
provide financial reports that satisfy GoN accounting requirements. Typically,
such reports include transactional and fiscal activity on a daily, weekly,
monthly, quarterly and annual basis. Further, such reports should provide
other information, such as aggregate totals for each individual notice type so
as to be able to track overall use of the database.
Security: Safeguarding the Registry; Data Integrity
Another design consideration for the Registry database is the incorporation of
optimal security features with regard to safeguarding physical integrity of the
registry database as well as the integrity and reliability of its contents.
There are multiple aspects to consider with regard to security. They include:
• Protecting the database from hackers, viruses and other external
threats;
• An automated back-up procedure for all records within the electronic
database;
• Protection against interruptions in power;
• A stable, climate-appropriate environment for hardware components;
• A disaster recovery plan and assets in the event of fire or more
widespread natural disaster;
• Security against physical intrusion;
• Use of a secure, off-site facility for back-up retention.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 35

Database Capacity
There are two components to consider with regard to database capacity of the
Registry. The first concerns anticipated Registry activity as determined by the
number of notices that would be expected on an annual basis. The second
concerns ensuring certain that there is adequate capacity to efficiently run the
software that manages that database.
With regard to estimating the number of notices anticipated on an annual
basis, there is no analogous function in Nepal upon which to base an estimate.
The CIB maintains a database of “borrowers”, where information that could
loosely be called “credit information” holds information on approximately
40,000 borrowers. The CIB further responds to an average of 250-300
requests for information on borrowers from its member institutions each day.
While this information serves as a rough benchmark as to the level of
borrowing activity in Nepal, it is not specific to interests secured by movable
property, and it is reasonable to suspect that some portion of the information
relates to unsecured loans or to interests secured by real estate, personal
guarantees or notation on the title of a vehicle. Therefore, one could
extrapolate that the Secured Transaction Registry, limited as it is in scope to
holding information related to movable property, might initially have fewer
borrowers and experience fewer requests for information.
The Company Registry in Nepal currently has approximately 55,000 corporate
entities. This relatively low number is in line with a developing nation that
does not have significant economic activity. Of more relevance to estimating
the number of notices that the Registry database may enjoy are the results of
survey prepared by the Assessment Team and conducted by the Nepal Rastra
Bank in the summer of 2007. The survey was designed to obtain information
from a variety of lenders as to their anticipated use of the Registry. The full
survey results are set forth in Appendix B at the end of this report.
Given the available information, it does not appear that obtaining adequate
hardware capacity to maintain information in the Registry will be a concern.
By way of comparison, hardware (and associated software) is readily available
in the open market designed to handle registries that serve jurisdictions with
over a million registered corporate entities and tens of millions of secured
transaction registry records.
The exact hardware requirements can be determined once the application
software vendor is selected so that hardware and system software
specifications can fit the needs of the application. . If any additional
individual workstations are needed the host entity to accommodate registry
workload, it will not be more than one or two, and their cost will not be a
significant planning factor.
Data Migration from Other Databases
There are no existing databases containing secured transaction information
that would need to be migrated to the Registry database
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 36

Registry Software: Procurement and Design Issues
Three options exist with regard to obtaining the application software needed to
run the Registry database:
• Purchasing a license for off-the-shelf software that exists and contract
with its developer modify it to fit unique Nepalese requirements.
• Acquire a license for the core code of off-the-shelf software and
modify it with local Nepalese developers.
• Build the application software from scratch to detailed specifications.
The quickest and safest means to implement the Registry is to acquire an “offthe-shelf”
software product already in use in jurisdictions that have
implemented a secured transactions law similar to the Act in Nepal. This
approach is both faster and more cost-effective because building software
from scratch requires that all specifications and business requirements must
first be documented, and that such requirements be programmed. Further,
there is less risk of encountering software “bugs” when purchasing a product
that has already been in production.
It is anticipated that such a product can be acquired for approximately
$120,000US, including the cost of related services of a local development firm
such as translation of field labels and instructions.
Administration of the Registry: staffing, hardware
specifications, facilities
Set forth below is an administrative strategy that addresses staffing
requirements, hardware specifications for the Registry, and considers the type
of facility required to house Registry functions. Since a centralized, solely
electronic Registry is contemplated, issues pertaining to staffing, hardware
needs, facility requirements, and associated administrative issues are not
complicated. Each of these components is discussed below.
Staffing
The Act calls for the establishment of a “Secured Transaction Registry Office”
(“STRO”) and for the appointment of a person to serve as the “Registrar,”
with the job title of “Gazetted Officer of Class II or equivalent rank.” There
are no other explicit requirements pertaining to staffing within the Act.
The organizational structure envisioned in the Act calls for the STRO to be
established as a new entity under the auspices of the Ministry of Finance. The
STRO would then enter a contract with a private entity to carry out the day-today
functions of the Registry. If this scenario is followed, then the STRO
itself would not require significant staffing; it should be sufficient to utilize
one person part-time, for perhaps two hours per month on average. It may be
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 37

advisable to assign the Registrar office and another nearly full-time office of
similar rank to one person.
If a private entity is selected to handle the day-to-day operation of the
Registry, it is anticipated that no more than three staff would be required to
handle all related operations, none of which would be required on a full-time
basis. These individuals would be:
1) A database administartor who would handle hardware or software
issues that arise, advise the administrator and interact with the
STRO on technical issues affecting the Registry;
2) One junior-level IT persons to provide sufficient coverage (in
conjunction with the senior level IT person) for hardware or
software issues that might arise with the Registry;
3) A help-desk person to respond enquiries about the Registry.
This estimate for the number of people needed to run the Registry is very
conservative, meaning it may well be possible to run the Registry with fewer
than four persons. By way of comparison, Cambodia has implement a solely
electronic secured transactions registry, and has two employees.
If the private party selected to operate the Registry were an entity such as the
CIB, it probably has or will have employees who can provide the staffing
support needed by the Registry, as described above, in addition to supporting
the CIB function. For example, the CIB may already have a database
administrator, a junior-level IT person and an administrative person who could
provide the limited “help desk” function needed by the Registry. Based on the
experience of other countries that have implemented similar systems, it is
anticipated that the database administrator and junior level IT staff would not
need to spend more than one fifth of full time in support of the Registry, and
that the help desk person would not require more than one twelfth of full time
in support of Registry needs. After the CIB completes its technology upgrade
which is under way, its IT staff will almost certainly have excess capacity.
Therefore, addition of the Registry to the workload of the CIB would likely
not involve any new staffing, and, if it did cause a need for new staffing, it
would not be more than one person.
Hardware Specifications
The equipment required to implement a purely electronic Registry is not great.
The single most significant hardware cost is tied to the purchase of sufficient
servers to run the database. As for the server specifications, by way of
comparison, the Government of Cambodia is currently deploying a solely
electronic registry that that employs only a single database server and a single
web server. Cambodia elected not to have redundant servers based on a costbenefit
analysis that concluded risks of non-redundancy were accepable. A
more cautious approach is recommended, as best practices suggest that it is
more prudent to employ redundant database and web servers. This
recommendation makes even more sense considering the relatively low cost
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 38

