Benjamin Brink has been the Regional Director of DEG (Deutsche Investitions- und Entwicklungsgesellschaft mbH) - a development finance institution and a subsidiary of KfW Group - since 2010. Based in Thailand, he oversees DEG’s Southeast Asia business across the Energy & Infrastructure, Financial Institutions and Industries & Services sectors, as well as Private Equity and Venture Capital. His responsibilities cover multiple countries, including Thailand, Laos, Cambodia, Vietnam, the Philippines, Bangladesh and Pakistan, managing a portfolio of more than 100 companies with an exposure exceeding 1.3 billion euros in debt, mezzanine and equity transactions. Brink was recently in Nepal to explore and understand opportunities for DEG to support sustainable growth in the country’s private sector. Madan Lamsal of New Business Age caught up with Brink to discuss DEG’s engagement and investment plans for Nepal. Excerpts:

KfW has been active in Nepal for a few years. What prompted your visit to Nepal this time?

We are part of the KfW banking group, specifically the division responsible for supporting the private sector. This visit aims to explore and understand the opportunities in Nepal for DEG to support sustainable growth in the private sector. We seek to identify financing possibilities, assess potential opportunities and understand the obstacles, enabling us to invest in impactful projects.

Currently, DEG is involved in two projects in Nepal. We have provided financing for a hydropower project and extended loan funding to one of Nepal’s leading banks, NMB Bank.

How has your experience with these investments been so far? How do you assess the business and investment environment in Nepal?

It has been very interesting. We encounter a wide range of entrepreneurs across various sectors, from start-ups to established business houses, all demonstrating remarkable professionalism and innovative ideas. At the same time, we are navigating an interesting period regarding interest rates. As foreign investors, we provide US dollar financing which is currently at an all-time high globally.

Interest rates in Nepal are currently at an all-time low. At the moment, there is not significant demand for DEG financing.

However, we anticipate changes in both interest rate regimes. Interest rates in Nepal are expected to rise, while international interest rates are forecast to decline. This means that by the end of this year or the beginning of next year, DEG financing will become more attractive. Therefore, it is crucial to build relationships with companies now, so that when projects arise, we can engage with them effectively.

How does your investment in Nepal compare to other countries in the region where you oversee DEG operations, such as Vietnam and Thailand?

Our investment exposure in other countries—Bangladesh, Vietnam and Thailand—is substantially higher than in Nepal. We have investments exceeding $300 million in Bangladesh and Vietnam, and $250 million in Thailand, whereas Nepal's exposure is under $20 million. However, from our perspective, Nepal offers significant opportunities.

Nepal is often perceived as a very small country, primarily because it is bordered by the supergiants China and India. Yet, when compared to other countries, Nepal is not that small. It represents a sizable and intriguing market. Additionally, the presence of its large neighbors can be seen as an opportunity for Nepal’s private sector. For instance, if Germany wants to sell its products to China, it must ship them halfway around the world. For Nepal, however, China is just next door. This geographic advantage provides opportunities for Nepal’s private sector to thrive, and we are keen to support Nepal in seizing them. We have a strong appetite for increased investment in Nepal.

What are the key opportunities and challenges in Nepal’s market compared to other countries?

Nepal has its unique mix of advantages and challenges. For instance, the debt market here involves more complex and costly hedging requirements compared to Vietnam or Thailand. On the positive side, Nepal’s equity market is more active than that of Bangladesh, presenting promising opportunities. While challenges exist, such as currency risks in corporate manufacturing, these can be mitigated with innovative financing solutions.

What are the key sectors that DEG is looking to invest in? Do you foresee any challenges in Nepal?

What we have learned is that the government here has identified three to four key sectors for future investment. One of these is renewable energy which is a critical area for every development finance institution (DFI) in the fight against climate change. Climate protection is a vital issue, and DFIs have an important role to play in addressing it. The government’s plan to expand hydropower capacity from 4,500 MW to 25,000 MW over the next decade will require significant DFI financing, and we are ready to contribute to this effort.

