NEPAL ECONOMIC FORUM NEPAL ECONOMIC nefport FORUM nefport P.O.Box 7025, Krishna Galli, Lalitpur - 3, Nepal nefport Phone: +977 1 5548400 [email protected] www.nepaleconomicforum.org ISSUE 26 | OCTOBER 2016 SUPPORTED BY KEY CONTRIBUTORS BEED MANAGEMENT PVT. LTD. BINOD ATREYA CENTRE FOR FINANCIAL REGULATION AND INCLUSION CHIRANJIBI NEPAL JUDITH KARL KAMNESHNEE NAIDOO DOCKING NEPAL’S ECONOMIC ANALYSIS UJJWAL RAJ POKHREL DOCKING NEPAL’S ECONOMIC ANALYSIS ISSUE 26 | OCTOBER 2016 NEF PROFILENEF PROFILE Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organization that seeks to re- define the economic development discourse in Nepal. Established in 2009 as a not-for-profit organization under the beed (www.beed.com.np) umbrella, NEF is a thought center that is working to create positive transformations in policy reforms. NEF stands out in being able to make significant strides to bring the private sector perspective and engage with both the public and private sectors in the development discourse. NEF is currently a recipient of the Open Society Foundations’ Think Tank Fund. NEF works in partnership with many Nepali and international institutions in its quest to mainstream the discourse on the Nepali economy, which has NEPAL not been given the necessary space it deserves. ECONOMIC NEF has partnered with the Himalayan Consensus Institute (HCI) to FORUM facilitate the development of alternative development paradigms and successfully held the first Himalayan Consensus Summit 2016 in March 2016. NEF BROADLY WORKS UNDER THREE AREAS: The Business Policy Research Center (BPRC) engages in research, dialogue and dissemination relating to pertinent economic policy issues. BPRC has been producing nefport, a quarterly economic analysis BPRC publication, nefsearch, a periodic research publication and conducting neftalk, a platform for policy discourse. Through the Center for Public, Private and Community Partnerships (PPCP), the partnerships discourse is further elaborated through addition of the community dimension to existing models of public private partnerships. PPCP Apart from standalone interventions, the PPCP perspective is integrated in the work that NEF and beed initiate. NEF operates in the domain of Development Consulting through its devCon division. It works with a variety of bilateral, multilateral, national and international NGOs in the areas of policy research, economic analysis, value chain analysis, enterprise development, sectoral studies and public private dialogue. We are striving to ensure financial sustainability for NEF to complement the support it currently gets from beed management. If you are interested to support NEF, please do get in touch with [email protected] or [email protected] CONTENTS October 2016 | ISSUE 26 CONTENTS NEPAL FACTSHEET 4 EDITORIAL 5 1 ACCESS TO FINANCE 7 Financial incusion scenario in nepal 8 In conversation with Judith Karl 10 Regulatory perspective of financial inclusion in Nepal 13 Driving the agenda of financial inclusion in Nepal 16 Where is financial inclusion going? 18 Making access possible 21 2 GENERAL OVERVIEW 25 Political Overview 26 International economy 28 3 MACROECONOMIC OVERVIEW 31 4 SECTORAL REVIEW 37 Agriculture 38 Energy 40 Infrastructure 43 Information and Communication Technology 45 Real Estate 47 Education 49 Health 51 Tourism 53 Trade and Debt 55 Foreign Aid 58 Remittance 60 5 MARKET REVIEW 63 Financial Market 64 Capital Market 68 6 NEF Profile 75 FACTSHEETNEPAL FACTSHEET Map Source: https://en.wikipedia.org/wiki/File:Un-nepal.png Source: Map KEY ECONOMIC INDICATORS GDP USD 19.77 billion GDP Growth rate 0.77 Rank 109 (%) GNI per capita (Atlas) USD 730 Inflation 10.2 Rank 192 (annual %) GNI (PPP) USD 2,410 Agricultural growth rate 1.3 Rank 184 (annual %) Gross Capital Formation (% Industrial growth rate 37% -6.3 of GDP (annual %) HDI 0.548 Service Sector growth rate 2.7 Rank 145 (annual %) Sources: Left Table - The World Bank; HDI figure from Human Development Reports of the UNDP, Right Table - Economic Survey Fiscal Year 2015-16 - Ministry of Finance, May 2016 EDITORIAL After the release of our 25th Anniversary Issue, we at Nepal Economic Forum are on a constant quest to recalibrate nefport. One good Issue 26: October 2016 modality since our 20th issue has been to bring focus on a certain issue Publisher: Nepal Economic Forum in each of our publications such as our special issues on agriculture, Website:www.nepaleconomicforum.org earthquake, the International Conference on Nepal’s Reconstruction, P.O Box 7025, Krishna Galli, Lalitpur – 3, and impact of the economic crisis. Nepal Phone: +977 1 554-8400 Email: [email protected] In this issue we have partnered with the United Nations Capital Development Fund (UNCDF) to bring forward the issue of Access Contributors: to Finance and Financial Inclusion in Nepal. This builds on the work Krinisha Shrestha that beed management undertook in Nepal on Making Access Possible Raju Tuladhar (MAP). We are grateful to Judith Karl, Executive Secretary of UNCDF Rojesh Bhakta Shrestha Shayasta Tuladhar