Nepal and World Bank Sign Mandate to Explore Earthquake Catastrophe Bond

Bangkok — Nepal and the World Bank have signed a mandate agreement to explore a catastrophe bond that would give the government rapid access to funds after a major earthquake.

The agreement, signed with the International Bank for Reconstruction and Development (IBRD), begins a joint assessment of how capital markets can support Nepal’s disaster risk management strategy. It does not commit either party to issuing a bond.

Catastrophe bonds transfer a portion of disaster risk to investors. If a predefined event occurs, such as an earthquake of a specified magnitude, funds are released to the government without waiting for relief appeals or loan negotiations.

Nepal is among the world’s most disaster-prone countries. Its approach combines risk reduction, preparedness and financial protection, of which a catastrophe bond could become one part.

Under the agreement, the World Bank Group Treasury will work with the Government of Nepal and market participants to assess the feasibility and potential structure of a transaction. Design questions typically include the payout trigger, coverage size and cost.

The initiative falls under the World Bank Group’s established catastrophe bond program, which has helped countries access international capital markets to transfer disaster risk. The IBRD, rated Aaa/AAA, issues bonds under the program.