MGT 206: Business Environment in Nepal

Macroeconomic
Environment

BIM-6
College of Applied Business

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 Macroeconomic Environment: Content
 Various sectors of economy
 Components of economic system
 Dimensions of economic system
 Major policy reforms: Features and Objectives of
– Industrial Policy
– Fiscal and Monetary Policy
– Trade Policy
– Labor Policy
– Privatization Policy
– Tourism Policy, and
– Employment Policy.
 Economic Reforms: Capital and Financial Market Reforms
 Government and Business Relations.

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 Economic Environment: Concept
 The economic forces or factors that affect the business or
business decisions relating to resource allocation, costs,
profits and expansion.
 Important to understand how scarce resources of land, labor
and capital are being allocated to the production and
distribution of goods and services, and the manner in which
they are consumed (production, distribution and
consumption)
 Consists of economic system, economic policies, structure of
the economy and economic reforms.
 Provides a framework within which an economy operates and
the various economic units and agents mould themselves to
fit into the system.

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 Economy:
Government-Business-Households Interrelation
Savings Imports

Households

Government Taxes
spending
Payments
for Wages
Goods & Labour
goods & services
Government &
services salaries
Government Taxes
spending

Businesses
Sell
Investment Produce Export

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 Key Players in Economic System
 Three players in the economy:
1. Individuals/households or society
2. Businesses and organizations
3. Government
 The economic activities (production and exchange) carried
out by all these players.
 The three sectors of economy has various sub sectors
comprising of different industry types.
1. Primary
2. Secondary
3. Tertiary

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Sectoral Structure of Economy

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 Sector Structure: Primary
 Economic activity /industry that depends mainly on
exploitation of natural resources. e.g., Agriculture and
agriculture related activities, forestry, mining, fishing
 Includes obtaining and refining raw materials such as wood,
steel and coal.
 Primary economic sector workers include loggers,
steelworkers, agriculture workers, coalminers.

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 Sector Structure: Secondary
 When the main activity involves manufacturing, e.g., all
industrial productions where physical goods are produced.
 Secondary sector workers include those related with
processing of raw materials into finished goods, e.g., factory
workers, builders
 Brewing, engineering, garment manufacturing,
pharmaceuticals and all types of processing plants

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 Sector Structure: Tertiary
 Tertiary sector activity involves providing services, e.g.
Financial services, management consultancy, telephony and
IT services.
 Dry cleaners, real estate agents, and loan officers fall into
the category of tertiary economic sector workers.
 Transportation, banking, tourism and retail stores are all part
of the tertiary economic sector.

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 Sector Structure: Other Classification
 Private sector – economic undertakings (production and
selling) by private businesses.
 Public sector – economic undertakings by government
owned corporation/companies.

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 Economic System
 An economic system is a mechanism that deals with
production, distribution and consumption of goods and services
in a particular society and comprises of people, institutions and
their relationships (Paul, 2007)
 Economic systems can be divided by the way they allocate
economic inputs (the means of production) and how they make
decisions regarding the use of inputs.
 This classification is based on the method of resource allocation
in the system.
1. Market allocation
2. Command allocation
3. Mixed allocation

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 Components of Economic System:
1. Market Allocation
 Also called capitalist economy or free market economy where
there is private ownership in means of production.
 Relies upon the individuals (customers or consumers) to allocate
resources.
 Consumer choice or purchase decides what will be produced and
by whom.
 Economic democracy - money gives the consumer the right to
vote for the goods of their choice, e.g., America, Britain, Japan,
Canada, India

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 Economic System: Market Allocation
Features of Market Allocation
• private ownership is the means of production
• decisions regarding the basic economic issues such as price
set by market are decentralized
• economic freedom (people have freedom to decide as to
where, how and how much of their resources are to be used)
• the economic activities are undertaken with a view to earn profit
• producers produce according to the consumer’s taste and
preferences

