Nepali Times
Economic Sense
Naming and shaming


In Nepal, we've always refrained from calling a spade a spade. It's a small place and we are afraid of stepping on powerful toes. That is why the reluctance of politicians, bureaucracy and, yes even the media, to call businessmen who have run away without paying bank loans what they are: defaulters.

Stealing is a sin. And yet, there is this self-righteous debate about whether it is criminal on the part of the regulator to find a mechanism to list the people who do not pay loans in time and publish them in the public domain. Why is it wrong for banks to keep track of people and businesses that are not paying loans? It is because of society's squeamishness that crooks in our midst hold their heads high. The only way is to name them and shame them.

In polite company, banks still don't call them write-offs, they are called 'non-performing assets' and they even have an acronym for it: NPA. It is estimated that out of every Rs 100 the banking community lent, Rs 30 never comes back because powerful businessmen wield powerful political muscle to not pay back. That is bad news for the economy. With multilateral agencies breathing down their necks, banks and regulators have now decided enough is enough. If a borrower does not pay regularly, or defaults, they will be blacklisted. Embassies in Kathmandu will not give blacklisted guys visas.

The reason things got so bad here is because we tolerated political patronage for so long. Prime Minsiter Sher Bahadur Deuba was expressing his desperation when he lost his cool and blamed businessmen at the FNCCI gathering last week.

A trade-dominated economy like ours always looks for arbitrage, be it increasing the spread by not paying taxes, paying less taxes or by not paying bank dues. Business always thinks that the government should bail them out. In this way, even though their businesses go bankrupt the businessmen themselves emerged fatter at the end of the day. Defaulters are not ashamed, and even take up public positions and seats at public functions with pride. Banks are equally to blame, especially the erstwhile government-managed banks, which had become 'loan doling' machines that ensured their own executives got a slice of the pie.

The post-Enron world of international banking has become more careful. The new Basel agreement that has come into force requires banks to be more watchful in lending to corporate houses and regulating the enterprise as well as their loans. Surely, with Nepal's omnipresent enthusiasm of signing international agreements, we will make the provisions apply here too.

It is important for Nepal to embark upon credit rating or enterprises and ensure that deserving businesses do not lose out at the cost of habitual defaulters. It is also equally important that while businesses are being regulated, financial institutions should be regulated too. Should business people be allowed to own banks? Should a single business house own a plethora of financial institutions? How do we regulate the non-banking finance sector such as finance companies and the ever-mushrooming co-operative finance organisations? How do we make the central bank an institution that prefers to bite than bark at donor-funded workshops?

Prime Minister Deuba was justified in lashing out, but it would be a good idea to demonstrate delivery by starting from his own extended family.

(11 JAN 2013 - 17 JAN 2013)