Dimensions Of Poverty
Interventions Rquired

By Nishith Koirala

POVERTY contains two dimensions- low income, which is insufficient to maintain a good living, and low level of human capabilities, which restricts a citizen's option to lead a life of his or her choosing. Poverty can be discussed as a deprivation with strong linkages to other forms such as physical weakness, isolation, vulnerability, and powerlessness. It is an exclusionary relationship where individuals are denied access to an adequate package of resources. It is a state of economic, social and psychological deprivation occurring among the people who lack ownership, control or access to resources in a sufficient manner to maintain minimum acceptable standards of living.

Human Dignity

Poverty is an issue related to human dignity and not only an economical issue. Accordingly, the economic definition of poverty has to be linked with the broader spectrum of socio-economic parameters. This attempts to identify the poor in terms of various socio-economic variables such as caste, location, occupation, sectors of employment, education level, composition of income and family size. It is expected that this will help to trace the correlates of poverty as well as indicate the areas of government intervention for redressing it.

According to a government document, Nepal is a poor country and in becoming poorer everyday. A recent nationwide survey estimates that 42 per cent of Nepal's populations -about nine million people - still live in poverty, particularly in the rural areas. In the mid-western and far western regions, virtually everyone is poor and has been so for generation. This is reflected in various social and economic indicators, as well as Nepal's current rank is 129th worldwide in Human Development Index.
A recent survey also estimates that 44 per cent of the country's rural households, 88 per cent of Nepal's total population and 23 per cent of its urban households appear to fall below the poverty line. Moreover, poverty is far more unrestrained, deeper and more severe in rural areas, worst in the mountains, followed by the hills and then the Terai. The poverty in rural areas is almost the twice as high in the urban areas and varies widely across ecological zones. The latest report estimates the poverty in Nepal with a rank of 77 out of 90 developing countries. This value is higher than for any South Asian country, indicating a worse situation. Poverty thus has increased at an annual rate of more than three per cent and the number of absolute poor has almost doubled in the past 20 years.
Over the last 16 years, Nepal has attained an average annual economical growth rate of 5 per cent. More than 50 per cent of the total population lives in absolute poverty, surviving on less than a dollar a day. About 80 per cent of Nepalese population still works in agriculture, whose growth has been erratic and has fallen below expectations. Growth in Nepal continues to depend largely on the performance of agriculture sector, which itself depends heavily on the vagaries of the monsoon.

Poverty is because of low economic growth, inadequate social and economical infrastructures, relatively high population growth, low acces to land and non-agricultural income, and deep-rooted cultural and historical practices. In addition, weakness at both the governmental and non-governmental level is the main reason for poverty. Poverty perpetuates itself because of inequality in the distribution of resources and opportunities. The poor are willing and capable of doing various tasks to improve their situation, but they often need initial assistance to reveal hidden resources and discover potential of working together.

In Nepal, many people are poor because of social and cultural factors, historic inequalities in the distribution of social and economical power. Caste-related biases have confined the so-called "untouchable castes" to the lowest-paying menial jobs, restricted or blocked their access to common resources, and limited or denied their access to government and public services. Some ethnic and indigenous groups also face similar problem.

Poverty has still been a great problem despite almost five decades of planned development. This is not so much from the problems of policies and strategies, but weak governance institutions, which have resulted in the ineffective implementation of these undertakings. The policies and programmes to reduce poverty have often fallen short of their aims.

To reduce poverty, Nepal has been giving increasing priority in the recent years to social sectors, especially basic social services. Although social indicators have recently shown marked improvements, inefficiency has slowed progress and lowered the quality. Public investments in the social sectors have increased significatly in recent years. In addition, households are investing a graeter proportion of their resources in education and health services. But still, per capital spending remains low even by South Asian standards.

Important

To reduce poverty, there should be a great improvement in irrigation systems, rural roads and agriculture inputs and productivity. It is very much important to take responsibilities in health, education, drinking water and sanitation, the four major service areas. Poverty reduction is a complex task. To make it easy, it requires interventions at a number of levels, by and on behalf of many different actors.

Managing Investment Portfolio

By Yogendra Timilsina

AN INVESTOR in times of economic upturn feels comfortable to invest money either in financial assets or projects or any economic activity. He is however, confronted with problems of managing investment portfolio particularly in times of economic slowdown like ours. A rational investor would like to diversify his investments in different classes of assets so as to minimise risks and earn a reasonable rate of return.

High Risk

Commercial banks have continuously been reducing interest rates on deposits. Many depositors are exposed to the increasing risk of non-refund of their deposits because of the mismanagement in some of the banks and financial institutions and accumulation of huge non-performing assets with them.