for servers in today’s marketplace. While the specific hardware and system
software configuration will be specified by the vendor of the registry software,
it is anticipated that only the redundant web and database servers will be
required, since it is likely that the registry can use the same firewall and
domain servers used by CIB. There may be a need for a dedicated e-mail
server if CIB does not have one, since the Registry will regularly generate
mass e-mailings of notices to regular users. All known vendors run their
applications on MS platforms, so the lower cost of that platform, as opposed to
the higher cost of Oracle, can be assumed.
It is unlikely that additional individual workstations will be required to meet
the needs of the Registry. But if such workstations are needed, it would not be
more than two workstations which are low-cost items that do not significantly
affect the cost of hardware.
Based upon these estimates, one can surmise that the total hardware and
system software (OS and database) cost for the system would be on the order
of $85,000 US.
Facilities
A solely electronic Registry does not require significant physical facilities for
three reasons. First, there is no need for housing large numbers of staff.
Second, there is no need to establish a permanent repository to hold paper
notices, which over time would require space and storage facilities. Third,
providing internet access to the Registry eliminates the need to establish
branch offices, resulting in substantial cost savings both at the start-up of the
Registry and during ongoing operations.
The primary requirement for housing an electronic registry is that the room in
which the servers are located must be climate-controlled. The facility in
which the Registry is housed must also have ready access to a broadband
internet connection. In addition the facility should satisfy other conditions,
including grounded circuitry, conditioned power, back-up generator with fuel
supply, physical security and access controls, server rack space and automated
fire suppression using a gas suppressant.
Best practices suggest that a disaster recovery plan whereby a copy of the
database is maintained off-site, preferably in a remote geographic location
from Kathmandu in anticipation of a natural disaster (e.g. earthquake).
Public Access at the Registry
The Registry should provide access to an internet connection for users who do
not otherwise have access. This can be done through a dedicated workstation
that should be available to the public at either the STRO or at the location of
the private entity (CIB) that houses the Registry. This workstation would have
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 39

internet connectivity, thus enabling the public to use the Registry by visiting
the appropriate office.
3 Implementation Plan:
Regulations, Time-line and
Budget
Below is an overall roadmap to follow to bring the Secured Transaction
Registry to fruition. This roadmap includes references to specific milestones
and a time-line for completing critical path tasks.
What Regulations Should the Government of
Nepal Adopt?
This section details the critical items that will be required to be set forth in
regulations. The STRO, in conjunction with the appropriate GoN Ministries,
should move to finalize regulations as soon as possible as they will feed into
design criteria for the software. The actual design criteria should not be set
forth in regulations as these are more appropriately addressed in procurement
documents.
Currently, no regulations have been drafted to implement the ST Act and it is
necessary to adopt them prior to deployment of the Registry database. These
regulations will cover such substantive items as:
• The delineation of duties between the STRO and the private entity
hosting the Registry;
• The language to be used in the Registry database;
• Search logic for security giver searches;
• Issuance of registry receipts / acknowledgments;
• Issuance of certificates;
• The availability of additional services beyond those offered on-line;
• Provision for fees (assuming the ST Act is amended);
• Provisions governing how to establish customer accounts; and
• General administrative items as office hours and database availability.
There is no need for voluminous regulations to implement a solely electronic
database. Further, there is no need to specify items such as hardware and
software specifications in regulations. These will be handled in procurement
documents.
Establishment of Secured Transactions Registry 2 Registry Design and Related Issues 40

Implementation Time-line: Costs
Below is a time-line for steps required to implement the Registry, along with
associated costs. The time-line includes such items as installation and testing
of the software, creating internal operating guidelines and manual, mounting a
public awareness campaign, as well as training of staff and end users of
registry.
There are a few events that must first occur before a timeline can be
constructed to implement the Registry. Assuming the recommendations that
pertain to hosting the Registry are followed, these are: 1) the GoN must
establish the STRO, and the STRO must have a Registrar; 2) the GoN must
direct the STRO to enter into a contract with a private party, i.e, the CIB; and
3) the STRO must enter into a contract with the CIB for operating the
Registry. Once these are in place, several activities related to the start-up of
the Registry can begin. Many of these activities can and should be carried out
on parallel tracks so as to more quickly move the project forward.
These activities are shown on the table below. This table is not to be
construed as a substitute for an actual project plan listing all dependencies and
subtasks. Rather, it is intended to provide the framework from which such a
detailed project plan could be prepared.
Estimated Implementation Expenses
Task
Responsible
Entity
Timing
Cost
1. Establish
STRO; enter
contract with
private party
GoN, Ministry
of Finance
Initial Task
No external cost to be paid to
third parties unless there is a
need for outside assisstance in
preparation of contract.
2. Establish a
committee to
start drafting
regulations
CIB, STRO,
Ministry of
Finance
Initial task.
Potential need for outside
consultant(s) to assist in this
process. Estimated consultant
time: up to 4 weeks, including
2 weeks in Nepal,
international travel,
consultations etc.
Est Cost: US$ 30,000
3. Define
requirements
& develop
specifications
for application
SW
GoN, MoF Initial task; pre-requisite to 4:
specifications will be for
application SW as modified to
fit specific Nepal requirements.
Estimated consultant time: up
to 3 weeks, including 2 weeks
in Nepal.
Est Cost: US$25,000
Establishment of Secured Transactions Registry 3 Implementation Plan 41

Task
Responsible
Entity
Timing
Cost
4. Prepare,
obtain GoN
procurement
agency
approval, and
publish
procurement
documents for
application
software.
GoN, MoF
Should be completed as soon as
possible. Define all
performance standards for
software and all related tasks
such as installation of Nepali
field labels, etc. when received
from local IT firm,
specification of HW & system
SW requirements, installation,
on-site testing and debugging,
knowledge transfer to local IT
firm, etc. Preparation and
approval should take 2 to 6
weeks. Publication period
should be at least 30 days.
Bid as fixed price contract.
Price should include technical
documentation, knowledge
transfer, HW/SW
specifications, integration of
translated labels, etc., on-site
installation and testing.
Est Cost: US$100,000
5. Define
requirements
for local IT
firm.
GoN, MoF Initial task; pre-requisite to 6:
Firm will support translation of
labels, etc., provide IT support
of SW, participate in
knowledge transfer, support
training & support SW testing
& acceptance.
6. Prepare,
obtain GoN
procurement
agency
approval, and
publish
procurement
documents for
local IT firm.
GoN, MoF
Should be completed as soon as
possible. Define all
performance standards for local
IT firm. Preparation and
approval should take 2 to 6
weeks. Publication period
should be at least 30 days.
7. Select
software
vendor;
negotiate final
terms &
execute
contract.
GoN, MoF
As soon as possible after end of
publication period. Should be
no more than 4 weeks.
8. Select local
IT firm;
negotiate final
terms &
execute
contract.
GoN, MoF
As soon as possible after end of
publication period. Should be
no more than 4 weeks.
For tasks associated with
establishment, e.g. translation,
knowledge transfer, & test &
acceptance support,.
Est Cost: US$20,000.
4. Prepare
procurement
docs for
CIB, with
input from
software
After selection of software
vendor: hardware specs should
be made with input from such
Software vendor’s time
should be included in software
procurement contract.
Establishment of Secured Transactions Registry 3 Implementation Plan 42

Task
Responsible
Entity
hardware vendor vendor
Timing
Cost
5. Prepare text
for Web
pages.
CIB, to be
given to
developer
Should begin after selection of
software vendor.
Cost included in the software
vendor’s contract.
6. Employ
Registrar
GoN, MoF
Approximately concurrent with
7 & 8.
There will be costs associated
with employing and housing
the Registrar for the duration
of the project until revenues
are received.
Est Cost: US$ 5,000
7. Translate
labels, etc. as
SW vendor
sends to local
IT developer
Local IT
developer
Ongoing through period that
SW vendor is developing
modifications to base code and
installing translations.
Cost included in the local IT
firm’s contract.
8. Obtain /
Prepare space
in which to
house
Registry
CIB
If space is available within
CIB, this is not on the critical
path. If new space must be
acquired, then search should
begin immediately after
contract is signed.
Rental costs estimated at
US$1,500 per month. Space
need not be available until just
before hardware delivery.
Est Cost: US$5,000
9. Prepare test
scenarios
Software
vendor, CIB
Should be prepared in parallel
with software development
Software vendor’s cost is
included in its contract.
Potential need for outside
consultant(s) to assist in this
process. Estimated consultant
time: 1 week at home station.
Est Cost: US$ 5,000
10. Install
hardware and
system
software
Hardware
vendor, CIB
Cost of HW & system SW
approx. US$85,000.
Est Cost: US$ 85,000
11. Delivery
of technical
documentation
& copy of
source code
Software
vendor
NLT installation of SW.
Software vendor’s cost is
included in its contract.
12. Install
application
software
Software
vendor, CIB
After 10.
Software vendor’s cost is
included in its contract.
13.
Preparation of
manuals and
Software
vendor, CIB,
STRO
Up to one month
Software vendor’s cost is
included in its contract.
Potential need for outside
Establishment of Secured Transactions Registry 3 Implementation Plan 43