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 Economic System: 2. Command Allocation
 The socialist doctrine advocates government ownership and
control of the basic means of production, distribution and
exchange.
 Government decides on resource allocation; state planners
determine the number and types of commodities to be produced,
their distribution and prices.
 Consumers are free to spend their money on what is available,
but the state planners make the decisions about what is produced
and what is available, e.g., N. Korea, Cuba
Features of Command Allocation
• central authority and central planning
• act of production is done by the government
• more equality of income and no private property; no profit aim

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 Economic System: 3. Mixed Allocation
 Features of central planning and market forces in determining
production and distribution activities; government does some
planning and owns and controls more industries than in a free
market economy.
 Blending of capitalism and socialism or market and command
allocation systems to different proportions
 Coexistence of private and public sectors; some sectors are left
to the private sector and some are owned by government.
 The government formulates and executes planning to achieve
national objectives, e.g., Nepal, Sri Lanka, Pakistan etc.
 Nepal adopted mixed economic system from the beginning of its
planned efforts to economic development ; this is more so after
the restoration of democracy in 1990.

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Dimensions of the Economy

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 1. Economic Dimension
 Indicates the purchasing power and pattern of consumption of the
people.
 Important components – GNP, per capita income, personal
consumption and expenditure, distribution of income, personal
ownership of goods, inflation rates, taxes, private investment, unit
labor costs, and level of employment etc.
 Country’s macroeconomic performance are seen in terms of
distribution of income among various demographic factors (area,
age, ethnic group)
 Measurement of size and growth of an economy:
• Gross National Product (GNP): total sum of all goods and services
produced in a year including net property income from abroad
• Gross Domestic Product (GDP): GDP is GNP less net foreign factor
incomes
(Look up Nepal’s changes on GDP over time)
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 Economic Dimension
 Growth rate of economy normally refers to the rate at which the
GDP is increasing over time; GNP indicates total economic size
of the markets
 Per capita income indicates purchasing power of the people in a
country; affected by population growth rate
 Nepal’s per capita income one of the lowest in the world
(Look up Nepal’s per capita income over years)
 Income most valuable indicator of market potential; gives an
indication of average standard of living of people.
 A consumer goods manufacturer needs to assess information on
rates of growth of GDP, consumer expenditure, household
income, and other statistical data relating to consumers.
 A trading business may focus on agricultural output, availability of
raw materials, consumption of supplies by business and
households, cost of the materials, transport system, etc.
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 2. Socio-Economic Dimension
Provides data on the quantity of people. Can be determined
by demographic composition of the country.
Components of socio-economic dimension:
•Population
•Labor force composition
•Employment trends
•Migration and foreign employment
•Labor market issues
•Poverty situation
•Human Development Index

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 Socio-Economic Dimension
1. Employment trends
 Growing displacement of the labor force from the agriculture
sector; people giving up their traditional occupation like cottage
and small industries and farming and attracted to new
occupations.
 Growing migration to urban areas as well as abroad for
employment
 With the rise in literacy and educational level, educated women
are now seeking employment opportunities.
 Organizational practices/required to:
• ensure equality and fair treatment with respect to employment,
advancement, opportunities and compensation
• strategic plans required for recruitment, retention, training, motivation,
redundancy etc
• policies for part-time employment, contract work, flexible work
schedules etc
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 Socio-Economic Dimension
2. Population
 Major indicator of potential market size; countries with growing
population and income indicative of growth markets.
 Density of population as well as comparison between percent of total
urban population and rural population.
3. Labor force composition
 Labour force most important input into production process; describes
the quantity and quality of people available will have impact on the
country’s ability to produce.
 Quantity of labor force depends upon the size of population, age
structure and working age population.
 Due to lack of proper education and skills, bulk of economically
active population engaged in manual and unskilled type of work
 Large proportion of labour force unemployed and underemployed
(around 45% of economically active population)

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 Socio-Economic Dimension
4. Migration and foreign employment
 Principal determinant of differences in population change and
structure in a country; rate of migration high; mainly for employment
 Labour pact with UAE, South Korea, Malaysia, Qatar etc; separate
Employment Permit System (EPS) done with South Korea to send
Nepalese workers; JITCO unit with Japan to send trainees and
interns.
5. Labor market issues
 Crucial for stability and productivity of work force; proper labour
market improvement leads to increase competitiveness and formal
sector employment significantly.
 Nepal’s labour market regulations include Labour Act, 1992
6. Poverty situation
 Lack of access to health, nutrition, safe drinking water etc that
determine quality of life; lack of access to opportunities such as
education, employment etc; poverty incidence in Nepal about 30%

