Non-Banking Financial Institutions Meaning

Non-Banking Financial Institutions (NBFIs) are financial entities that provide various financial services but do not hold a full banking license. These institutions offer services similar to those of traditional banks, such as loans, asset management, and insurance, but they do not accept deposits from the public.

Several non-banking financial institutions have also been established in Nepal's financial sector with the aim of providing direct or indirect support. These institutions are not fully authorized to conduct banking transactions and are not directly monitored by the central bank.

However, they try to provide services similar to banks. These financial institutions include:

• Development banks

• Finance companies

• Microfinance development banks

• Cooperative institutions

• Citizen Investment Trust

• Employee Provident Fund

• Insurance companies

• Foreign exchange centers

• Remittance companies

These institutions conduct transactions under limited authority directed by Nepal Rastra Bank. Among these non-banking financial institutions, insurance companies are discussed here.

Insurance and Insurance Companies

When we travel from one place to another, we use private vehicles like cars and motorcycles, as well as public vehicles like buses, trains, airplanes, and ships. Although these vehicles help us reach our destination quickly, accidents can happen at any time. To reduce the financial difficulties that may arise from accidents, life insurance for passengers and non-life insurance for vehicles is done.

We can also be affected by common diseases, epidemics, or natural disasters like earthquakes, fires, and landslides. While these risks cannot be eliminated, insurance helps minimize the financial burden they create. In Nepal, insurance companies have been established in both the government and private sectors to mitigate these financial risks. These institutions adopt insurance policies to provide financial security.

History of Insurance in Nepal

The history of insurance companies in Nepal is not very long. The first insurance company was Nepal Insurance and Transport Company Limited, which is now known as Nepal Insurance Company Limited.

Insurance policies are broadly categorized into two types:

1. Life (Human) Insurance

2. Non-Life (Non-Human) Insurance

Below is a brief introduction to these two categories:

A. Life (Human) Insurance

Life insurance provides financial compensation for accidents or problems that may occur in human life. An agreement is made between the insurer and the insured for a certain period under the insurance policy.

As of 2075 BS, 17 life insurance companies are operating in Nepal.

Life Insurance Companies in Nepal

B. Non-Life (Non-Human) Insurance

Non-life insurance includes fire insurance and marine insurance. It provides financial compensation for accidents involving capital goods such as houses, equipment, factories, vehicles, airplanes, and ships.

This type of insurance involves two or three parties. An agreement is made between the insurer (insurance company) and the insured (consumer) while arranging financial compensation under the insurance policy. The agreement specifies:

• Insurance period

• Insurance amount

• Other conditions

If an accident occurs during the insurance period, compensation is provided according to the agreement.

Non-Life Insurance Companies in Nepal