Task
Responsible
Entity
Timing
Cost
user
documentation
consultant(s) to assist in this
process. Estimated consultant
time: 2 weeks in Nepal.
Est Cost: US$15,000
14.
Knowledge
transfer to
local IT firm
Software
vendor, local
IT firm
Concurrent with 12 & 15.
Costs included in software
vendor’s and local IT firm’s
contract.
15. On-site
testing and
debugging
Software
vendor, CIB,
registrar
3 weeks Costs included in software
vendor’s contract.
16. Training
of staff
Software
vendor, CIB,
registrar
2 weeks concurrent with 13, 14
& 15.
Costs included in software
vendor’s contract.Outside
consultant will assist using
time covered in 13.
17.
Community
awareness and
training
CIB
Should begin in earnest when a
stable version of the web site is
available for demonstration.
Up to two months.
Multiple seminars be given
for the lending community so
as to provide all expected
users the opportunity to attend
at least one such seminar.
Seminars for lenders, lessors
& judges. Potential need for
outside consultant. Estimated
consultant time: 2 weeks in
Nepal.
Est Cost: USD$ 35,000
18.
Regulations
must be
officially
adopted prior
to deployment
STRO,
Ministries of
Finance and
Laws
19. Deploy
20. Operating
costs until
revenue
stream is
sufficient to
cover
STRO, CIB
Est Cost: US$15,000
21.
Contingencies
Est Cost: US$30,000
TOTAL ESTIMATED IMPLEMENTATION COSTs Est Total: US $370,000
Establishment of Secured Transactions Registry 3 Implementation Plan 44

Several points should be noted with regard to the table above. First, it
assumes that an “off-the-shelf” software product has been purchased, thereby
greatly lessening the need for customized software design. This would result
in both a cost and time savings, allowing the Registry to become operational
more quickly.
Second, there is a strong link between regulations and system requirements.
There will be a time delay between completion of draft regulations and the
date they become law. There is some theoretical risk in proceeding with
procurement prior to regulations becoming final, but given how long this
might take, it does not seem appropriate to forbear proceeding with the project
until this date.
Three, the medium cannot reflect the reality of the timelines involved.
Informal conversations with the software vendors will quickly yield
information sufficient to prepare hardware procurement documents prior to the
award of the contract to a given developer.
Finally, piecing together the critical path activities yields a timeline similar to
the one depicted below:
4 months 3 months 3 months 2 months
Regulations Customize software Testing Training users and staff
Software
Procurement docs
Select vendor
Procure Hardware
Bug Fixes
Obtain hardware
Under this scenario, it will take approximately one year from the time of the
contract between the STRO and the CIB for the system to be ready to deploy.
This is an aggressive schedule, but also a realistic one if an appropriate offthe-shelf
product is selected. Please note that if the STRO is selected to host
the Registry, this timeline is too aggressive as the STRO will not have the
corporate infrastructure in place to facilitate moving so quickly. It is
anticipated that as much as six (6) months might be added to this schedule if
the STRO is assigned the Registry.
Estimate of Ongoing Costs and Revenues:
Profits?
It is critical that the Registry be financially self-sufficient, meaning that the
revenues generated from filing fees must at least equal ongoing expenses. In
Establishment of Secured Transactions Registry 3 Implementation Plan 45

this respect, an analysis of the costs and revenues associated with operation
the Registry has been undertaken.
Ongoing Operational Costs
There are three primary categories of costs associated with running an
electronic registry, and namely:
• Staff salaries
• Costs associated with routine upkeep of Registry itself and co-location
(potentially including ongoing license fees, upgrades of office
software, internet fees).
• Costs that will be incurred to build and maintain the Capital Reserve
Fund .
The ongoing costs associated with operating a solely electronic database are
far less than with a registry that also accepts paper notices. There are several
factors that make a paper-based system more expensive to maintain, and
namely:
• Increased staff is required to handle paper notices;
• Additional hardware is required to handle paper notices, including
workstations and scanners; and
• If the paper notices are to be retained, then space is required to hold
these documents.
For these reasons, along with others discussed above, it is recommended that a
solely electronic Registry system be deployed.
In an electronic database, a primary ongoing cost will be staff salaries. Three
part-time staff would be required for registry operations, and namely a
database administrator, a junior-level IT expert, and one staff to fulfill the
limited helpdesk functions that the Registry will demand. According to current
salary scales prevailing in the Nepali job market for equivalent positions, the
average annual pay for each of these positions is as follows (assuming a NRs
64 to 1 USD exchange rate):
Database administrator: NRs 80,000-100,000/month (USD 1250-1563)
Junior-level IT expert: NRs 40,000-65,000/month (USD 625-1015)
Public Help Desk: NRs 40,000-50,000/month (USD 468-781)
Based on this salary scale and on international experience in establishing
movable collateral registries, and assuming that: the database administrator
would perceive a monthly salary of NRs 100,000 and devote 1/5 of his/her
time to Registry operations; the junior-level IT expert would perceive a
monthly salary of NRs 65,000 and devote 1/5 of his/her time to Registry
operations; the help desk staff would perceive a monthly salary of NRs 50,000
and devote 1/12 of his/her time to answering Registry-related queries; then
Registry staff costs per month would be as follows:
Establishment of Secured Transactions Registry 3 Implementation Plan 46

Senior-level IT expert: NRs 20,000/ month (US$391)
Junior-level IT expert: NRs 13,000/month (US$203)
Public Help Desk: NRs 4,167/month (US$65)
Based on this very conservative estimates, which are likely to substantially
overestimate actual costs, total staffing costs would therefore amount to a
maximum of NRs 37,167 (USD 659) per month.
Further, assuming that the CIB undertakes the planned upgrade of hardware in
conjuction with a technology partner, and that it will move to a new location
more suited to the new needs of the institution, the other cost categories would
be as follows:
Bandwidth (flat rate, 512 MG),
apportioned 20% of CIB usage
Co-location of 2 Web Servers and 2
Database Servers
Storage of Daily Back-ups
NRs 5,760 (USD 90)/month
NRs 9,600 (USD 150)/month
NRs 2,560 (USD 40)/month
Based on the above, total monthly hardware and software maintenance costs
would amount to NRs17,920 (USD 280).
The recommendation to purchase an off-the-shelf software product will be
discussed later in the report.
Finally, the costs associated with building and maintaining the Capital Reserve
Fund are estimated to be NRs 1,920,000 (USD 30,000) / year, or NRs 160,000
(USD 2,500) / month.
Total operating costs and capital reserve costs for the registry would thus
amount to NRs 215,087 (USD 3,361) per month
The following table summarizes total monthly costs:
Item Nepalese Rupees/month US Dollars/month
Database
administrator
20,000 391
Jr. IT Person 13,000 203
Establishment of Secured Transactions Registry 3 Implementation Plan 47