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 Socio-Economic Dimension
7. Human Development Index:
 The main development indicator to measure the welfare of
individuals in a country; index devised by UNDP to measure the
economic achievement of nation by combining economic and social
welfare factors.
 Includes three main factors: 1) life expectancy at birth,2) levels of
educational attainment and 3) GDP per capita.
 HDI is a score between 0 and 1. Nepal’s ranking in HDI very low.
 Other UNDP indicators to measure development – Gender
Development Index (GDI), Gender Empowerment Index (GEI),
Human Poverty Index (HPI) and Human Freedom Index (HFI)
 World Bank Development Indicator (WBDI) to supplement HDI;
measures quality of life, success of measures to alleviate poverty,
current account balance, tax rates, life expectancy, malnutrition,
population size, educational standards, infant mortality.

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 3. Industrial and Agricultural Dimension
 Indicates its potential to supply goods, services, and raw
materials.
 The stronger the industrial and agricultural base of the
economy, the greater the potential to supply goods, services
and raw materials to consumers and industrial units in
domestic as well as global markets.
 Components are:
a.Industry
b.Agriculture

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 Industrial and Agricultural Dimension
Industry
 Industrialization in Nepal began only after the country opened its
border to the outside world in 1951.
 First rudimentary industries were in agro-processing (grain
husking, oil seed extraction, jute processing, tea production and
lumber milling) and some import substitutes ( beverages,
cigarettes, textiles, furniture, etc)
 In the 1970s, export-oriented carpet and garment industries;
electronics, electrical equipment, construction, food processing,
power generation segments came into the industry in nineties;
contribution of 10% to GDP
 Service sector assuming more prominent place; contribution of
41% to GDP ; concentration of service sector in urban areas;
development in activities like tourism, financial services
(banking/insurance), education, healthcare, IT

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 Industrial and Agricultural Dimension
Agriculture
 Largest sector and the backbone of the Nepalese economy; main
source of livelihood for the majority’s country’s population; about
80% of population tied up to this sector; contribution of 37% to
GDP
 Major food crops (paddy, maize, wheat, barley), cash crops
(sugarcane, oil seeds, tobacco, potato, jute), other crops (fruits,
vegetables)
 Agriculture also major source of raw materials for agro-based and
food-processing industries; substantial exports provided (oil
seeds, pulses, kutch, ginger, medicinal herbs, hides/skins etc)
 Production of products (fruits, vegetables, milk and its products,
poultry, tea, fish) has grown significantly due to increased
population and income, urbanization, increasing number of
tourists and visitors, exports potential and growth of processing
industries.

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 4. Economic Development Dimension
 National development plans are also the source of information for
analyzing economic environment; direction and development pattern
of various sectors and their relative priorities are determined by the
development plans
 Era of planned development started in Nepal with the first Five Year
Plan in 1956
 Plans are “indicative” plans in which the government only sets out
priorities and targets; fiscal and monetary tools used to create
favorable conditions for business firms to attain the targets

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 4. Economic Development Dimension
Three-year Interim Plan (2010-2013)
Objectives and targets
Lays the foundation of economic and social transformation for
developing a prosperous, peaceful and judicious Nepal.
Aims at reducing unemployment, reducing poverty and inequality
to support enduring peace and to make people experience change
directly to their life-style.
Average annual economic growth targeted at 5.5% with per capital
income growth of 3.3%; agriculture sector growth of 3.6% and non-
agriculture by 6.5%
Long term vision – transforming Nepal from the status of a least
developed country to developing one.

