Nepal and the World Bank Group signed a mandate agreement on 15 October to explore a catastrophe bond, a financial tool that could release money quickly after a major earthquake.
The agreement starts a feasibility and structuring process. It does not mean Nepal has issued a bond, secured coverage or received any funds.
It is significant because the 2015 earthquakes showed how large Nepal's disaster financing needs can be. A bond could give the government a pre-arranges source of funds.
Nepal's Cabinet authorised the signing on 9 October. The World Bank announced the agreement on 15 October and described it as part of its wider work on disaster-risk management and financial protection.
How a catastrophe bond works
A catastrophe bond, or cat bond, moves some disaster risk from a government or insurer to investors. Investors earn a return for taking on that risk.
If a qualifying disaster happens and the agreed trigger is met, some or all of the investors' money can go to the agreed response. If no qualifying event occurs during the coverage period, investors generally get their principal back, subject to the bond's terms. In the proposed set-up, Nepal would define the protection it needs and pay a premium.
A premium is the regular cost of the protection. The World Bank's Treasury would help structure the deal, and capital market investors would provide funds and carry the agreed risk. If the trigger is not met, Nepal may receive no payout, even if an earthquake causes some damage.
The tool is meant to make money available faster than waiting for losses to be assessed and the new emergency funds to be raised. It does not replace earthquake-resistant construction, preparedness, insurance or long-term rebuilding funds, according to the World Bank material.
Before the October announcement, specialist insurance publications reported preliminary figures for the plan. The plan could cover US$80 million to US$190 million over three years, with US$20 million of project financing for premiums and transaction costs. About $80 million of the money goes to an earthquake wit a one-in-20-year chance and up to US$190 million to a one-in-100-year event.
Why Nepal is considering it
After the April 2015 earthquakes, a World Bank-supported assessment estimated combined damage and economic losses at about NPR 706 billion (US$7 billion), roughly one-third of Nepal’s GDP in fiscal year 2013–14.
The proposed bond would not cover losses on that scale, based on the preliminary figures. Its role would be narrower: a pre-arranged source of funds for qualifying severe earthquakes while other money is raised.
Nepal already has some disaster financing. In October 2024, the World Bank approved a US$150 million Cat DDO, or Catastrophe Deferred Drawdown Option, designed to give quick cash after eligible natural or climate-related hazards and health emergencies. It is a contingent credit: the government draws on a loan facility when conditions are met.
The proposed bond is different. It would transfer risk to investors and is intended specifically for severe earthquakes, and its payout would depend on the final trigger. The World Bank has described disaster financing as a mix of tools, so the two could work together.