Public Help Desk 4,167 65
Staffing Costs 37,167 659
Bandwidth 5,760 90
Co-location 9,600 150
Daily Back-ups 2,560 40
Maintenance Costs 17,920 280
Capital Reserve Fund 160,000 2,500
Total Monthly Costs 215,087 3,361
Revenues
The issue of fees has been previously discussed. In summary, it is somewhat
unusual to set the fee to be charged within an act itself, as this is often left to
be addressed in regulation. The ST Act should thus be amended to allow fees
to be established by regulation. Should this take place, then regulations can be
crafted that take into account the financial sustainability of the Registry, thus
helping to ensure that adequate funding will be available to meet Registry
expenses. The remainder of this section discusses revenues in the absence of a
change in the ST Act.
The ST Act currently calls for the payment of NRs500 for each notice with the
Registry. The Act prohibits the charging of fees for accessing information
from the database when that information is available via the web.
To cover total estimated monthly costs, and thus generate NRs 215,087
(US$3,361) per month, the Registry would require 430 notices.
This is not an extraordinary amount of business to expect for the Registry. In
order to gauge the number of notices that should be expected, a survey was
prepared and conducted by FIAS staff in February 2008. The survey suggests
that, even using a very conservative scenario and including only filings by the
eighteen largest commercial banks, a substantially more than sufficient
number of notices will be filed with the Registry, such that its operation will
be entirely self-sufficient. (See the detailed results in Appendix C)
When the Registry is deployed, there will be a large influx of notices in the
initial period, generating an initial surplus of fees. It is strongly
recommended that a percentage of this one-time boom be held in the form
of retained earnings so as to cover periods in which filings, and thus
revenues, will be of less significant volumes.
The other wildcard in revenue analysis pertains to motor vehicle registrations.
If security holders determine that a notice of security interest in a motor
vehicle should be filed with the Registry, which would thus come to replace
the existing “blue book” system, revenue stream for the host entity will be
Establishment of Secured Transactions Registry 3 Implementation Plan 48

significantly larger. (Please refer to Appendic C for revenue analysis under
this scenario).
Motor Vehicle Registrations
The Assessment Team believes that lenders will use the Registry to file
notice of security interests in motor vehicles. Currently, in the absence of a
secured transactions law, the financiers of vehicle purchases have their
security interests in vehicles acknowledged in the ownership / registration
document issued by the motor vehicles registration authority. The motor
vehicle registration authority concurrently mentions the name of the lender in
the registration book (referred as the Blue Book), either as a creditor having a
security interest in the vehicle, or, problematically for the lender, as the owner.
Being designated as an “owner” in the Blue Book constitutes a potential
problem for the lender as certain liabilities can attach to an owner of property
as opposed to a mere lender.
It is neither the purpose nor the function of the Blue Book to record security
interests in vehicles. However, as there was no alternative mechanism for
lenders to register or search for security interests in vehicles, by default it has
served this function. This should change as the filing of notices of security
interests in motor vehicles is covered by the ST Act. Upon further examination
of the law, lenders should determine to use the Registry called for in the ST
Act as opposed to the Blue Book to perfect security interests in motor
vehicles. If lenders use the Registry to record their security interests in motor
vehicles, then there will be substantial additional revenues generated by the
Registry from these filing fees.
Establishment of Secured Transactions Registry 3 Implementation Plan 49

A
APPENDIX
Particulars of Notice Filing
The following is a discussion of the particulars of the notices that can be
filed under the ST Act.
The following types of notices can be registered with the Registry under the
ST Act:
7. Original notice;
8. Statement of continuity;
9. Amendment;
10. Termination statement;
11. Correction statement; and
12. Notices of lien holders' rights.
The following is a detailed discussion of each of these notice types.
Original Notice: Contents
A security interest in transactions of movable properties covered by the ST
Act may be registered with the Registry by filing a notice (referred as Original
notice). An Original notice filed with the Registry must contain at least the
following particulars to constitute a valid notice:
• Name and address of security giver and security holder; and
• Description of collateral
Name and particulars of security giver and security
holder
The original notice should state the name, address and other particulars of the
security giver, namely its name, address and other particulars of the security
holder. The phrase “other particulars” of security giver and security holder to
be stated in the notice is not defined in the ST Act. This provides the ability to
the government to prescribe such other particulars as may be considered
necessary in future regulations and it is strongly recommend the law be
changed to strike “and other particulars”.
Where the security giver is a natural person, the Notice is required to state
citizenship number mentioned in the certificate of Nepali citizenship. In case
the security giver is a non-Nepali national, the name and the country that has
issued the passport are required to be stated in the notice. The name entered in
the notice should be the same as it appears in his passport.
In case the security giver is a corporate entity established under the current
law, its name, which has gained recognition following its incorporation under
Establishment of Secured Transactions Registry Appendix A 50

the current law must be mentioned in the notice. The reference to “current
law” appears to be the relevant law under which the concerned security
giver/security holder corporate body may be established. For instance, if the
security giver/security holder is a company incorporated under the Companies
Act, 2006, the current law would mean the said Companies Act and the name
stated in the certificate of incorporation of company should be mentioned in
the notice.
Where the security giver is a foreign corporate body which has gained
recognition to conduct business in Nepal under the current law of Nepal, the
notice must state the name which has gained recognition under current law of
the country. In case where the security giver is a foreign company not
registered under Nepal’s company law but entitled under the said company
law to conduct business in Nepal, the name which has gained recognition
under current law of the country where it is established must be mentioned in
the notice.
In case of more than one security giver or security holder, the names of all
security givers and security holders are required to be mentioned in the notice.
Description of collateral
The law provides the Original notice to be filed must contain a description of
the collateral forming subject matter of secured transaction. In case the notice
is related to trees to be felled, minerals to be extracted, or fixtures related to
the collateral, the description of the concerned immovable property must also
be mentioned.
Many jurisdictions which have electronic filing of notices allow filers to
provide collateral descriptions by attaching a separate electronic document to
their notices. In this manner, the filer does not have to retype what might be a
voluminous amount of text into a web form. Not only is this a more efficient
process, but it also greatly reduces the risk of error in collateral descriptions.
This option can be introduced under the regulations to be framed.
In keeping with the notion that a secured transactions registry is a “notice”
system, the ST Act does not require that any of the details of the underlying
transaction be registered, including the maximum monetary amount for which
the security interest may be enforced.
File number
The law requires the Registry to allot a separate file number to every filed
notice, and the Registry database will link this file number with the date and
time of filing. The original notice shall also be filed in the name of the
concerned security giver(s) so that database searches can be made against the
name of the security giver(s). All subsequent notices related to the original
notice shall be filed in such manner that they are connected to each other so
that an entire history related to a single original notice can be reconstructed. A
separate record shall be kept of expired notices.
Establishment of Secured Transactions Registry Appendix A 51

Duration of notice
Every notice registered under the ST Act shall remain effective for a period of
five years from the date of its filing. The validity of the notice may be
extended by filing a notice of statement of continuity before the expiry of the
duration of a notice. Failure to file the statement of continuity will cause the
expiry of the original notice on completion of the period of five years, and any
security interest perfected by such notice shall become unperfected unless
perfection by another means is made before the expiry.
Statement of continuity
The five-year effective period of an Original notice may be extended through
the timely filing of a statement of continuity. Such notice of continuity must:
• Identify the original notice by its file number;
• Identify the security holder mentioned in the notice authorizing
continuity; and
• Must indicate that the original notice is continued with regard to the
security holder that authorized the filing of the notice of continuity.
A statement of continuity may be filed under the ST Act six months before the
expiry of the five year period of validity of the notice. In case a statement of
continuity is filed within the proper timeframe, the original notice shall remain
valid for another period of five years from the date when its duration would
have expired if the statement of continuity had not been registered. In case the
name of more than one security holder is mentioned in the notice, the notice
shall remain valid for the period of another five years only in relation to the
security holder who has authorized the filing of the statement of continuity.
There is no limit on the number of five-year periods by which an original
notice may be extended.
Amendments
An original notice may be amended through one or more amendments. Every
notice amending an original notice must contain the following information:
• The original notice must have been identified by its file number;
• The notice authorizing the amendment must have identified the
security holder mentioned therein;
• The matter sought to be amended must have been explicitly mentioned;
• It should contain all information that needs to be explicitly mentioned
in an original notice.
Once a security agreement is signed with the security holder, the security giver
shall be deemed to have granted authority to file amendment notices covering
the collateral mentioned in the agreement and the proceeds thereof. If there
are multiple security interests, an amendment can be filed which either affects
the rights of all such security holders, or only the security holder specifically
mentioned in the amendment. No amendment authorized by any one of the
Establishment of Secured Transactions Registry Appendix A 52

