Absence of laws blamed for collapse of financial institutions

By A Staff Reporter

KATHMANDU, Feb. 14: The collapse of many financial institutions and industries has been blamed on either the lack of laws or weaknesses of the existing laws.

The banking sector has suffered due to the stiff policies that stop them from being flexible in waiving the whole or a part of the interest on loans. Such measures would have enabled them to recover loans that are likely to turn into bad loans that can never be recovered.

Bad loans have become a perpetual irritant for Nepalese financial activities, and on many occasions, unleash blows to the nation's banking sector.

On the other hand, the debtors who wish to pay the loans if the interest is waived, cannot repay because of the banks' rigid policy.

The problem has surfaced partly because Nepal still lacks a bankruptcy act, credit consumers act, deposit protection act, investment and recovery act, valuation act and compensatory act.
"The stiff policy of our financial sector, lack of adequate laws and the Maoist insurgency have led the Nepalese financial sector to a slump. Many industries and financial institutions have suffered bankruptcy and ultimately closures," said Jaya Raj Sharma, coordinator of the Credit Consumer Association Nepal (CCAN) today at a press conference.

If we have had all these acts, many industries could have been saved from sinking, Sharma said, adding that the CCAN has already presented its 17-point memorandum to the government. It has demanded a national commission to investigate into the ailing industries.

The CCAN that looks after the interests of creditors who depend on the loans provided by financial institutions has demanded that the government enact laws regarding bankruptcy, credit consumers, deposit protection, investment and recovery, valuation of property and compensation.

"The existing banking policies and laws regarding financial activities need to be amended to boost industrial and financial development and to encourage the credit consumers, " said the CCAN, which is celebrating its fifth anniversary on February 17.

Coordinator Sharma said that the government must bring forth a relief package programme for genuine credit consumers. Introducing provisions that allow waivers on interest and giving more time to repay loans can help recover much of the loans, he said.

"The policy will ultimately halt much of the loans from turning into bad debts," Sharma said.
He also said that transparency was needed in the activities of the financial institutions while providing loans and keeping their records. "Many banks in Kathmandu refuse to provide records of loans to credit consumers."

Since banking and financial sectors are the core areas of all economic activities, the sectors need quick and timely correction to overcome all financial malpractice, he added.