Few depositors of cooperative societies lost their deposits because some of these cooperatives were closed down because of their inability to refund public deposits. Stock market also has shown its prolonged bearish tendency. Share price index has now shown a marked decline from the last year's index. Small investors have already suffered much from the investment in equity shares. Investment in government securities also has become a low yield investment portfolio. As such degree of risk has gone up in each of the investment areas. In such a situation an investor has to take much precaution in deciding investment portfolios. Global and national economic slowdown has swallowed many investment opportunities and an investor has to wait hopefully for the revival of the economy and look forward for favourable investment alternatives. An investor in days of crisis has to make an effort to minimize the risk and at least earn a reasonable rate of return on his aggregate investment.

An investment in equity share can earn dividend income as well as capital gain in the form of bonus share and right share until an investor holds it and capital profit when he sells it in the stock market. Dividend yield in absolute amount has no meaning unless it is measured in term of market price of the equity investment. If the equity investment could not earn at least normal market rate of return, it would be better to dispose of the equity at the prevailing market price and invest the amount in any of the other alternatives from which a normal rate of return could be expected. Investing in equity shares has become much risky these days because of extreme volatility in stock market. As returns from equity investments have fluctuated within a very wide range, investors feel it much difficult to balance risk and reward in their equity portfolio. As a matter of fact, investors in equity shares should invest for a reasonable long time frame in order to manage the risk.

Making investment in fixed deposits with commercial banks is a normal practice among the common people. Normally fixed deposits with banks are considered risk-less, but they also are not hundred percent free of risk. No doubt banks are licensed by Nepal Rastra Bank (NRB) and registered under the Companies Act and the Commercial Bank Act. They are regulated and supervised by the central bank and follow various prudential norms of that bank. Despite those strong bases an investor should be aware of the financial health of the banking company with which he is dealing. Above all you should select a bank to put your deposit therein, which has sound financial health and high credibility in banking business. In times of crisis if you select a sick bank to deposit your money there is high probability that your money could not be returned back.

An investor may have option of making investment in Government bonds or debentures. In history we have examples that a government can nationalize the private property of its citizens, cancel out old currency notes, can convert the new investment into some conditional instrument. But in democracy there is no probability that the government would default to repay money back. This is comparatively risk free investment, but yields low return.

Financial institutions like finance companies and financial cooperatives also offer deposit facilities to investors for fixed duration. So far the finance companies are concerned they are under the regulation and supervision of NRB, but all financial cooperatives are not licensed by the central bank. Most of the saving and credit cooperative societies are just registered with the District Cooperative Office under the Department of Cooperative. As such Department of Cooperative has the responsibility to supervise and control such cooperatives.

NRB in no case takes the responsibility to pay off deposit or any obligation of any financial institution in case of its failure to pay back such liability, neither it can guarantee that a particular financial institution would never default to pay back its depositors. However, it has determined certain regulatory norms applicable to all financial institutions licensed by it. But no regulatory norms could have become applicable to those institutions, which are not licensed by NRB. Therefore, by virtue of regulation and supervision of the central bank financial institutions approved by NRB are considered low risk institutions for investment in fixed deposits. It is your ultimate responsibility to select a better financial institution to put your deposit therein.

Purchasing equity shares or government securities from the securities market, opening fixed deposit account either with commercial bank or any of the financial institutions or purchasing units of Citizen Unit Trust could be the investment opportunities. An investor has to evaluate the risk and return of each of the investment alternatives and select an alternative, which has lower degree of risk and offer at least reasonable rate of return. One can draw a safe side conclusion to invest all the money he has only in government securities, but this is not a rational decision. An investor who does not try to maximize return by minimizing the possible risk is not a rational investor. On the other hand, one can place over-confidence on equity investment and assume high risk by investing the whole money in equity shares. Stock market these days is much dwindling and notoriously unpredictable; therefore this too is not a wise decision. Therefore, a portfolio, which consists of only one class of financial assets, is not a good portfolio.

Sfve Voyage

The structure of an investment portfolio should invariably consist of more than one type of assets so that it could earn a reasonable return to an investor even in a worse economic situation by balancing risk characteristics of equity, bond or debenture, government securities and fixed deposit. For example, if you have a portfolio consisting of 30 per cent investment in equity shares, 20 per cent in fixed deposit of commercial banks, 20 per cent in fixed deposit of finance companies, 20 per cent in government bonds and 10 per cent in financial cooperatives, you may earn an average after tax return of 8.5 per cent. However, if you decide a safe voyage and make the whole investment in government securities you cannot earn more that 7.5 per cent. By selecting second alternative you might be losing Rs 10,000/- annually in an investment of Rs 1 million. Making investment is a long run up and down journey and therefore it needs strategy, goal setting and patience to reach that goal and above all an investor must understand the fundamentals of each of the portfolio before making investments. Sometimes sentiments and emotions rule the market, but a successful investor is always on track, he acknowledges the presence and power of such emotions and is able to manage himself.