security holders mentioned in the notice shall have any impact on the rights of
the other security holder mentioned in the notice. Given this mandate, there
are various rules that apply as to the impact of an amendment that is only
intended to affect one security holder. Those rules do not affect the manner in
which the Registry database operates: all amendments are simply added to the
record, and it is then up to the public to determine the significance of such
notices.
Termination statement
The effectiveness of a notice filed under the ST Act may be ended by
registering a statement of its termination. Typically, this occurs when a
security giver has fulfilled its obligations to its security holder, and the
security holder is then obligated under the ST Act to file a termination if
certain conditions are met. A termination statement filed in the Registry
should explicitly mention the following particulars:
• The original notice must have been identified by its file number;
• The security holder mentioned in the notice authorizing the termination
must have been identified; and
• There must be a clear statement to the effect that the notice shall not be
effective in relation to the security holder who has authorized filing of
the termination statement.
In case a termination statement is filed as per the authority of one security
holder mentioned in the notice that contains multiple security holders, only
that one security holder will be affected, and the original notice shall remain
effective with regard to the remaining security holders. Again, this rule does
not affect the manner in which the Registry database operates: all terminations
are simply added to the record and it is then up to the public to determine the
significance of such notices.
Correction statement
In case any person feels that any notice registered with the Registry in his
name is inaccurate or wrongfully filed, he may file a correction statement with
the Registry. The correction statement must explicitly state:
• The file number of the original notice in order to identify the notice
containing the concerned particulars;
• Indicate that the notice is a Correction Statement; and
• The grounds on which the filer he feels that record is inaccurate and
indicate the way the record needs to be corrected in order to remove
the inaccuracy.
The mere filing of a correction notice shall have no impact on the
effectiveness of the concerned notice. Instead, it is simply added to the record
for inspection by subsequent searchers.
Establishment of Secured Transactions Registry Appendix A 53

Rejections: Refusal to file the notice
The STRO may refuse to file any notice or statement in the following
circumstances:
• In case the filing fee payable under the ST Act is not provided;
• In case the security giver's name is not mentioned in relation to an
Original notice;
• In case an amendment does not mention the file number of the original
notice or the security giver's name, or in case the period of validity of
the notice to be amended has already expired;
• In case a statement of continuity does not mention the file number of
the Original notice, or in case a statement of continuity is not
submitted within the period of six months as mentioned in Section 13
of the ST Act.
• In case a termination statement does not mention the file number of the
Original notice.
Except in the circumstances mentioned above, every original notice,
amendment, or statement of continuity or termination statement presented
before the STRO for filing shall be deemed to have been filed even if the
STRO refuses to file the same. When the filing of any document is refused by
STRO, it must furnish a notice of rejection to the would-be filer explicitly
mentioning the reason for such refusal.
No specific remedy is provided in the ST Act to a party whose request to file a
notice has been refused by the STRO. Presumably, this is because the act of
filing a notice is ministerial: there is no discretion on the part of the filing
authority as to whether to file or not so long as the proper fee is paid and
required information is present. Along these lines, the ST Act creates a legal
fiction by containing a “deemed filed” provision for notices. This section of
the law provides that any notice presented to the STRO for filing shall be
deemed to have been filed provided: 1) the fee payable for such notice has
been paid ; or 2) if the STRO accepts any such notice for filing; or 3) where
such notice has not been refused by the STRO. However, no document
presented for filing shall be deemed to have been filed in the case that the
STRO refuses to file the same on the grounds for refusal stated in the ST Act.
The upshot of these provisions is that the STRO is deemed to have filed a
notice unless the notice is specifically rejected in writing.
Finally, the effectiveness of a notice shall not be affected simply by the failure
of the Registry to accurately list that document. However, this shall not be the
case where a person who acquires collateral has given value thereof with
reasonable grounds to believe that no such notice has been filed, commonly
called an “innocent purchaser.” Thus, if the filing office were to mis-index a
notice, there could be severe ramifications in the marketplace. Note that misindexing
by the registry is only possible if paper notices are permitted. In a
solely electronic system, the registry does not index notices.
Establishment of Secured Transactions Registry Appendix A 54

Establishment of Secured Transactions Registry Appendix A 55

B
APPENDIX
Detailed Evaluation of Potential Registry Hosts
Credit Information Bureau (“CIB”)
a. Principles Related to Governance / Organizational Structure
The Credit Information Bureau was formed in 1989. In 2004, the legal
framework under which the CIB operated was changed to allow a private
ownership structure of the CIB. This was carried out in 2005, and the current
owners are: 1) Nepal Rastra Bank—10%; 2) commercial banks—60%;
development banks—15%; and finance companies—15%. It currently has
118 members institutions, with this number anticipated to grow given that
GoN regulations require membership for certain lenders.
• Willingness of Entity to Host the Registry
With only one reservation, the CIB is eager to host the Registry. This is
unsurprising given that the Registry will primarily benefit private lenders and
that such entities possess such a large equity stake in the CIB. The only
hesitation expressed by CIB officials pertains to the financial selfsustainability
of the Registry given the manner in which the Act proscribes the
fee structure.
• Autonomy of the Entity
The CIB is a private entity. As such, it is not subject to direct administrative
oversight by governmental agencies and in that regard operates with a highlevel
of autonomy. The Nepal Rastra Bank does hold a 10% equity stake in
the CIB. Therefore, there is some level of government oversight inherent in
this position.
Member institutions pay an initial subscription fee, and then also pay an
annual fee based upon their size. The annual fee entitles the institution to
some level of services for free, but the institutions must pay additional fees
once these free services have been used. In this manner, the CIB is financially
self-sufficient, and enjoys a profit carried in the form of retained earnings.
• Harmony of the Registry with the Current Mission
From a practical perspective, the current work undertaken by the CIB is
analogous with the processes that would be put in place to operate the
Registry. From a broad perspective, the CIB gathers information from
member institutions related to borrowers and then makes that information
available to all the other member institutions. The information collected
includes biographical data so as to be al to identity the borrower, and also
some of the particulars of the underlying loan transaction(s), including
collateral descriptions. The database currently has information related to over
40,000 borrowers.
Establishment of Secured Transactions Registry Appendix B 56

. Principles Related to Operation of the Registry
• Efficiency in Handling Current Responsibilities
The CIB appears to be handling its duties in an efficient manner. The
CIB officials acknowledged that the data that they are able to provide is often
incomplete, but attribute that to the failure of their member institutions to
provide them with the required information. Statistics provided by the CIB
indicate that they currently receive approximately 250-300 requests for
information a day, and that they provide a response within 24 hours. Further,
they are able to provide a 24 hour turnaround on entering information into
their database that is received from their member institutions.
• Technological Capabilities
The CIB currently accepts information from member institutions in both e-
mail (about 46%) and paper (54%) formats. This raw data is then manually
entered into the CIB database. The CIB is close to deploying a true on-line
database system where member institutions will enter data directly into the
CIB database. While this new system will initially use a client/server model,
the CIB hopes to migrate it to a web-based system in the near future. This
system is scheduled to go live this summer.
In anticipation of starting this new on-line filing system, the CIB comparable
hardware in house that would be required to run the Registry, including
multiple servers and workstations.
• Staffing Capabilities
The CIB has between 15-18 staff members at any time. Some of these are IT
people that have knowledge directly transferable to the operation of the
Registry. It is anticipated that the CIB could absorb an electronic Registry
without requiring substantial numbers of additional staff.
• Physical Facilities
The CIB has sufficient facilities to house an electronic Registry. These
facilities are climate controlled.
c. Evaluation of Credibility of the Entity in the Affected Community
The credibility of the CIB amongst the interviewees was mixed, with opinions
largely depending upon the relationship of the person with the CIB. Users of
the CIB’s services indicated they believed the CIB did a good job in carrying
out their day-to-day tasks. Other respondents who were non-users focused on
one particular aspect of the CIB’s functions, called “blacklisting,” as evidence
of the CIB’s unfitness for any governmental functions. It would be essential
that there be a strong wall between the credit reporting and ST functions,
assuming CIB is the host.
Plainly stated, “blacklisting” is a process whereby a borrower that is in default
on a loan is punished for their non-payment. When a lender informs the CIB
that a borrower has satisfied the statutory requirements for being blacklisted,
the CIB enters their name in that category. Of the 40,000 borrowers in the
Establishment of Secured Transactions Registry Appendix B 57

