Nepal's capital market is best described as misregulated. The regulatory provisions inhibit the growth of the capital market by impeding the flow of financial resources into sectors crucial for the overall economic growth, such as agriculture, forestry, mining, and small enterprises. The economy thrives only when these sectors grow. Even the success of a multi-billion-dollar enterprise depends on the growth of smaller businesses that provide essential inputs and support services. Unfortunately, the growth of these enterprises is constrained because of various reasons. The most important of them is the lack of access to finance.
Financial capital is the lifeblood of any economy, without which all other resources, including physical infrastructure, human capital, minerals, arable land, and forests, remain underutilised. This is exactly what is happening in Nepal. Financial capital is the only resource that is manmade and there is no limit in the potential to create it, unlike other finite or near-finite resources. To unleash the full potential of Nepal's economy, the barriers to creating and utilising financial capital must be eliminated.
The ongoing clamour for foreign capital based on the argument that Nepal does not have sufficient financial capital to finance the growth is misguided. If the existing regulatory shortcomings are rectified, and the shackles imposed on the capital market through these misregulations are lifted, financial resources will naturally flow into the market from within the country and expand quickly.
The recent initiatives by Sebon (Securities Board of Nepal) are moving in the right direction, but their progress needs to accelerate. A common dual principle of self-regulation and accountability, which involves removing discretionary authority from regulatory staff, should be adopted by other regulatory bodies as well. Individuals who meet specific criteria should be allowed to enter the market without waiting for the permission of the authority, and those who fail to meet the criteria should be automatically punished or pushed out.
One noteworthy initiative by Sebon is opening doors for alternate financial service providers, such as private equity funds. This paves the way for small enterprises and young entrepreneurs to access the much-needed capital that traditional banking institutions have failed to provide. At the same time, it has also opened opportunities for those who have good financial resources in hand and are looking for investment opportunities that promise good returns, albeit with higher risks, that the traditional banking institutions cannot offer. This approach will continually nurture new generations of entrepreneurs, facilitate their growth, and address the concern that the economy is dominated by a select few traditional business clans.
It is important to note that not all enterprises starting in this manner will succeed. Nevertheless, even the few that do succeed lay the foundation for overall economic growth. The role of the government and regulators is not to shield enterprises from failure but to provide them with the opportunity to thrive. There is a fundamental distinction between these concepts. The former makes the government protectionist, while the latter makes it a facilitator. The government must not guarantee success, but it must guarantee the opportunity for success and that there will be no no impediment in the effort of anyone to pursue success.
