The Finance and Private Sector Development Unit of the South Asia Region of the World Bank has recently published a report named Access to Financial Services in Nepal. The report, as indicated in the Acknowledgements Section of the report, was prepared by a World Bank team led by Aurora Ferrari under the guidance of Mr. Kenichi Ohashi, Resident Representative of the World Bank in Nepal since the past five years, and Simon Bell. Mr. Guillemette Jaffrin and Mr. Sabin Shrestha were the major contributors; the team also included seven other experts, in addition to the editor, designer, administrative staffs etc. There were five report's peer reviewers, of which three were from the World Bank and one from the KfW. The findings of the report were discussed in the meetings and workshops held in Kathmandu and Washington between September-November, 2006.
The above account, specially given the quality and size of the manpower involved in the project, is sufficient to arouse the interest of the readers about the findings and its implications on the financial sector development of the country itself. But, unfortunately, after reading the report- it is better to escape several paragraphs if you have even elementary knowledge of Nepal's financial sector- it is easy to question the objective and the purpose as well, of the study. It is reported in the press, and confirmed by Mr. Sabin Shrestha, Senior Financial Sector Specialist of the World Bank, that the World Bank will provide a grant of US$ 30 million to the Nepal Rastra Bank to increase financial services in rural areas. Available information, though sketchy, indicates that the World Bank's previous loan and other assistance will be completed by June and the current unrequested and probably undesirable, grant will be the new medium for the World Bank's involvement in the financial sector. If this is the real purpose, there is, no doubt, that the World Bank, under the guidance of Mr. Ohashi, will be able to achieve what it wants, given the current fluid political situation. Otherwise, the first task for the Government of Nepal and the World Bank, if they have even marginal sense of responsibility, is to make transparent how the first assistance was used, and, secondly, why there is need for financial and other assistance even for the central bank of the country to perform its normal job.
The report is divided in four chapters, namely, (i) The supply of financial services; (ii) The demand for financial services; (iii) Constraints to the increased access for small businesses and low income households; and (iv) To make the financial sector work for small businesses and low income households. The findings of the report were disclosed in Kathmandu in a press conference on March 19, 2007. At that time, a major, if not the only, finding of the report that was forcefully, and repeatedly, mentioned is that the access of the Nepalese to financial services provided by institutions is limited, specially in the rural areas. It is a phenomenon common to all developing countries of the world in the early stage of development. In Nepal, it was identified by both the government and the central bank as early as 1970. As a result, the Nepal Rastra Bank at that time has implemented several measures to expand the offices of commercial banks in the rural areas, including the provision of compensating the loss of new branches of commercial banks for a few years. Several other measures were undertaken in the 1980's too. The experts involved in the current project, however, have completely ignored, or possessed only limited knowledge, the process of financial sector development in Nepal. This may lead one to conclude the rational for involving only expatriates in the project.
True, in 2005 there were 180 licensed financial institutions compared with 4 in 1980, though the number of deposit accounts per 1,000 people dropped from 113 in 2001 to 90 in 2005. The report did not analyze even briefly why the number of financial institutions increased so rapidly when the growth rate of other sectors was less than satisfactory and the services provided by them, in relative terms, had actually declined. The report is merely providing a statement of facts derived from the survey. This statement is, of course, true, but teaches us nothing to help develop the programs. The report has failed to generate and then to unify the findings as it lacks appropriate research methodology.
It appears that the project was more useful to the experts involved, directly or indirectly, to educate themselves than to serve any other purpose that they or the sponsors have in mind. Simply as a statement of fact, one can learn much more from the writings of U Tun Wai and Mr. Anand G. Chandravarkar that was published in the Staff Paper of the International Monetary Fund in, to the best of my memory, the late 1960. The paper merely supports the findings of U Tun Wai and Mr. Chandavarkar with new data derived from the survey.
As far as the limited access of the Nepalese to the financial services is concerned, we hardly need any survey or statement; it is obvious from the time series data on the currency component of money supply, narrowly defined and published regularly by the Nepal Rastra Bank in its quarterly bulletin. It has not shown any improvement: in 1960 June the Nepalese used to hold 62.3 percent of money supply in currency, that is, notes and coins while in 2005 June it was 70 percent, and is reported to have gone up further in the current year. In other countries, including India the share of currency in money supply has consistently declined. It appears as a peculiar result, but this odd result must be studied from another angle.
Nepal used to have dual currency system, and still the Indian currency can be used to serve three out of four functions of money; it can not be used only as a medium of exchange. There is not enough study yet to understand the role of Indian currency in the economy, and without this any study to undertake the access to financial services in Nepal can not be fully completed. This helps to indicate that the study has been taken without proper identification of the problems of the financial sector of Nepal.
Some of the findings of the study, specially related to remittances are very informative. It will definitely be useful for both government and the national research institutions, including IfDS, to pursue their research on remittances as well as to evaluate its impact on the national development process. We must congratulate the World Bank for Appendix D that provides the analysis of 'Household Receiving Foreign Remittances'.
Reviewed by Bee Ar
(Courtesy: Bulletin of the Institute for Development Studies (IfDS)
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