We are also prepared to support solar financing and assist financial institutions. However, there is a risk that if financial institutions concentrate their financing solely on the solar and hydropower industries, it could lead to insufficient funds for the SME sector.

This potential credit crunch is an area where DFIs can step in to support the banking sector. The most challenging issue, however, lies within the corporate manufacturing industry which faces significant currency risks. As we provide financing in US dollars, the burden of currency fluctuations falls on the companies. Identifying effective strategies to mitigate this risk remains a critical challenge.

How can the private sector in Nepal access DEG funding? What are the main parameters you consider when evaluating eligible projects?

Our funding focuses on projects that are sustainable both economically and ecologically. Projects must be financially self-sustaining and profitable, and contribute to the local economy through strong balance sheets, fair employee wages and tax contributions. Additionally, adherence to internationally recognized environmental and social standards, such as the IFC performance standards and ESG guidelines, is critical. If a project falls short in these areas, we offer technical assistance to bridge the gaps, provided there is a commitment to align with our values.

Are there any new projects or sectors that DEG is exploring for investment in Nepal?

We are in discussions regarding some projects, but they are still in the very early stages. There is interest in the financial institution sector, manufacturing sector and infrastructure sector. Additionally, we see opportunities in digital infrastructure, such as the growth of data centers in Nepal, which presents future prospects. However, it is too early to name specific projects or clients.

How do you view the potential for foreign investments in Nepal over the next five to ten years?

The reason we are here is that we are optimistic about Nepal. It is encouraging that the country now has an external credit rating which is a significant step in gaining international recognition. This was something we had been looking for to provide some assurance.

It is crucial that government policies ensure a level playing field for all investors, rather than favoring specific political groups or influential parties. One of the challenges is the withholding tax. Some investors are exempt from this tax, while others have to pay it. There are also differences in the withholding tax rates for financial institutions and corporates. For foreign investors, the 15% withholding tax is a significant burden that many are unwilling to bear. When we identify feasible projects, this issue must be addressed and solutions need to be found.

As a DFI, we do not approach the government empty-handed, asking for systemic changes without having a project to finance. We take a step-by-step approach: first, we identify a project, and if the project is feasible but burdened by additional costs like the withholding tax, we may approach the government to discuss solutions.

To enhance our engagement, we now have a country representative for Nepal stationed in Bangladesh who will regularly visit Nepal to gain a better understanding of the local context and engage in discussions. Additionally, we maintain strong relationships with IFC, FMO and BII. For large investments, such as hydropower projects, we are open to collaborating with them to make these investments successful.

Nepal received a BB- sovereign rating from Fitch. Do you think this rating is sufficient to attract foreign investment?

It is a very good rating. Compared to other countries, it is better than Bangladesh's. Some factors are beyond the control of the government and regulators and cannot be changed. Overall, the rating is a positive signal that encourages many investors.

Sustainability is a key focus for global institutions. How does DEG incorporate sustainability and social impact into its investment strategy in Nepal?

DEG has committed to achieving a CO2-neutral portfolio by 2040. This means we are working with all our clients, including those in the manufacturing industry and renewable energy sectors, to reduce their CO2 footprint. Consequently, there is a significant focus on renewables, which represent one of Nepal's key resources and areas of development. By focusing on this sector, Nepal plays an important role in our global strategy to achieve a CO2-neutral portfolio. This aligns with DEG's overarching strategy, which emphasizes impact, climate and return as our three key priorities.

The challenging part is that impact often comes at a cost. For example, hydropower plants built in full compliance with Western IFC performance standards are more expensive from a purely financial perspective. However, when considering other factors—such as human life, poverty alleviation and long-term benefits—there is a clear payback. We also encourage our clients to pay higher wages to workers while simultaneously contributing to their own growth. It is essential to evaluate not just the financial costs but also the broader societal and environmental costs.

Given the challenges posed by the pandemic, how does DEG plan to support Nepal’s economic recovery? Are there specific initiatives focusing on resilience and sustainable growth?

