Print Edition - 2016-09-28 | MONEY
- Financial inclusion key to sustainable growth
Today, 45 percent of the BFI branches are located in the central region where the capital, Kathmandu, is located
Sep 28, 2016-These days, customers, who want to transfer money from one bank account to the account of another bank, do not have to go through a cumbersome process as in the past. They can simply walk into the bank where they have an account, fill up a form and ask the teller to make the transfer. Within a few hours, the money will be deposited in the desired account.
If things go according to the plan, people can very soon sit in front of their computers or tap on their smartphones and make high-volume transfers. Very soon, large-value cheques of over Rs100 million may also be cleared and settled within a few seconds—as against a few hours at present—as the Nepal Rastra Bank (NRB) has initiated the process of installing a system called “Real Time Gross Settlement”.Much of these services were available quite some time ago in most of the developed and developing countries. In that sense, Nepali banking sector is still a laggard. But the direction in which the sector is heading, especially in terms of adopting new technology, it is certainly encouraging.
The history of Nepal’s banking sector dates back to November 1937, when Nepal Bank Limited, the first Nepali bank, was established. However, the sector did not witness growth for a long time.
Then in mid-1980s, the government launched the first phase of financial sector reform programme and partially liberalised the sector. This policy shift led to the establishment of Nepal Arab Bank Limited (currently known as Nabil Bank) in 1984. This was the country’s first joint-venture commercial bank established with a 50 percent foreign equity.
Subsequently, Nepal Indosuez Bank (now known as Nepal Investment Bank) started operation in 1985. This was followed by the opening of Nepal Grindlays Bank (now known as Standard Chartered Bank Nepal) in 1987.
The Nepali banking sector then made a big leap forward following the restoration of democracy in 1990. The subsequent democratic governments soon adopted open and liberal economic policies and focused on liberalisation of the financial sector. As a result, the country’s banking sector witnessed a rapid growth.
Today, the country has 28 commercial banks, 67 development banks, 41 finance companies and 42 microfinance development banks. These institutions have 4,274 branches, with population per branch standing at 6,562, as against 7,206 a year ago.
Despite the proliferation of banks and financial institutions (BFIs), most of them have limited their presence to urban areas. Today, 45 percent of the BFI branches are located in the central region of the country where the capital, Kathmandu, is located. In contrast, only 5 percent of the branches are operating in the Far-western Region.
“It wouldn’t be appropriate to say the presence of banking institutions is low in the Far West considering the population of that region,” Sanima Bank CEO Bhuvan Kumar Dahal told the Post.
The Far-western Region houses only 10 percent of the country’s population. Despite this, branches operating in other regions cater to a lot more people than in the Far West.
“But the Far West is also a region with a very difficult terrain. There, population is scattered and a big chunk of people from that region migrate to India to work. So, it would be appropriate to mobilise microfinance institutions in that area,” Dahal said.
Despite reluctance of banks and financial institutions to operate in the region, commercial banks expanded their presence in the region at the fastest pace in the last fiscal year.
The number of commercial bank branches in the region went up by 19.4 percent to 111 in last fiscal that ended in mid-July. The pace at which the number of branches grew in the Far West last year is the second highest after the Western Region, where the number of branches increased by 19.9 percent.
“To cater services to the masses of rural areas, like the Far West, we must embrace technology,” said Anil Shah, CEO of Mega Bank, which has successfully rolled out branchless banking units to various rural areas to provide formal banking services to the rural population.
But there is a caveat. “While technology is going to be the next big thing in delivering banking services in rural areas, we should also find out the real need of the rural population and tailor products accordingly so that those people don’t have to face any difficulty while using them,” said Shah. “So, simply emulating practices that have been successful in other countries will not help rural population of Nepal.”
In Nepal, technology-based services like branchless banking are being provided to meet the payment and credit needs of people who do not have access to formal financial system. Today, there are 812 branchless banking centres in Nepal, which are providing services to over 213,000 people. All of these centres are being operated by commercial banks.
Lately, mobile phone-based payment system has also gained traction. Today, there are 1.6 million mobile banking customers in Nepal. Also, there are 4.1 million debit card users.
These initiatives are not only automating the banking system, but raising people’s access to finance.
To ensure access of finance to all, the central bank, in coordination with the government, has introduced a number of policy models in the past. These include Grameen bank model, wholesale microfinance model, directed lending model, project-based micro credit model, financial non-governmental organisations (FINGOs) model and the cooperative model.
Simultaneously, NRB has also taken an array of policy initiatives to ensure reliable and affordable financial services to the poor, including liberal licensing policy for microfinance institutions, requirements for banks and financial institutions to allocate certain portion of their credit for investment in the productive sector, special refinance facility for cottage and small industries, directives on consumer protection, and directives on branchless banking and mobile banking services, among others.
NRB has taken all these steps to push forward the financial inclusion drive and bring the excluded population currently in the informal, undocumented, unmonitored and unregulated system into the formal, transparent, and protected financial system.
One of the biggest challenges faced by the banking sector today is to bring the population that are financially excluded and those using the informal channels to the formal banking channel.
A latest report jointly prepared by NRB, the United Nations Capital Development Fund (UNCDF) and the United Nations Development Programme says 61 percent of Nepali adults have access to formal financial services, while 21 percent use informal channels and 18 percent do not have any access to finance.
But even among those with access to formal financial services, only 7 percent use all four types of financial products—savings, payment, credit or insurance—while 25 percent use only one type of formal financial product, the report says.
“This suggests lack of availability of good-quality and relevant financial products,” adds the report, stressing on the need for coming up with “low-cost, flexible and diverse financial products that are better tailored to the unique needs of the population so that individuals can manage their finances, increase income, manage risks and build wealth over time”.
“In this regard, more banking and digital financial services should be expanded rapidly for which financial institutions should redesign their business strategies to incorporate specific plans for promoting access of their services to low-income groups,” says working paper titled ‘Promoting Financial Inclusion in Nepal: Policy Assessment and Priorities’ prepared by NRB Director Bhubanesh Pant, adding, “Serving the low-income groups should be treated both as a business opportunity as well as a corporate social responsibility.”
Banking Sector at a Glance
Class ‘A’ Class ‘B’ Class ‘C’ Total
Total Deposit/GDP (%) 78.47 12.39 2.86 93.72
Total Credit/GDP (%) 61.93 10.36 2.51 74.79
Total Credit/ Total Deposit (%) 78.91 83.62 87.72 79.8
Non-performing Loan/ Total Loan (%) 1.82 1.48 14.42 2.19
Deprived Sector Loan/Total Loan (%) 5.52 6.77 4.57 5.65
Capital Adequacy Ratio (%) 12.12 15.31 22.22 12.91
No. of Branches 1869 852 175 2896
No. of Deposit Accounts 13,010,175 3,302,162 523,680 16,836,017
No.of Loan Accounts 753,636 303,934 39,000 1,096,570
No. of Branchless Banking Centers 812 — — 812
No. of Branchless Banking Customers 213,084 — — 213,084
No. of Mobile Banking Customers 1,604,578 133,561 16,427 1,754,566
No. of ATMs 1,661 230 17 1,908
No. of Debit Cards 4,142,390 479,318 35,417 4,657,125
No. of Credit Cards 52,014 — — 52,014
No. of Prepaid Cards 82,797 — — 82,797
Published: 28-09-2016 08:13