Nepal and World Bank Explore Catastrophe Bond to Speed Up Funding After Earthquakes

As one of the world’s most disaster-prone countries, Nepal faces the challenge of preparing for natural hazards and arranging financial resources to respond when they strike.

Nepal is exploring a new way to secure funding quickly after a major earthquake, signing a mandate agreement with the World Bank to assess the development of a catastrophe bond. The initiative could add financial protection to the country's efforts to prepare for disasters and recover from their consequences.

The agreement begins an assessment of whether international capital markets could help Nepal manage earthquake risk. It is an exploratory step, with the feasibility and potential structure of a bond still to be examined.

Preparing Financially for a Major Earthquake

As one of the world's most disaster-prone countries, Nepal faces the challenge of preparing for natural hazards and arranging financial resources to respond when they strike. The proposed catastrophe bond would focus on helping the government access money quickly following a major earthquake. That financial protection would sit alongside Nepal's broader work on reducing disaster risk, improving preparedness and strengthening its ability to withstand and recover from future events.

What the Agreement Sets in Motion

The mandate agreement establishes a collaboration between the Government of Nepal and the World Bank, through the International Bank for Reconstruction and Development (IBRD), which carries Aaa/AAA credit ratings.

World Bank Group Treasury will work with the government and market participants to assess whether a catastrophe bond is feasible and how a potential transaction could be structured.

The announcement does not specify a financing amount, an issuance date or the conditions that would determine a payout. Those details remain outside the scope of the information released, and the agreement should be understood as the start of the assessment process.

Exploring Capital Markets for Disaster Protection

The initiative will examine how Nepal could use international capital markets to transfer disaster risk and obtain financial protection against a major earthquake.

It falls within the World Bank Group's established catastrophe bond programme, which has helped countries access capital markets to secure protection against natural hazards. Nepal's collaboration will draw on that programme as the government and Treasury assess a possible transaction with market participants.

The central question is how this form of financing could fit Nepal's needs and contribute to its existing disaster risk management strategy.