“There is still time for us to be positive and make amends”

How would you rate the quality of banking services in Nepal?

There are two types of banking quality: assets and staff capacity. Assets and quality growth depict that according to bank reports they’re quite stable. However, according to the World Bank and IMF review of the banking sector, the NPA (Non-performing loan/assets) level which is under 2% is questionable. This possibly could be because of low-quality assets being window-dressed. The saying “Zombie can still walk” makes sense in this case. Overall report from the central bank states that the condition is not that scary. It could’ve been worse.

What do you feel about the economic conditions of Nepal currently? Do you think it was better two decades ago (under the sovereign)?

The scenarios have definitely changed. The speed of globalization then and now has changed. The economy is technologically driven now. We were living in a controlled regime before. There were restrictions in travelling, foreign currency exchange, low FDI etc. but it’s a global village now with more freedom in physical movement and movement of funds. In 1990, about 20 years ago, India, Bangladesh, Sri Lanka, Pakistan, Maldives fell in the same category as Nepal. Unfortunately Nepal hasn’t been able to upgrade from what it was compared to these countries. We’re always expecting aids from foreign friends but are not willing to do anything ourselves. We don’t have significant infrastructure to showcase. We haven’t been able to capitalize on our resources even though we have plenty. However, our economical reach has increased like access to foreign goods and services, employment abroad. The inflow of foreign funds has begun drastically after our youth started working abroad. If these were some positive traits then we bred some negative ones too like: our agricultural exports have turned into imports. 60% of the population is dependent on agriculture yet we have to import food grains from other countries. There hasn’t been any significant improvement in the economy. It’s high time we start becoming self-reliant in order to sustain the economy. Polish our skills and use local.

Talking about remittance, a study was conducted as soon as the pandemic began. Experts believed that roughly around 14%-28% of remittance could drop because of the pandemic. However, they were surprised to find out that the results were completely opposite from what they had anticipated. It showed growth instead. The reason this happened was because of mainly 2 things: the money inflow before was through informal channels whereas now the option was only through the formal channels. The link between this is also our import. Before there was under-invoicing and to finance that, the money would mostly stay outside but now they had to show proper documents showcasing it as it is. So, one benefit for the country is that once the remittance inflow is shown in the formal channel, it cannot go back to the informal one which maintains some discipline. Another thing is that if the vaccine arrives and the virus is eradicated, this change will surely bring growth but if not then it’ll be a problem again. But to sum up, the remittance business as of now has been pretty good for the country.

How can the COVID-19 outbreak that led to an economic crisis be back to normal? Do you think the nation will be able to curb it within the next 3 years?

There are 2-3 things that need to be considered. The government has announced that there’ll be up to 7% growth and we’ll be able to recover from the damage caused by the pandemic through V-shave recovery. But the current situation is not making this V-shape recovery plan look feasible. In order for recovery, there needs to be growth in the production, service sector and most importantly the consumer should have disposable income at hand. The supply will only increase if they see an increase in demand which in turn increases employment and so the cycle should go on for the economy to increase. But the unemployment has increased currently. People were not able to physically go to work for several months. Companies started showing losses hence had to let people go. So there is no disposable income with the public for recovery to be possible. There is still time for us to be positive and make amends. As noticed, there will be no drastic recovery this year, but we can surely make next year better with a more U-shape recovery. Being overly ambitious can bring some kind of distortion. Policies could be bad if made in haste.

How do you think small businesses can bounce back?