CIB database, about 2,000 have been blacklisted. If the defaulting borrower
happens to be a corporate entity, then that entity’s directors, guarantors and
shareholders can be blacklisted. Remarkably, if a shareholder in a defaulting
entity is blacklisted, and if that shareholder owns more than 10% in another
entity, that other entity can be blacklisted as well.
The consequences for being blacklisted are severe. For example, the blacklist
is published in local newspaper, which can cause great embarrassment to
individuals listed on it. Further, a blacklisted person is unable to obtain any
further credit from any lending institution until that person is delisted.
There is a general feeling amongst many people that the CIB blacklists people.
Technically, this is not correct: it is the lender that blacklists the defaulter, and
the CIB merely acts as the repository of that information. However, the
sentiment that the CIB is a “bad actor” is not uncommon. Indeed, during the
wrap-up workshop for the stakeholders at the conclusion of the recent mission,
a Nepalese corporate attorney publicly stated that the CIB should not host the
Registry because it blacklisted people. Importantly, the great majority of
stakeholders in attendance did not echo this concern, but still it is fair to say
that it is an issue for some individuals in Nepal.
Office of the Companies Registrar
a. Governance / Organizational Structure
The Companies Registry is under the auspices of the Ministry of Industry,
Commerce and Supplies. In the past, its primary charge has been to register
business entities that seek to do business in Nepal. The Companies Registry
has recently been tasked to perform numerous additional duties under the
Insolvency Act, and is also wrestling with implementing a database to hold
company registration information.
• Willingness of Entity to Host the Registry
The Companies Registry has recently received several new mandates to carry
out in addition to its existing function as a Registry for business entities. The
bulk of these new responsibilities are found in the newly enacted Insolvency
Act passed in 2006. Due to these new mandates, officials overseeing
operations at the Companies Registry questioned whether they had the current
capacity to take on the Secured Transactions Registry.
• Autonomy of the Entity
The Companies Registry appears to act with the same level of autonomy as
that which is enjoyed by other GoN entities, which is to say, it is subject to
annual appropriations from the GoN and therefore does not have any
independent revenue source outside of the appropriation process.
• Harmony of the Registry with the Current Mission
The Company Registry registers business entities. This function involves
receiving information from the public, assessing the compliance of such
information with existing law, then issuing appropriate certificates back to the
Establishment of Secured Transactions Registry Appendix B 58

submitter. In this regard, the function of the Registry is analogous to the
contemplated function of the Secured Transactions Registry.
b. Principals Related to Operation of the Registry
• Efficiency in Handling Current Responsibilities
The Companies Registry currently has approximately 55,000 business
registrations as “active” records, and they received an average of
approximately 6,500 new registrations in each of the last three (3) years.
Officials with the Companies Registry believe that as many as 20%-25% of
these “active” records may in fact be defunct companies, but that there is no
way to track this. On a related note is the legal requirement that business
entities file what amounts to an annual report with the Registrar each year.
The Office of the Company Registrar currently does not have the ability to
track these notices. This deficiency indicates a serious lack of capacity to
undertake a new mandate. Finally, the paper records maintained by the
Companies Registry staff do not appear to be held in an orderly fashion
consistent with international practices.
• Technological Capabilities
The Companies Registry has historically operated in a completely paper-based
system. The Registry is currently undertaking a move to an electronic
database system. The Companies Registry has contracted with a Nepal
software provider to assist in the design and implementation of the new
system. This new database system is being designed to handle existing
Registry functions. Newly submitted documents are being scanned into a
digital database, and over 40% of existing paper documents have similarly
been scanned. However, the new electronic system does not contemplate
accepting web-based notices, nor will access to existing information be made
available via the web. Both of these points indicate that the Companies
Registry, while taking small steps on the path of technological innovation,
may not be prepared to house a fully electronic, web-based registry.
• Staffing Capabilities
There are 9 employees tasked to handle Registry functions. However, the
Companies Registry as a whole employs a total of 39 people, with the other 30
involved in “administrative’ functions. This seems an inordinately high
number of workers in non-Registry functions. There are no field offices,
making this distribution of work even more perplexing.
• Physical Facilities
The Companies Registry current location appears to be insufficient to house
additional hardware and staff. More space would be required to operate the
Secured Transaction Registry.
c. Evaluation of Credibility of the Entity in the Affected
Community
Establishment of Secured Transactions Registry Appendix B 59

Anecdotal information suggests that the Companies Registry enjoys a mixed
reputation amongst other governmental actors and the private sector. Some
individuals report that the Registry performs its functions in a satisfactory
manner, while others believe that the Registry is less efficient. Anecdotal
reports of corruption attached to this Registry exist.
Department of Land Registration
a. Principles Related to Governance / Organizational Structure
The Department of Land Registration is under the auspices of the Ministry of
Land Reform and Management. Duties assigned to this Department include
the registration of documents that relate to real property located in Nepal.
Notably, the central office for the Department is located in Kathmandu that
handles administrative functions. This central office does not handle the
actual registration of real estate documents. Instead, there are branch offices
located throughout Nepal, and each branch office is charged with maintaining
the records related to real property within its geographic jurisdiction.
• Willingness of Entity to Host the Registry
Officials overseeing the Land Registry believed that they did not have the
current capacity to undertake implementing the Registry.
• Autonomy of the Entity
The branch offices all operate under directives from the central office, though
as a practical matter it is likely that there is some deviation in practice from
one local office to the next.
• Harmony of the Registry with the Current Mission
The filing of notices of security interests in movable property is, theoretically,
akin to registering mortgage interests in real property. However, there are
onerous authentication requirements in place under Nepalese law with regard
to documents affecting real property. Each such document must contain a
picture and fingerprints of the person conveying an interest in the land.
Therefore, in practice the procedures in place in the Land Registry offices
would be very different from the procedure for filing a secured transaction
notice. Further, the central office is therefore not equipped to handle registry
functions. Given that the Act contemplates all functions to be housed in a
central office, the model used by the Land Registry does not seem to be an
appropriate fit.
b. Principles Related to Operation of the Registry
• Efficiency in Handling Current Responsibilities
The efficiency of the Land Registry as a whole is difficult to assess given that
each branch office operates independently. It is likely that some branches
operate more efficiently than others. During the visit to the local Kathmandu
office and even a cursory inspection of current practices revealed that a great
possibility exists for documents to be lost. Documents are stored haphazardly
Establishment of Secured Transactions Registry Appendix B 60

