Article By: Dr. Meena Acharya

Development of the Financial System and Its

Impact on Poverty Alleviation in Nepal

Title:Development of the Financial System and Its Impact on Poverty Alleviation in NepalAuthor:Dr. Meena AcharyaPublished in:Economic Review: Occasional Paper (Vol 15. pp 134-164)Date:2003

About

Presented By:Mr. Nitesh KhatiwadaMs. Soni SahaniMr. Sunam ShresthaMr. Roshan PantaPresented in:Seminar in Financial System in NepalMasters of Business ManagementNepal Commerce CampusDate:26 April, 2016

Review

Introduction

1. Rapid growth in the financial sector of the Nepalese Economy

2. Lack of forward and backward linkages3. Main focus towards poverty alleviation4. Unable to penetrate in the rural areas; main focus in

the urban sectors

Purpose of the Study

1. To know about the functioning of the Nepalese Financial Sectors

2. To relate the development of the financial sectors and its impact on poverty alleviation

3. To identify the impact of targeted credit program for Poverty Alleviation

Uniqueness

1. Concerned to analyze the impact of interest rate and income in savings and time deposits

2. Analyzes various data to explain the inability of the financial system to make impact on poverty alleviation

Hypothesis

1. Real income has significant impact on saving2. Interest rate has significant impact on saving3. Interest rate is determinant of time deposit4. Interest rate has significant impact on deposit

collection

Objectives

To study the development of financial system and its relationship with povertyTo identify the impact of financial development in rural credit market1. To find the reason of the dominance of informal sector

in rural and urban financial system

The Model

Use of regression equation to determine the overall saving rate

The dependent and independent variables are as under

Variables

Independent Dependent

Real Gross Domestic Saving

Real Interest Rate

Real Domestic Saving

Variables

Independent Dependent

Real Gross Domestic Saving

Real Interest Rate

Real Time Deposit

Data Sources and Sample

1. Secondary data published by Nepal Rastra Bank

2. Articles of Acharya and Khatiwada (2003) and Directory of Institutions under study.

3. The data from 1960 -2000 has been evaluated

1. Development of Nepalese Financial Sectors Emerging Financial

Structure Financial Deepening

Findings

2. Development of the financial sectors and its impact on poverty alleviation Savings Facilitation Lending Portfolio Rural Banking

Findings

Findings

3. Impact of targeted credit program for Poverty Alleviation Priority Sector Lending

and Financial Products Dualistic Financial

System Establishment of Micro

Credit Institutions and Co-operatives

Conclusion

1. Failure of financial development to inspire wider level development of real sector• No backward and forward linkages

• Nexus between political elite and international financial capital market

• Casino Economy

Conclusion

2. Limited impact of interest rate and monetary policy on the price level• Open small economy

• Pegged Exchange Rate

• Domestic prices a function of Indian market• Money and monetary policy become dependent

variables

Conclusion

3. Inefficiencies of non-government sector• Concentrated in urban areas

• 80% depend on informal sector

• Contribution of cooperative

Conclusion

4. Impact on Poverty• Not visible

• Financial sector focused in trade, export and middle class

• Urban poor detached; lack of resources and knowledge

• Bottom 20% - immediate employment program

1. Lack of proper availability of information

2. Availability of complete information on financial sector employment

3. Cooperatives are emerging as the major source of funding for rural credit

Comments and Limitations

4. Data on financial sector are not amendable to analysis of urban funds flow and linkages

5. Data on the monetary and financial sectors though gathered regularly are amendable to only macro-level monetary analysis

Comments and Limitations

Thank You