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 Economic Development Dimension
Three-year Plan, 2010-13 (contd.)
Policies, priorities and strategies
a) General policies and programs:
• launch development initiatives and programs which have
potentiality to generate employment opportunities and policies
and programs
• focused on agriculture, tourism, industry and export promotion
sectors and brought conducive policies to attain goals.
• women development programs related to poverty alleviation,
gender equality and social mobilization will be expanded to cover
village development committee
• special programs will be conducted for economic self-sufficiency
of the deprived, Dalit, Janajati, Madheshi.

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 Economic Development Dimension
b) Agri-business policies and programs
• Expansion of tea plantation in the Eastern hill districts; focus on
high-value cash crops like coffee and off-season agro-products
• Promotion of fish farming, meat production in the country
• agriculture market will be promoted and expanded.
c) Industry and business-related policies and programs
• Guarantee industrial and investment security; reforms for creation
of congenial investment climate
• providing necessary infrastructure for Special Economic Zones
(SEZ), industrial estates, export processing zones etc.
• Procedures related to Industrial Rehabilitation Fund to assist sick
industries
• Ensuring participation of NRNs in economic development
• Open up foreign investment for transfer of technology etc

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 Economic Development Dimension
Millennium Development Goals (MDG)
 UN global conferences held in 1990s drew up number of different
key global development goals and targets to focus, equalize and
harmonize the needs and status of the people all over the world.
 In 2000, Millennium Development Summit was held and focus on
peace, security and development concerns comprising
environment, human rights and good governance.
 Later, international development targets and development goals
are merged together and renamed as MDG.
 These goals are well defined, time bound and properly targeted
sets of expected development outcomes.

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Economic Development Dimension

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 Economic Development Dimension
Millennium Development Goals (MDG)
Goal 1: Eradicate extreme poverty and hunger
Target 1 Halve, between 1990 and 2015, the proportion of
people whose income is less than one dollar a day.
Target 2 Halve, between 1990 and 2015, the proportion of
people who suffer from hunger.
Goal 2: Achieve universal primary education
Target 3 Ensure that, by 2015, children everywhere, boys
and girls alike, will be able to complete a full course of primary
schooling
Goal 3: Promote gender equality and empower women
Target 4 Eliminate gender disparity in primary and
secondary education preferably by 2005, and at all levels of
education no later than 2015
(Refer Prem. R. Pant’s book for other targets)
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 Economic Policy Reforms
 Industrial policy
 Privatization policy
 Monetary policy
 Fiscal policy
 Trade policy
 Tourism policy
 Labor policy
 Employment policy

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 Industrial Policy, 1992
• Industrial Policy, 1992 (replaced in 2010) focus on the principles
of free market economy; participation of private sector encouraged
particularly for industrial development of the country.
• opened up foreign direct investment; market entry, expansion and
modernization of business and industrial firms made easy by
liberalization and simplified procedures
• Legal provisions to implement this policy are contained in
Industrial Enterprise Act, 1992.
Objectives, policies and strategies:
• increase contribution of industrial sector to the national economy
through enhancement of industrial production and productivity
• emphasis on the development of industries utilizing local
resources and industries which are export oriented
• reduce pressure of unemployment and underemployment through
the development of employment generating industries
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 Industrial Policy
Objectives, policies and strategies (contd.)
• promote Nepal as an attractive place for investment by
developing productivity conscious human resource and building
managerial capacity.
• protection of industrial intellectual property rights.
• provision for “No pay for no work” for the industrial sector.
• establishment of Industrial Protection Fund to compensate non-
business and non-commercial risk, operation of business
incubation centre, creation of special package for the
development of Karnali Industrial Corridor and establishment of
industrial villages and their promotion.

