Wednesday, April 26, 2006

Dr. Khagendra Thapa

First of all, the king had not done the necessary homework before he acted. He had no plan of action. He obviously was not prepared for the massive task he undertook. Even Nepal’s long time friends the United States and UK did not approve of his actions forget about the immediate neighbor in the south. Worst of all, the very person who asked the political parties to send clean person as prime minister and the very person who promised to fight corruption not only appointed corrupt individuals but also the convicted criminals in his government. When he appointed the corrupt criminals who were called Mandales during Panchayat era, people started to doubt the sincerity of the King. Many people had doubts as to the real intentions of the King’s takeover. He did not bring competent, clean and qualified people to implement his 21 point program.

Above all, the King had very poor public relations. Consequently, he increasingly isolated himself internationally. His incompetent and stupid ministers were more of a liability than assets. He has practically no support left among the comity of nations. People got very frustrated when he failed to curb corruption and control insurgency. His attempt to hold local level elections in the municipalities also failed to impress people since most of the political parties boycotted elections because they were going to lose big time. Maoists threat of violence and the murder of the candidates by the insurgents really prevented people from participating in the election.

The King even failed to convince the so called royalist parties to participate in the elections. To make matters worse, India engineered the twelve point agreement between the seven political parties and the Maoists. This gave a real boost to the status of both the insurgency and the seven political parties in the eyes of the people. Now the nationwide unrest called by the seven parties and assisted by Maoist has put the country on the fire.

King Failed to Punish Corrupt Leaders

When the King took power in Feb. 1, 2005, people had high hopes that he will arrest and persecute all those government officials as well as the political leaders who had collected massive amount of money during the period 1990-2002. People wanted that money to be confiscated. However, the King did not initiate any action against them. The commission he created was unable to carry out its charge. The commission was dismantled by the Supreme Court. Now the corrupt individuals, with the blessings of the political parties, are financing the current unrest against the King.

Losers Became Heroes

Thanks to the inability of the King to deliver what he promised on Feb. 1, 2005, the leaders of the political parties who were hated by the people prior to 2005, have once again become heroes. The people who did not care about human rights during the time they were in power have become great proponents of human rights. The same leaders who now chant the mantra of democracy did not have any respect for democracy when they were in power. Did they follow the rule of law? Were they transparent in what their party did? Are they accountable for what happened to the country and the people? Were they able to solve the Bhutanese refugees problem? Why did not Girija block border with India when thousands of refugees passed through the Indian territory to come to Nepal? Refugees go to a bordering country and not the country which has no common border. If Girija had the ability to think, Nepal would never have to face the Bhutanese refugee problem? Why did the democratically elected government ignore the 40 point demands put forward by the Maoists? Most of those demands were reasonable. However, the new elected kings of Nepal did not want to listen to anything that did not benefit themselves or their political parties. They ignored ideas of small parties as if they were little kids. When the Maoists started armed insurgency, they unsuccessfully tried to crush them. If the king gives up power now, I wonder how the political parties and the Maoists are going to operate. I bet they will be back to square one.

Unrest has Hit the Poor People Hard

The nationwide unrest has really hit the poor people very hard. Over a million people are internally displaced in Nepal due to ten year old insurgency. Most of the displaced people have moved to the cities as internal refugees. In order to survive, they have to work whole day so that they can feed the family. As a result of the unrest in major cities of the country, these displaced people as well as the poor people who were already in the cities are living without food. To make matters worse, even the middle class is feeling the pain. They are running out of food and cooking gas. Those who have invested in businesses are losing money everyday. They cannot attend to social activities. They could not perform planned wedding ceremonies because they cannot travel. Received via electronic mail-ed.

Lets talk about
“Financial Inclusion”?

Anup Bhandari, Head-Micro Finance, Bank of Kathmandu Ltd, Nepal

It is clear that the majority of Nepalese citizens / society of Nepal has not had the privilege of banking services. This segment covers over 80% of Nepal and is those that live in both urban/rural areas of Nepal. These segments have traditionally been considered “not bankable” and or having very high costs and high risks. However, the financial institutions should not consider the segment in this way. As per the main objective of the financial institutions of the country they should have vision and mission of becoming a strategic player as an economic engine for the nation – all segments of society have to be serviced.

