Economic Development of Nepal and Role of Development Banks
Introduction:
Nepal is a landlocked country situated between two giant countries China and India in
terms of area, population and economy etc. The economy of Nepal is in the developing stage and largely dependent on
agriculture and remittances. The country was opened to economic liberalization,
leading to economic growth and improvement in living standards when compared to
the past. The biggest challenges faced by the country in achieving higher
economic development are the frequent challenges in political stability and
corruption.
Nepal has used
a series of 5-year plans in an attempt to progress in economic development. Government
priority on the development of transportation facilities, communication, and industrialization over the years. Decentralize government administration to the local level for the development of the rural areas.
Agriculture is a principal economic activity where 65% of the population is employed on this and contributes
31.7% of GDP. Nepal has 20% cultivated land for agriculture from the total area and
grows fruits, vegetables, paddy, wheat, maize, etc.
GDP is heavily
dependent on the remittance of 9.1% of foreign workers. Skilled, and semi-skilled workers and students are leaving the country due to low levels of living standards, unemployment,
lack of quality education, and political instability.
Development Bank in Nepal:
In Nepal, there are various types of financial institutions i.e. commercial banks, development
banks, finance, microfinance, cooperatives, and NGOs (with limited banking)
providing financial services to the customer. Nepal Rastra Bank(NRB), the central
bank of Nepal regulates the banking sector.
Development
Banks are class ”B” financial institutions in Nepal licensed by the central banks and
NRB divided into different categories based on the working area. There are mainly
categorized as:
1.
National Level Development Bank
2.
4-10 District Development Bank
3.
1-3 District Development Bank
In Nepal, there
are 17 development banks out of which 8 development banks are operating at the
national level.
Major Role of Development Bank for
Economic Development
Likewise other
financial institutions, Development Bank provides all financial services like
accepting deposits, providing loans, digital banking, service of foreign
exchange, and remittance facilities. Development Bank is working in both urban and
rural areas and provides financial assistance to valued customers. Development
Banks play a crucial role in economic development in Nepal. These are as under:
Ø
Capital Formation
Ø
Creation of Credit
Ø
Channelizing the funds to the productive sector
Ø
Optimum utilization of resources
Ø
Engage in merchant banking
Ø
Employment
Ø
Financial literacy
Ø
Implementation of monetary policy formulated by
NRB
Ø
Entrepreneurship
Development
Banks accept deposits and provide credits to a productive sector like the agriculture
sector, the rural sector, the business sector, hydropower projects, and the industrial sector
for economic growth which provides employment and develop entrepreneur in the
country. Development Banks monitor its investment periodically. Development Banks conduct
various financial literacy programs throughout the country for awareness of
investment, saving, and proper utilization of funds. Development Banks provides
agency service of remittance where Nepali resident transfers their earnings to
home country.
Nepalese
Economy is heavily dependent agriculture and remittance however trade deficit
is in increasing trend which shows that Nepalese economy is totally dependent
with other countries and imports food, garments, petroleum products, electric
& electronics items, vehicles etc. Nepal in rich in water resources and
fertile land huge amount of capital invested in import of food products and
energy despite of high potential. Due to effect of COVID-19 and liquidity
crunch, whole economy is bearing high interest rate on credit. Development Bank
should participate in consortium projects for development of number of hydro
projects and provide credit to agriculture sector at low rates which
substitutes import from other countries, generates employment & entrepreneurship
all over the country which helps to contribute to nation’s economy.
Conclusion:
Nepal is a developing country where there’s need to create lots of opportunity. While development banks are at risk, they can contribute to economic growth and play a positive role in mobilizing financial resources, identifying worthwhile projects, monitoring business managing risk. Despite the increasing importance of financial systems to achieve the national economic goal, government may not establish proper policies to address this major issue. From a development perspective, the development banks performs a significant role because financial intermediation creates an environment more conducive for transforming a traditional economy into a modern one. The best practice to develop and boost the economy could be encouraging saving and investments in productive sectors like agriculture and hydroelectricity. Saving leads to capital accumulation and investment which leads to productivity, employment, and an improved standard of living.
- Surendra Bhandari (Head Western Region)