From a public sector perspective, KfW is investing over $51 million in grant financing. This funding will be used to improve access to quality public healthcare, one of its three key focus areas. Additionally, KfW's assistance will support sustainable private development by providing aid to the SME sector. Its third focus is public financing for renewable energy which aims to reduce energy costs and enhance accessibility.

SMEs play a crucial role in Nepal’s economy. How does DEG support the growth of SMEs, and what additional steps can be taken to improve their access to finance?

To effectively reach the SME sector, DEG needs to provide on-the-ground support, as we have demonstrated with NMB Bank. Our collaboration with NMB Bank, which can also be replicated with other banks, facilitates on-lending to the SME sector, including women entrepreneurs. This focus is particularly significant because, as I understand, the percentage of women in the workforce in Nepal is relatively low, and this initiative can help address that gap.

In other countries, we have partnered with financial institutions to introduce gender bonds specifically targeted at certain segments of the SME sector. Another approach involves DFIs taking over the financing of large hydropower projects, thereby freeing up liquidity for local banks to enable further lending to SMEs. I believe it is neither feasible nor realistic for DFIs to lend directly to SMEs because our funding typically involves foreign currency. If we lend in dollars, SMEs would have to repay in dollars, which creates an additional burden for them.

Nepal has significant renewable energy potential. How does DEG perceive investment opportunities in this sector, particularly in hydropower, solar and wind energy?

We have heard that between 800-1,000 MW of solar power projects are set to be developed. This is an area of interest for us to finance. We have engaged with some financial institutions and developers and are very open to exploring opportunities. Ultimately, we need proposals and projects to be presented to us for assessment. Developers need to approach us with an investment memo, and we would be happy to consider financing such initiatives.

We have a substantial solar portfolio. In December last year, DEG signed a 600 MW solar project in Thailand. Additionally, DEG is a shareholder in an offshore wind project in Vietnam and finances numerous wind projects worldwide.

How does DEG engage with the private sector in Nepal to promote investment and economic growth?

We have been engaging with the private sector extensively. During this visit, we held several meetings directly with private sector companies and entrepreneurs. Prior to this, we also conducted numerous Zoom meetings and video calls. However, we have observed that there are currently not many projects coming from the private sector. The number of projects presented to us has been limited. That said, our message is clear: if there are bankable projects that are economically and ecologically viable, we are more than happy to review them.

How does DEG’s development finance model differ from traditional investment, and what unique value does it bring to Nepal’s development challenges?

I believe that what we offer goes beyond financing—we strive to be what I call a "good banker”. We are not solely focused on investment returns, though we do need to generate some income to fund future projects, as we are not tax-funded by the German government.

All our clients gain access to what we call business support services. These services include enhancing risk management, improving environmental and social management systems, optimizing working capital and even reducing electricity costs. We provide a wide range of advisory services, such as assisting with family charters or governance structures. Our support is built on 70 years of experience in financing projects around the world which we share with clients in addition to pure financial support.

Moreover, we are happy to connect our clients with others. While we are not entrepreneurs or industry operators, we have extensive knowledge of successful players in other countries. For instance, if a company in Cambodia has solved a specific agricultural challenge that is also relevant in Nepal, we can facilitate that connection. This is one of the ways we add value beyond financing.

What risk mitigation strategies does DEG employ when considering investment in Nepal, especially in light of the country’s vulnerability to natural disasters and political uncertainties?

When it comes to risk management, we are fully aligned with financial banking standards. While we do take collateral and require insurance, we are highly diligent in our due diligence process. We deploy our own experts and always conduct onsite due diligence, which includes technical evaluations. Visiting entrepreneurs and companies is an essential part of our process because it helps us understand their mindset and strategy.

One key difference we have observed is that Nepali banks can grant financing within 21 days, whereas our process takes much longer—six months or even more in some cases. As foreign investors, we need time to thoroughly understand the market dynamics, legal framework and regulations. Ensuring full compliance with the legal framework is crucial for us. We do not circumvent the system or encourage our clients to do so.

(This interview was originally published in  February 2025  issue of New Business Age Magazine.)