With regards to rural/urban small and medium enterprises and micro financing, it is known that the problems for commercial banks has never been the “money / capital” but the “access” to it. The ratio between the deposit, loans & advances and investments is as follows 23: 14: 5 (2004,Nrb). It should not be ignored that this segment of the Nepalese population can be a potential credit-deposit business opportunity. The annual reports of most of the institutions catering this segment show that the repayment ratio is higher than 95%. In addition the return on assets is as high as 4%. Most importantly over the last few years, the margins have shrunk primarily due to overcrowding of the lenders in few market segments weakening the demand for finance in business sectors.

However the commercial banks lack the experience and expertise as required. Hence, it would be prudent to invest in pilot actions for some time with the help of external advisers and third party’s that have local and regional knowledge and acceptance. It is necessary to invest money in action research, trainings to better the human resources and also to change the conventional banker’s perception that,” the poor are not bankable.”

This vision is a necessary to be cultivated in most of the senior management of such institutions. SMEs and Micro finance is where the immense opportunity lies to distinctively create a competitive advantage over the big foreign financial institutions that can enter the Nepalese markets in 2010. In addition to immense business opportunity in the untapped market. This portfolio would further add to banks books which can differentiate the bank from others for a merger /acquisition which is inevitable in 2007. The global competitions will strategically force many financial institutions for mergers/acquisitions.

According to the Trade Insight,” Over 95 percent of the industrial establishment in Nepal fall in the SME category, generating over 80 percent industrial employment.” However this strata has also been deprived from the banking services. In most cases no loan below 2500 K is provided by a commercial bank. Where such loan facility exists, a conventional means of collateral is demanded. It is high time the financial institutes adopt an innovative means of collateral. Joint effort would be made with various interest groups: NGOs, INGOs, international agencies, private & public entity and Government to develop modality to facilitate loans and other banking services in SMEs and micro financing. However it is necessary for the partners to restrict themselves to their field of expertise in an integrated framework approach to create a win-win situation.

In the past the multi/bilateral Aid agencies have distorted the market. They have seriously failed to draw a line between the credit Vs non-credit capital. This has led to a perception that all loans are aid or soft loan. The banking industry has to work with various tools of awareness programs, orientation and by offering products and services targeted to this sector bring a shift in such perceptions. It should be clearly understood that this is a business-to-business proposition and is thus a profit motive exercise. However, due to this being a new area for the banks, flexibility in how to approach this sector will be of primary importance and the banks willingness to do that in order to develop products / services to this segment.

The study of behavioral and ethical fibers of the customers is the key determinant to the banks success. I would also like to mention commercials banks in other countries with success offer such loans-deposits. ICICI-India is the 2 nd largest bank in India having catered products and services to these strata of population.

It should be a prime goal of the Nepal Rastra Bank (NRB) to facilitate and encourage the commercial banks to down scale a unit within the bank to offer products and services to these strata of the society. This sector can be regulated through better and more specific priority sector-lending directive. However the priority sector lending will be scraped from 2007. To mention few other incentives to encourage the commercial banks could be tax rebates, refinancing of the loan, organizing trainings and exchange programs with other foreign banks in such businesses. In additions to these the private-public partnerships should be encouraged to create a synergy in business modality.

However it is also need of the time to create a Credit Rating Bureau in this sector of business. A database of the customer’s history should be maintained to avoid the loan duplication. This will decrease the operational costs of the commercial bank. This will also save a lot of time that had to be spent on such analytical study.

Various modalities have worked in different countries blending into its geographical, political and socio –economic context. In the harsh situation facing Nepal partnership with Community Based Organization (CBOs) and Cooperatives would be a pragmatic strategy for both increasing the outreach and to get the feel of doing business in this strata of population. I would also advise the banking industry to create platforms where knowledge and experience can be shred and exchanged. This will act as a catalyst in the evolution of this sector.

Last but not the least I recommend all the commercial banks to think out of the box and get involved in extending their products and services to new segments of the society. They should not forget their obligation to bring financial inclusion in the society. Furthermore this should not be ignored when the returns in this segment is higher than the other segments. Moreover the pie of this segment is so big that the competitions can be ignored. However special care should be given to develop mechanism to facilitate such markets. This strategy would help injecting money into the economy bringing about change in various spheres of the country.