about the premises and a fire would be absolutely devastating as it would
spread very quickly through the stacks of paper.
• Technological Capabilities
The process employed by the Land Registry is very manual. Documents are
handled by various staff members in an inefficient process brought about by a
too high degree of diversification of tasks.
Approximately five of the local Land Registry offices are implementing a pilot
program aimed at computerizing their records. Once a document has gone
through the manual process needed for registration, it is brought to a separate
location where staff enters details about the document into a database. All
historical records related to that real property are then retrieved, and
collectively all are scanned into a digital database. This process has only been
in place for less than a year, so it is difficult to assess how successful it will
be.
• Staffing Capabilities
The Act contemplates a centralized location for all registry functions.
Therefore, if the Land Registry were chosen to host the Registry, it would be
inappropriate to locate it in one of the regional branch offices. Instead, it
would be more proper to locate it at the Land Registry central office. As
noted above, the Land Registry central office does not file documents from the
public. As such, it would not have the staff necessary to handle the Registry.
• Physical Facilities
The Land Registry central office did not appear to be overly crowded.
Therefore, the raw space necessary to house the Registry would likely be
available. The room(s) in which the Registry would be located would require
climate control.
c. Evaluation of Credibility of the Entity in the Affected Community
Numerous private sector and a few public sector interviewees suggested that
the Land Registry was not efficient in its current operations due to a lack of
capacity and therefore was not a viable candidate for hosting the Registry. A
few interviewees went further, stating that the Registry was known to misplace
documents and in this sense could not be trusted.
Securities Exchange Board
The Securities and Exchange Board (“SEBO”) was established in 1993 to
regulate the securities industry in Nepal. There are 135 listed companies in
Nepal.
a. Principles Related to Governance / Organizational Structure
• Willingness of Entity to Host the Registry
Officials at SEBO were not directly opposed to hosting the Registry, but did
state that SEBO already has so many responsibilities that taking on an
additional burden would be problematic. They did confirm that if no other
Establishment of Secured Transactions Registry Appendix B 61

appropriate candidate could be found, they would be willing to accept the
Registry.
• Autonomy of the Entity
SEBO is intended to act in an autonomous fashion. The Governing Board of
SEBO is composed of seven members, including one full time chairman
appointed by the GoN for a four year period, with other members of the Board
from both public and private entities. This management structure is intended
to give SEBO some level of autonomy. However, officials with SEBO stated
that they are not financially self-sufficient and therefore are dependent upon
government appropriations. As SEBO does not enjoy financial independence,
its supposed autonomy is eroded. SEBO also is unable to issue regulations in
its own name, and officials at SEBO believe this is counter to the autonomy
that a securities regulator should enjoy.
• Harmony of the Registry with the Current Mission
In a broad perspective, SEBO officials noted that their primary mission is to
regulate and promote the securities market in Nepal. These officials
questioned whether the Registry would have a direct beneficial impact on this
market.
From a different perspective, SEBO does accept notices related to companies
and broker/dealers and maintains information from those notices in a computer
database. Further, SEBO maintains an extensive website from which the
public may obtain much information pertaining to regulated entities.
b. Principles Related to Operation of the Registry
• Efficiency in Handling Current Responsibilities
SEBO appears to do a satisfactory job of handling its duties given the
resources at its disposal. The information provided on its website is current
and informative.
• Technological Capabilities
SEBO uses the internet to post current information about regulated entities. It
does have the capability to allow regulated entities to directly entered required
information into a central database. SEBO hope to implement this
functionality when funds become available.
• Staffing Capabilities
SEBO currently has 24 staff members. It is anticipated that if the Registry
were housed with SEBO, two or perhaps three additional staff members would
be needed to implement an electronic database.
• Physical Facilities
SEBO appears to have the physical space needed to host an electronic registry.
Their facilities are at least partially climate-controlled.
c. Evaluation of Credibility of the Entity in the Affected Community
Establishment of Secured Transactions Registry Appendix B 62

SEBO enjoys a good reputation amongst the stakeholders. The consensus is
that SEBO enjoys a higher level of autonomy than would a mainline
governmental entity, but that perhaps the Registry is not a good fit with their
current mission.
Establishment of Secured Transactions Registry Appendix B 63

C
APPENDIX
Survey on the Use of And Filing of Notices into the
Secured Transactions Registry
Note: The survey accounts only for estimated number of filings by the eighteen
commercial banks listed below only. It excludes the newer commercial banks as well
as the various financial instiutions present in the country, and will thus underestimate
the actual number of filings.
Table 1. Filings of Notices (excluding registration of motor vehicles)/1
Name of Bank
No. of
filings
2009 2010 2011 2012 2013
1 Rastriya Banijya Bank 7,518 1,128 1,297 1,491 1,715 1,972
2 Everest Bank Ltd 4,345 652 750 862 991 1,140
3 Nepal Bank Ltd. 2,536 380 437 503 579 665
4 Nepal Bangadesh Bank Ltd 1,850 278 319 367 422 485
5 NCC Bank Ltd 1,811 272 312 359 413 475
6 Nepal Investment Bank Ltd. 1,517 228 262 301 346 398
7 Kumari Bank Ltd. 1,416 212 244 281 323 371
8 NABIL Bank Ltd. 1,327 199 229 263 303 348
9 Nepal SBI Bank Ltd. 1,003 150 173 199 229 263
10 NIC Bank Ltd. 931 140 161 185 212 244
11 Siddartha Bank Ltd 791 119 136 157 180 208
12 Lumbini Bank Ltd. 768 115 132 152 175 201
13 Himalayan Bank Ltd 766 115 132 152 175 201
14 Bank of Kathmandu 601 90 104 119 137 158
15 Macchapuchhre Bank Ltd. 552 83 95 110 126 145
16 Laxmi Bank Ltd 260 39 45 52 59 68
17 Citizen Bank Ltd. 272 41 47 54 62 71
18 Standard Chartered Bank Ltd. 190 29 33 38 43 50
Total (yearly) 28,454 4,268 4,908 5,645 6,491 7,465
Total (monthly) 2,371 356 409 470 541 622
Annual
(2009
1/ Assumes a 15% growth in banks’ loan portfolios
Note: These numbers are based upon very conservative estimates, which actual numbers are expected to
substantially exceed.
Establishment of Secured Transactions Registry Appendix C 64

Table 2. Filings of Notices (including registration of motor vehicles)/1
Name of Bank
No. of
filings
2009 2010 2011 2012 2013
Annual Average
(2009-2013)
1 Rastriya Banijya Bank
loans against movables 5,622 843 970 1,115 1,283 1,475 1,13
motor vehicles 298 45 51 59 68 78 6
5,920 888 1,021 1,174 1,351 1,553 1,19
2 Everest Bank Ltd
loans against movables 4,345 652 750 862 991 1,140 87
motor vehicles 1,424 214 246 282 325 374 28
5,769 865 995 1,144 1,316 1,514 1,16
3Nepal Bank Ltd.
loans against movables 2,536 380 437 503 579 665 51
motor vehicles 1,000 150 173 198 228 262 20
3,536 530 610 701 807 928 7
4 Nepal Bangadesh Bank Ltd
loans against movables 1,850 278 319 367 422 485 37
motor vehicles 1,000 150 173 198 228 262 20
2,850 428 492 565 650 748 57
5 NCC Bank Ltd
loans against movables 1,811 272 312 359 413 475 36
motor vehicles 579 87 100 115 132 152 11
2,390 359 412 474 545 627 48
6 Nepal Investment Bank Ltd.
loans against movables 1,517 228 262 301 346 398 30
motor vehicles 1,019 153 176 202 232 267 20
2,536 380 437 503 579 665 5
7 Kumari Bank Ltd.
loans against movables 1,416 212 244 281 323 371 28
motor vehicles 474 71 82 94 108 124 9
1,890 284 326 375 431 496 38
8NABIL Bank Ltd.
loans against movables 1,327 199 229 263 303 348 26
motor vehicles 2,500 375 431 496 570 656 50
3,827 574 660 759 873 1,004 77
9 Nepal SBI Bank Ltd.
loans against movables 1,003 150 173 199 229 263 20
motor vehicles 635 95 110 126 145 167 12
1,638 246 283 325 374 430 33
10 NIC Bank Ltd.
loans against movables 931 140 161 185 212 244 18
motor vehicles 499 75 86 99 114 131 10
1,430 215 247 284 326 375 28
11 Siddartha Bank Ltd
loans against movables 791 119 136 157 180 208 16
motor vehicles 600 90 104 119 137 157 12
1,391 209 240 276 317 365 28
Establishment of Secured Transactions Registry Appendix C 65

