ISSN No: 1608-6627
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Articles for Volume Year 2016 Vol 28-2

Financial Inclusion in Nepal: Policy Review and Prescriptions
[Bhubanesh Pant, Ph.D.]

With financial inclusion playing a vital role in reducing poverty and income disparity, it is emerging as a top priority for policymakers and regulators. A large number of countries have introduced comprehensive measures to improve access to and usage of tailored financial services. Greater financial inclusion is achieved when all economic activities and segments of the society have access to financial services with ease and at minimum cost. In the case of Nepal, though the need for financial inclusion by encompassing more and more of the excluded population by the formal financial system has been regularly emphasized in the country’s policy framework, a large section of population still remains outside the formal financial system. This paper, after assessing some relevant data on financial inclusion, reviews the policy measures implemented for enhancing it. The majority of the measures could not be executed to the degree desired due to problems of low financial literacy, paucity of infrastructural facilities as well as inadequate technology-based facilities, among others. Against this perspective, this study seeks to provide some prescriptions for enhancing financial inclusion in the country. These include, among others, promotion of financial literacy programs, launching of digital financial services, formulation of National Financial Inclusion Strategy, implementation of a Financial Inclusion Roadmap and according special role to microfinance institutions.

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Determinants of Bank Lending in Nepal
[Neelam Timsina]

Commercial banks constitute a major chunk of total assets in the banking system in Nepal and extension of credit is one of the major functions of banking institutions. If banks are not efficient in their lending behavior, it may not contribute to economic growth. On the other hand, their inefficient and imprudent banking practices may lead to riskier financial instability. The main objective of the study is to test and confirm the effectiveness of the determinants of commercial bank lending behavior in Nepal by using time series Ordinary Least Square regression approach for empirical analysis. The model involves Nepalese commercial banks' private sector credit (pvct) as dependent variable and other variables such as their volume of deposits (dep), interest rate (Ir), stipulated cash reserve requirements ratio (crr), their liquidity ratio (lr), inflation (inf), exchange rate (exr), and gross domestic product (gdp) as independent variables for the period; 1975 – 2014. From the regression analysis, it was found that Gross Domestic Product and liquidity ratio of banks have the greatest impacts on their lending behavior. Granger Causality Test shows the evidence of unidirectional casual relationship from GDP to private sector credit. The study implies that GDP is the barometer of the economy and commercial banks should pay their attention to the overall macro economic situation of the country, factors affecting the GDP in general and their liquidity ratio in particular while taking lending decision.

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Decentralization of Corruption and Local Public Service Delivery in Nepal
[Krishna Raj Panta, Ph.D.]

Lack of transparency, accountability, and existence of elite capture, ambiguity etc. will lead to misallocation and misappropriation of available resources. These phenomena contribute directly or indirectly to corruption resulting to poor efficiency and effectiveness of service delivery. These cases exist at the local level as well during the practice of decentralized service provision, leading to degrade the quality of and people’s trust on local public services. As represented by petty corruption at local level it seems to be decentralization of corruption as well in the same direction of decentralization of authorities and funds from centre to local governments. This paper tries to examine the effect of these factors on the local public service delivery in developing countries like Nepal. The study finds the existence of elite capture and corruption leading to the dissatisfaction of local people due to inferior quality of local public goods and services. Using survey data, mixed method of analysis and descriptive tools, the study examines how these maladies are affecting the local service provision through the impact on the corruption equation by the increased monopoly power of local officials along with discretion in decision making and reduced accountability. It observes the various practice of corruption existing in the local bodies and people’s perception on the corruption and local public services in the sample villages. The paper concludes that- unless and until the proper policies and actions to tackle these maladies are adopted, no one can expect for the effective and efficient decentralized service provision in order to improve the quality of life of general people.

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Stock Market Efficiency in Nepal: A Variance Ratio Test
[Jeetendra Dangol, Ph.D.]

The paper examines random-walk behaviour and weak-form market efficiency on daily and weekly market returns of All Share Price Index and nine sectoral indices in the Nepal Stock Exchange (NEPSE) using Lo and MacKinlay (1988) variance-ratio tests and corrected data as suggested by Miller et al. (1994). The study finds that the random-walk hypothesis is strongly rejected for weekly indices of the observed and corrected returns. It shows that market participants have opportunities to predict future price and earn abnormal returns from the Nepalese stock market. Whereas, overall and development banking sectors support the random-walk hypothesis in daily observed and corrected returns. It indicates that technical analysis may not be fruitful to earn excess returns in overall and development banking sectors.

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Competition in Nepalese Commercial Banks
[Bishnu Prasad Neupane]

This study has made an attempt to assess the degree of competition (or market structure) in Nepalese commercial banking. For the purpose, both of structural (n-bank concentration ratio and Herfindahl-Hirschman Index) and non-structural measures (Panzar-Rosse H-statistics) have been used. Data of ten years have been abstracted from various sources for the analysis purpose. Study shows that the market structure of Nepalese commercial banks is characterized by the monopolistic competition. Further, it is observed that the banks other than government owned and joint-venture banks have been facing highest degree of competition where as joint-venture commercial banks face lowest degree of competition. Finally, the study suggested that the degree of competition among government owned, joint-venture and other Nepalese commercial banks slightly vary but overall market structure of all set of banks have the feature of monopolistic competition.

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