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 Industrial Policy
Provisions in the (new) Industrial Policy, 2010:
• special tax holidays for industries established in rural parts of
country
• differential tariffs rates for raw material imports and the imports
of finished goods
• protection, and duty and tax discount incentives for industries
using local raw materials
• exemption of excise duty and VAT on raw material and
packaging material industries established in Export Promotion
Zone
• policy’s main purpose is to attract foreign direct investment; give
additional incentive to the cottage and small scale industries;
special provisions for institutional support and financial backups
to these industries

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 Privatization Policy, 1991
• Part of public sector reform or sectoral adjustment programme;
involves divestment of existing interests of the government, as part
of its strategy, in favour of private sector
• Privatization defined as “the participation of private sector in the
management of an enterprise or selling it or giving on lease or
transferring of government ownership to private sector, employees
or desirous groups either partially or fully in such as enterprise”.
• Process of converting a publicly owned and operated enterprise
into privately owned and operated entity; to increase efficiency of
such enterprises and offer better services to customers.
• An approach to stabilizing and developing the national economy
by strengthening the participation of private sector in nation
building
• Privatization policy first time specified in the Sixth Plan; legal
provisions to implement this policy are contained in Privatization
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Act, 1994.
 Privatization Policy
Methods of privatization:
a) Sale of shares: the state sells stock to the general public,
employees and any person or a company through the stock
market and other financial institutions all or substantial part of the
stock
b) Direct asset sales: the state sells the assets of any entity in the
competitive market
c) Management contract: the state invites private parties through
an open tender for transferring the management responsibility of
an enterprise for certain period.
d) Leasing out: the state may lease out any of its enterprise
identified for privatization or any part of its assets.
e) Formation of cooperatives: state may form cooperatives and
transfer the assets and management to it
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 Privatization Policy
Procedure for privatization of public undertakings:
• Privatization Committee is formed under the chairmanship of the
Minister of Finance.
• The committee conducts studies, evaluates the enterprises,
removes hindrances faced in privatization, formulates
privatization programmes and recommends the scheme to the
government for execution.
• Committee can appoint a team of national experts or a joint team
of national and foreign experts for evaluation of the enterprises.
• Committee invites proposal for privatization through public notice
in conformity with international practice.
• Priority given to Nepali investor or group of Nepali investors while
evaluating proposals for privatization
• Agreement entered between offerer and offeree specifying clear
terms and conditions prior to handing over an enterprise.
• Disputes between GON and parties involved in the privatization
resolved through mutual consultation or else through arbitration.
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 Privatization Policy
Enterprise Name Privatized/ Mode
Dissolve Year
Bhrikuti Paper Factory 1992 Assets & Business sale
Harisidhhi Brick and Tile Factory 1992 Assets & Business sale
Bansbari Leather & Shoes Factory 1992 Assets & Business sale
Balaju Textile Industry 1993 Share sale (70%)
Tobacco Development Company 1994 Liquidation
Nepal Lube Oil Ltd. 1994 Share sale (40%)
Nepal Bank Ltd. 1997 Share sale (10%)
Nepal Tea Development 2000 Share sale (65%)
Corporation
Biratnagar Jute Mill 2002 Management contract
Himal Cement Industry 2002 Liquidation
Butwal Power Company 2003 Share sale (75%)
Bhaktapur Brick Factory 2004 Asset sale and Rent
Lumbini Sugar Factory 2006 Asset sale and Rent 41
 Trade Policy, 1992
Trade Policy, 1992 intends to enhance the contribution of the trade
sector to the national economy of the country by promoting internal
and international trade and increase private sector participation.
Main objectives:
•Enhance the contribution of trade sector to national economy by
promoting internal as well as international trade and to increase the
participation of private sector by creating an open and liberal
atmosphere.
•Diversify trade by identifying, developing and producing new
exportable products through the promotion of backward linkages
for making export trade competitive and sustainable.
•Expand trade on sustained basis through gradual reduction in
trade imbalances
•Coordinate trade with other sectors by expanding employment-
oriented trade.
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Basic policy
Gradual privatization of public
sector trading corporations
Adoption of liberal procedures
for encouraging interactions
between trade and industry for
sustained export promotion and
for fulfillment of internal demand
Existing treaties and
agreements with various
countries and international
agencies will be implemented
effectively.
Emphasis on modernization of
management and technology,
for promoting market and
attracting direct foreign
investment
Trade Policy
Export policy
Encourage export of hydro-
electricity on a profitable
basis
Increase foreign exchange
earnings and create
opportunities for gainful
employment through the
production of new products.
Raise production and quality
of exportable products to
make them competitive in
the international market.
Focus on the development of
appropriate and potential
skills to promote service
sector and export of skilled
manpower in an organized
Import policy
Completely opening up
imports.
Continue existing open
import policy and
simpler and more
systematic import
procedures and
documents
Complete prohibition of
imports against the
interest of common
people
Adjustment of custom
duty on imports as per
the requirements and
concepts of SAFTA43
and WTO
 Tourism Policy, 2009
Objectives:
• To create self-employment opportunity for the rural people and
reduce the level of poverty through the extension and
diversification of the tourism sector.
• To develop Nepal as an attractive tourist destination with the
exploration, protection and promotion of the natural, cultural,
biological and man made national heritages of the country.
• To expand and promote tourism sector by providing dependable,
safe and accessible network of air and transport facilities.
• To make the sustainable use of natural resources for tourism
development keeping in view the adverse effects of tourism on
environment.