First, we need to consider the structure of this business. The economic census shows about one million entities present among which five hundred thousand are registered. Now within these 5 hundred thousand registered entities, only a few have taken a loan from formal platforms like banks. All others are not registered anywhere therefore they have no record of existence. So even if the government had to distribute relief funds to the small businesses, they don’t have any kind of data consisting of all the small entities for them to sustain. In our country, people usually think of starting a business without proper planning. Most of them tend to take loans from their friends or family instead of going to formal institutions. According to a study, about 15% of SMEs are shut down in their first year of operation and about 40% shut down in 2 or 3 years’ time. The remaining entities even if they make it, still struggle to survive in the long run. Nepal anyway doesn’t have a system to support startups and even if they come up with one, there is no record of all of them existing. One of the reasons why SMEs don’t take loans from banks is because of high-interest rates compared to large organizations. The reason for higher interest rates for small businesses is because the handling of documents and managing for small businesses is more complicated with high risk. According to a study conducted by World Bank, in Nepal, for every Rs 100 loan, around Rs 3 of equivalent assets should be placed as security. This is also another factor that has discouraged the general public to try out formal platforms. But to neutralize this, around 80 MFI’s have been introduced. These institutions provide loans without asking for any kind of security beforehand. But even these haven’t been able to solve the issue since they have operational difficulties, proper information about the debtor. MFIs charge 18% interest to these SMEs. So in order to help this situation, the government needs to encourage all entrepreneurs to register their businesses regardless of their size. In order for a smooth registration process, they need to switch to electronic devices and automated processes. Make the process of running a business-friendly among its citizens. Another thing the government has to do is lower the interest rates for all small businesses. And excuse taxes for businesses running under a specific income/profit like for individuals. Or for a certain time, the government should excuse these companies from paying taxes if they clearly inform the authorities about the existence and nature of their businesses. The government needs to announce these schemes so that the general public is aware. The authorities are only tracking current transactions and financial situation whereas they need to plan 2-3 years ahead. If a company has an income of Rs 1 million then it can employ about 3 people.

For example, a big company like a cement factory has backward integration and forward integration. SMEs are involved in backward integration for supplying all the raw materials to the cement factory are it transportation, small contractors, different types of service providers, etc. The same goes for forwarding integration where SMEs are still involved for that product to reach its customers. So these companies need to save all the SMEs involved.

The Central Bank has decided to lower the interest rates to 10% for small startups for 5 years and increase it later to 15%. However, it’s still not helping because the document required to handle SMEs are hard to obtain. And there are no devices or government policies to help them. So without a doubt, a lot of SMEs were forced to shut down permanently because of COVID-19.

International transactions cannot be done from Nepal currently. However, there are talks of introducing it, there still will be certain limits to how much one can spend. Why wouldn’t the central bank allow citizens to reap the benefits of international online transactions fully? How would it affect the economy fully if they introduce full facilities?

Mainly two things come into play in this; capital and current account convertibility. We don’t have a capital account to convert. We can’t either convert the current account fully. The main question to ask is our source of foreign income. If we take our currency and spend it abroad, how can we bring foreign currency into the nation? For eg, you leave a tap open and the water just flows out. If we don’t refill the tank then it’ll inevitably dry up because there won’t be any water left in the tank. Similarly, we have a limited reserve of foreign currency that’ll last approximately up to 14 months. Plus our imports have also reduced significantly which is a good thing because had we been spending on imports like before, our reserve would’ve only lasted us 7 months. So till the time we don’t have a big inflow of foreign currency, it’s very hard for the nation to spend with no guarantee of any source of inflow. There are several ways to increase foreign currency inflow one of which is FDI, second is multilateral and bilateral aids, third is remittance, 4th would be through tourism, next is increase production for export like minerals, herbs, tea leaves (we mostly export tea leaves to India and they tend to brand it and sell it for a higher markup in foreign countries) so Nepal has to learn to develop its own brands. We first need to prepare different resources for Nepal to be able to increase foreign currency inflow. Otherwise, if the central bank allows its citizens to spend indefinitely internationally, then Nepal will go into huge debt in no time. Also, it’ll directly or indirectly encourage the citizens to purchase little things from abroad discouraging them to use them locally. However, the government can allow us to spend internationally for limited use like registration of any kind, payment of fees, etc. but for uses like ads on social media, the government could maybe propose a deal with the respective companies to monetize these activities so that the transaction is both ways. Our neighboring countries are already practicing such plans hence are getting huge foreign investors. Our GDP on paper may show a good number but it definitely is not considering we are a small nation and we don’t have sufficient FDI compared to say India whose FDI is 3 times higher than our GDP. Another thing that’s concerning is that the youth that goes to Gulf countries for work get about 50% lower than their colleagues who’re from Bangladesh or India. So maybe we need to focus on increasing the skills of these youth before exporting them to these countries for work. It is said that our remittance is high but I say it isn’t enough. We could absolutely double it if we could up-skill our laborers. So it’s difficult for the government to allow high spending limits because they’re concerned about matching the inflow with outflow. The foreign currency reserve may be good as of now but we need to be prepared for the future as well.

