Siddha Raj Pant

Over the last few years, Nepal has performed dismally on the economic front. Almost all the economic activities have taken place in the urban settings because of urban focus of investments. The financial services are only available to just over 14 per cent of the urban population. Even in the areas where transport networks are available, economic benefits have not accrued due to lack of complementary investments. Financial liberalisation since the mid 1980s has resulted in rapid growth in financial services. The number of commercial banks reached 17 from just two — RBB and NBL. Similarly, the population has also nearly doubled to 24 million over the period. Current estimates are that about 80 per cent of the total population is still dependent on agriculture, which is perceived as a hindrance to prosperity. But, because Nepal’s natural resources are mostly possessed by the agriculture dependent people, they have higher chances of getting out of poverty faster than others. All that is needed is to commercialise their poverty; improve access to private capital and technology to harness those natural resources and higher value capture in production, processing and marketing.

The Nepal Rastra Bank has made mandatory provisions for priority sector and deprived sector lending by the commercial banks. But transaction cost of lending to the poor — not exceeding Rs 30,000 — is such that the banks often prefer paying penalties instead. In addition, the poor have no or limited knowledge as to how financial resources can be availed and used to transform their lives. Though educating the poor cannot be packaged with lending, an alliance of the public and private sector actors may be utilised. The public-private sector partnership including the civil society would help increase the coverage of lending vis-à-vis improving access of the poor to the financial institutions. While most of the banking sector is urban focused, regional Grameen Banks along with some micro-finance institutions have endeavoured to fill the gap. However, the outbreak of armed conflict has further squeezed financial services in the rural areas. In addition, characteristics of the target groups of the commercial banks and those of micro-finance institutions in the urban as well as in the countryside reveal that a large part of middle to poor population that lives on subsistence agriculture and has potential for transforming the local economy is not adequately covered.

So an innovative approach should be devised to capitalise on the strengths of this category. This could be possible through banks tying up with a formal business sector that have interest in harnessing the resources available with this community. Exploratory activities sho-uld be promoted to identify the products in which profitable investment could be made in partnership with the communities so that higher value trickles down. While banks could share the cost of exploratory activities with private partners, the central bank should facilitate the process through incentives to commercial banks for compliance. The approach would leverage the resources of the banks and the poor to the maximum to transform the people and the landscapes. Through this, banks would be able to develop additional niche market at the bottom of the pyramid.