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December, 2004 |
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Editorial |
| Finance Sector Reforms What
Demands Urgency?
Blacklisting of bank loan defaulters has come up for debate again. The government is all for impounding the passports of blacklisted persons and the donor countries have supported it. There is no denying that the weight of bad loans is simply unsustainable for the economy but the focus of the financial sector reforms is over-concentrated in one area – the banks. The ongoing debate between the bankers and the entrepreneurs about blacklisting has been badly affecting the business and the workers rather than wilful defaulters.
The need is to speed up the reform of the stock market providing a reliable alternate to the savers who are chagrined at the ridiculously low interest rates they get from banks and to entrepreneurs who complain of high interest rates that are charged by banks. The existing stock market, however, lacks a number of ingredients to make it attractive for the small investors. It lacks dealers who are supposed to be ready to buy any stock that is brought up for sale by its existing holders and to sell any stock that an investor is interested to buy. Similarly, there are no institutional investors and market makers. Such institutions are necessary to assure the investor the liquidity almost comparable with the bank deposits. This also assures them that they can park their saving on a stock they believe is safe. The institutions keep the market steady – by increasing the stock supply when its price is increasing unreasonably and by buying up the stocks when their prices are reducing unreasonably. The market making institutions provide confidence to investors. Also lacking is a proper legal arrangement to allow comfortable functioning of such market makers and dealers. In other markets a certain portion of every initial public issue (IPO) is reserved for such market makers. But here, they are put on the same footing as other ordinary investors who have to wait for the lottery to decide how many shares they would get. Reforms are required also to make it attractive for business promoters to go to the stock exchange. Five percent rebate promised by the existing laws on corporate tax to companies listed in the stock exchange has proved insufficient. A more important reform that is required is in the concept of credit information. The Credit Information Bureau (soon to be converted into a company) is functioning merely as ‘blacklisting bureau’. It has to be made into a means to help small investors have better access on the bank credit. But unfortunately, the present law has asked the Bureau to not have any credit information about small businesses thus denying them any means to access bank credit. |
Send your feedback to the editor: bizline@mos.com.np |