Unlike other countries, Nepal doesn’t allow its citizens to invest in international stocks. Why is that?

It is against the law for Nepalese to invest in foreign markets. It again comes down to account convertibility. But government is trying to find ways on how these problems can be solved. It’ll obviously take time because it needs to happen stage by stage. The central bank has finally agreed to allow us to spend on social media platforms and some shopping websites. There are limitations to that too but it’s a good start.

People have to go through middlemen whenever they have to pay for international products. Do you think middlemen charge heavy fees for each transaction? What about if this situation has given rise to frauds?

I have already talked with the Government of Nepal about this. When I told them to legalize this, they thought of their personal benefit, instead of thinking how largely this will benefit society. We had a talk with the finance ministry, the planning commission, about a situation where everything is legalized, they also denied it. There is something wrong with the thinking of policymakers. Solution: So the new generation has to go and apply for the position. If we see foreign countries, young people are in the position, their thinking is different and beneficial to the society and brings radical change. Unlike in Nepal, policymakers are already on their way to retirement and they don’t want any trouble before their retirement, so they deny changing any policies. Therefore, qualified personnel, new generation people should be given the position. For example, in the past Nepal and India were in some stage of development, but now we have an immense gap. India has reached too far. I think this policy should be introduced, but it still will take time.

Are there any opportunities for professional development for bankers and CA’s in Nepal?

What I believe is, everyone should go for entrepreneurship rather than a job. In today’s period, even with minimum capital/cost, one can do something big. If the technology base is good, he/she can do any sort of business. With the help of technology, it is easy to promote business. Now, one should opt for better technology and he/she should think that he can do the business with minimum capital. If one’s determination is to seek a job, then for that he/she should develop the required skills and qualifications. I think another issue is parenting, there must be good parenting. If pampered children are going for a job, parents should teach them that, you are going on a battle, you are going to struggle and you have to be able to face the problem. Parents should aware of them and say “Don’t bring a problem, bring a problem with a solution.”Today’s generation has ample capacity. They can achieve their goals and earn money while staying here in Nepal. 21/22-year-olds have done quite well in the IT field these days. Nowadays, the new generation has the opportunity to cash in on new ideas. Money is flowing over your head all you need is to jump and jump with very good calculation and legally you can earn a hell of a lot of money. We search for favoritism, support in any field of work, that is the main issue. In Nepal, work culture needs to be looked after. Also, there must be a system of Key performance indicators for every staff. We are over-regulated. If we have to do something or make something happen, we think it’s easier if we have people we know, we search for relations and known people. When this kind of thinking vanishes, equal opportunities are created then only there will be a place for professional development.

Had you been given the authority to modify current economic policies, what is the first thing you would change and why?

In today’s date, that is the date of COVID-19, my first job would be to make cash available for the public even if it means cost-cutting from the government. If there is a healthy cash flow in the economy, it’ll create a demand. Because if today a business is forced to shut down, it’ll create unemployment which then leads the public to the poverty line or under. So for now, my main objective would be to create a network for a better cash flow within the economy so as to protect small or big businesses for them to generate business in the future.

How do you think small businesses can bounce back?

In the pandemic scenario, the government of other countries has given money to bounce back. In Nepal, more than 50% of small businesses are run by informal channels, i.e. by borrowing money from friends and relatives, some small businesses are not even registered. Because of this, even though the government is willing to support or give money to them, they can’t have it. Hence, it is hard for small businesses to bounce back in Nepal.

What’s the solution?

Small business owners should minimize their expenses, if they can sustain their business for some time, this pandemic situation will also get over and everything will be back to normal. It’s important to maintain cash flow records as well. If possible, they can ask wholesalers for a long credit period, whereas taking cash immediately with their customers.