for her interview. We would also like to express our sincerest gratitude Shikshya Gyawali to Dr. Binod Atreya, Dr. Chiranjibi Nepal, Catherine Denoon-Stevens, Sijan Thapa Kamneshnee Naidoo and Ujjwal Pokhrel for their contributions to this Sushan Shrestha special issue of nefport. We would also like to acknowledge and thank Subrina Shrestha UNCDF Nepal for making this issue possible. Tejaswee Shrestha Zubin Rajbhandary On the national front, we have seen yet another political transition, Design & Layout: Ultimate Marketing Pvt. Ltd. and with another government change scheduled for March 2017, it is [email protected] unlikely that there will be major policy changes during this duration. As indicated by the economic survey, it is very clear that the Nepali This issue of nefport takes into economy has grown significantly, however failure to meet expense account news updates from June 15, targets still remains a key issue, thereby keeping the whole economy 2016 – September 15, 2016. insulated; as there is excess liquidity in the system. The USD conversion rate for this issue is NPR 107.73 to a dollar, the quarterly The challenge for Nepal remains that it is not constraint on resources as average for this issue. indicated by the USD 6 billion of government revenues supplemented Reproduction is authorized provided by assistance and loans, but planning and implementation that has the source is acknowledged. deterred from pushing economic growth and development. NEF will continue to work in providing fresh perspectives to this discourse. The views and opinions expressed in the article/publication are those of the author(s) and do not necessarily reflect As always, we remain eager to receive your valuable feedback on how to the official opinion of Nepal Economic make future issues of nefport more useful and user friendly. Please email Forum. Neither the organization nor any person acting on their behalf may us your suggestions at [email protected]. be held responsible for the use which may be made of the information con- tained therein. NEF Advisory Board: Arnico Panday Basudha Gurung Sujeev Shakya Kul Chandra Gautam Chair, Nepal Economic Forum Mallika Shakya Shankar Sharma Mahendra Krishna Shrestha NEFPORT ISSUE 26 – OCT 2016 7 A SPECIAL ON ACCESS1 TO FINANCE 8 DOCKING NEPAL’S ECONOMIC ANALYSIS FINANCIAL INCUSION SCENARIO IN NEPAL beed managemnt pvt. ltd. WHAT IS ACCESS TO FINANCE? low cost and relevant risk management products such as There has been increased emphasis on the improvement savings, credit, payment and insurance. of Access to Finance (A2F) in the global scenario with countries adopting measures to improve the level of access SCENARIO IN NEPAL for individuals and businesses alike. Access to Finance in According to the Nepal Rastra Bank 61% of Nepali adults basic terms means the ability of a person or an organization are formally financially included through the uptake of to obtain various financial services like deposit, credit, services offered by banks and cooperatives. Despite the insurance, payment and several risk management services. rapid increment in the number of financial service providers Indicators such as having a bank account, using banks as and the resultant growth of the financial sector, 18% of primary financial institutions, usage of non-bank financial the adult population do not access any form of formal or institutions, and ability to reach the financial institution informal financial services. World Bank’s Findex data shows by foot are used to gauge the level of access in a country. that around 52% of the adult population of Nepal use bank Multiple studies have been conducted on a global level accounts as a mailbox with only 1-2 interactions in a month, to ascertain the impact of increased financial access on while only 18% actively use bank accounts with more than 3 economic growth. The World Bank’s study on access interactions per month. However, having an account in itself to finance and development, puts forward the view that does not truly reflect usage of financial services, thereby it is improving access and building inclusive financial systems crucial to study the level of dormancy as well. are crucial for economies at all levels of development; wherein better access to finance will help to facilitate Furthermore, only 8.47% of the adult population exclusively equality of opportunity as well as realize the full potential use financial products and services from banks without of an economy. availing services from informal or other formal channels. It is alarming that only such a small fraction of adult use However, it has been established that formal financial banks as their prime channel for financial transactions. This services such as commercial banks refrain from serving exhibits both an unserved need of the customer and the low income individuals and small and micro-enterprises inability of banks to tap into the existing demand. because of the relatively higher cost of small transactions, lack of physical collateral and geographical constraints.