12 Lumbini Bank Ltd.
loans against movables 768 115 132 152 175 201 15
motor vehicles 554 83 96 110 126 145 11
1,322 198 228 262 302 347 26
13 Himalayan Bank Ltd
loans against movables 766 115 132 152 175 201 15
motor vehicles 1,551 233 268 308 354 407 31
2,317 348 400 460 529 608 46
14 Bank of Kathmandu
loans against movables 601 90 104 119 137 158 12
motor vehicles 1,206 181 208 239 275 316 24
1,807 271 312 358 412 474 36
15 Macchapuchhre Bank Ltd.
loans against movables 552 83 95 110 126 145 11
motor vehicles 541 81 93 107 123 142 10
1,093 164 189 217 249 287 22
16 Laxmi Bank Ltd
loans against movables 260 39 45 52 59 68 5
motor vehicles 572 86 99 113 130 150 11
832 125 144 165 190 218 16
17 Citizen Bank Ltd.
loans against movables 272 41 47 54 62 71 5
motor vehicles 286 43 49 57 65 75 5
558 84 96 111 127 146 11
18 Standard Chartered Bank Ltd.
loans against movables 190 29 33 38 43 50 3
motor vehicles 2,800 420 483 555 639 735 56
2,990 449 516 593 682 784 60
Total (yearly) 44,096 6,614 7,607 8,748 10,060 11,569 8,91
Total (monthly) 3,675 551 634 729 838 964 74
1/ Assumes a 15% growth in banks’ loan portfolios and a 20% growth in motor vehicle financing
Note: These numbers are based upon very conservative estimates, which actual numbers are expected to
substantially exceed.
Establishment of Secured Transactions Registry Appendix C 66

D APPENDIX
Nepal Secured Transactions Registry Business Model
and Procurement Issues
This section analyzes the pros and cons of two options the GoN can adopt for operation of
the secured transactions registry, should the government decide to operate it in the form of
a public-private partnership, as recommended in this report. Those options are: (1) to
operate it as a concession whereby the concessionaire relies on the registry’s fees to fund
the costs of operation and to provide a profit; and (2) to enter a services contract whereby
fees are paid to the government, and the government pays a service provider for its
services.
It is our conclusion that a services contract is the preferred option because it carries fewer
risks for both parties. The advantages of this option can be summarized as follows:
• This option will generate a higher level interest from private firms, and thus will
enable the government to assess several options and make a better choice.
• Private firms would not have to face the financial risk of not knowing if the revenues
from the registry would cover all costs associated with managing the registry.
• The Government would have closer control of the functioning of the registry and
more flexibility to adjust fees accordingly to satisfy both the Registry and the
beneficiaries.
• The costs of the larger responsibility of the Government, as well as the payment of
the service provider, could be funded by the fees of the registry.
The advantages and disadvantages of both the concession and services contract options are
as follow:
Concession contract with a Nepali private entity: A concession is a business operated
under a contract with a degree of exclusivity in business. The owner of the concession
— the concessionaire — is a private company that enters an agreement with the
government for the exclusive right. The concessionaire may or may not be required to
pay either a fixed sum or a percentage of revenue to the government.
In order to attract private firms (e.g. CIB) as potential concessionaires, a detailed
business plan and feasibility study, including profound analyses of the private sector
and potential users of the Registry, should be performed. Based on the projected costs
of operation and projected volumes of registration from the business plan and
feasibility study, the government would set the fees at the level necessary to cover the
concessionaire’s costs of operation and a fair profit, and perhaps a percentage for the
government to cover its oversight costs. Potential concessionaires would have to be
Establishment of Secured Transactions Registry Appendix D 67

willing to make an initial investment to cover the cost of operation of the registry in
the period before the proceeds become sufficient to cover all the costs and produce a
benefit. It should be anticipated that the first year or so would be crucial, and costly
promotion of the registry would be necessary. In the present business environment in
Nepal, it would be very difficult to identify that period or to be confident of the
volume projections of the feasibility study in the longer term, even with a detailed
local market study. Therefore there is a danger to prospective concessionaires of an
important financial burden, thus limiting the number of those interested in the tender.
There is also the converse risk that the Registry would create windfall revenues for the
concessionaire if revenues significantly exceed projections, constituting an
unnecessary burden on the users of the registry and creating the appearance of unfair
dealing or collusion of the concessionaire with the Government.
In a concession, it is in the concessionaire’s best interest to create and run a successful
registry from a business standpoint, and the Government’s role is limited to
supervision of compliance with contractual obligations.
Service contract with a Nepali private entity: In this model, the contract with a
private sector service provider provides for compensation on the basis of services
rendered. As with a concession, a detailed business plan would be necessary to
determine all technical and financial requirements of the contract. However in this
option the Government has larger responsibility for the successful functioning of the
registry. A detailed contract should define all the responsibilities of the service
provider and the Government, as well as the costs of meeting those responsibilities, so
that revenues can be controlled to ensure the financial sustainability of the Registry.
The Government will modify the fee level over time to meet its obligations under the
contract with the service provider and to cover its own costs.
Procurement considerations under recommended option
If GoN decides to go with service contract, it will be necessary to structure the
arrangement so that the procurements may be done. Currently, the capacity in the
Ministry of Finance (MoF) to house and manage the IT assets that are necessary to operate
the filing office are insufficient. Therefore, there must be some level and form of
outsourcing the operation of the IT system, and perhaps other functions as well. There are
two principal models that can be considered, each with its own minor variants, as follow:
Under a full outsourcing model, the government would contract for all aspects of
operation of the filing office, to include provision of user support, training and other filing
office functions. In this scenario, the provider would have to have or acquire expertise in
the function of a secured transactions filing office and would provide the staff for user
support and other operations of the filing office such as reporting, training and public
awareness. There would be no need for a full-time staff within the government, and the
statutory position of registrar could be part-time duty of an existing official in the MoF
that may take only an hour or two per month, based on experience with such an
Establishment of Secured Transactions Registry Appendix D 68

arrangement in the Federated States of Micronesia. The periodic payment to the service
provider would cover all services. This model minimizes the cost of government staff, but
it incurs higher periodic payments to the service provider than the other model.
Under the second - the technology outsourcing - model, the government would establish
the filing office within the government, probably in MoF, staffed by the registrar and
perhaps one other person. The filing office would provide user support, monitor the
operation of the technology system, provide user training and report to the government on
operation of the filing office. The service provider would provide support to the
technology system in the form of managed co-location of servers, off-site back-up of data
and maintenance of hardware and system software.
Procurement Issues:
Regardless of the model selected, the method of procurement of services will be quite
similar. The solicitation will specify in detail the services required in terms of
performance, so a bidder can determine with confidence what is required and what the
costs will be. For example, those terms could include some of the following, depending
on the option selected above: on-line or telephone help-desk availability during the hours
of X to Y on Z days per week; co-location of X servers taking up Y U’s of rack space;
daily running and removal to off-site secure storage of backups of data in a specified
medium; maintenance of hardware and system software, specifying the included tasks
such as swapping out defective drives and installation of system software patches; types of
user help-desk support and hours during which it must be provided; guaranteed up-time of
XX.X%; conditioned power; grounded building circuitry; back-up generator with X hours
of fuel; gaseous fire suppressant system; security measures against natural disaster; access
to servers by registry-authorized maintenance people; and physical safeguards against
intrusion.
Taking into consideration the necessity of an open and transparent procurement process, a
national open tender should be used. For a services contract such as anticipated in this
case, a two stage proposal and evaluation process that conforms to WB Quality and Cost
based selection and Nepali procurement laws and regulations is the appropriate
procurement process. Under this process, the technical proposals of short listed firms are
evaluated for compliance with technical requirements set forth in the Request for
Proposals and scored. Then the financial proposals of bidders whose technical proposals
were found to be compliant are evaluated. The bidder with the highest combined score
from both evaluations is declared the winner and is invited to negotiate the contract.
Establishment of Secured Transactions Registry Appendix D 69

Establishment of Secured Transactions Registry Appendix D 70