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 Tourism Policy
Policies and strategies:
• Diversify Nepal’s tourism products and services and take tourism
to new areas.
• Encourage rural communities to launch various programs that
contribute to the growth and promotion to rural areas.
• Apply BOOT (Build, Own, Operate and Transfer) model for the
development, operation and ownership transfer of tourism
infrastructure.
• Apply IT to commercialize tourism business
• Upgrade the quality of tourist services and facilities and make
Nepal a secure place for tourists.

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 Monetary Policy, 2012-13
 Refers to all the actions of the central bank which affect, directly or
indirectly, supply of money, credit, rate of interest and the banking
system.
 Instruments for implementing monetary policy are: 1) open market
operations, 2) reserve requirements, and 3) discount window
 Objectives
• maintaining price stability, external and financial sector stability,
promoting financial access to the general public and facilitating
high and sustainable economic growth.
 Policies and programs
• macroeconomic stability, economic growth, employment, social
and inclusive development and other programs and policies
outlined in the three year plan and adopted by government in latter
periods
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 Monetary Policy
Features:
• CRR (Cash Reserve Ratio) to be maintained by financial
institutions: 6% for A class, 5.5% for B class and 5% for C class
from existing 5% by all categories.
• Overall BOP recorded its highest ever surplus of Rs. 113.22
billion during the eleven months of FY 2011/12 due to
improvement in the external sector transactions.
• Bank interest rate is set at 8%
• Foreign exchange facility up to USD 2,500 to Nepalese citizens
going abroad each time; for going abroad for trade promotion,
trade affairs and trade workshops, foreign exchange facility up to
USD 5,000 each time as passport facility based on the evidence.
• Commercial banks, development banks and finance companies
should maintain deprived sector lending at 4%, 3.5% and 3%
respectively in current FY
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 Labour Policy, 1999
 Labour laws enacted to create conditions for the protection of
labour from unfair employment practices and to provide a
framework within which industrial relations are to be regulated
 Labour policy divided into two parts: i) labor relations, and ii)
employment generation and human resource development.
 Objectives:
• strengthen collective bargaining mechanism
• enforce ILO standards
• promote employment for national labour
• encourage industries providing employment to women and
disabled
• self employment opportunities will be provided in order to
eliminate child labour.
 Strategies adopted : with respect to wages, discipline, skill
development, labour laws, social security
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 Employment Policy, 2005
• Provide opportunities for productive and full employment to all
manpower of nation by creating investment-friendly environment.
• Eradicate the practice of forced labor and child labor.
• Practice international standards of labor in the workplace to
establish good labor relationships.
• Develop a system of social security inclusive of non-formal
sector.
• Ensure equal access to employment for women, Dalits,
indigenous people and displaced people.

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 Economic Reforms
 Economic reforms aimed at liberalization of Nepalese economy;
four main mechanism adopted:
1)Internal liberalization through deregulation, delicensing, abolition/
adjustment of ‘market-distorting’ subsidies, rebates, taxes, and
administered prices,
2)External liberalization in terms of adherence to the spirit and
norms of free trade in a global economy.
3)Privatization of public enterprises (as a part of the process of
relieving the government of unnecessary burden from loss-making
entities)
4)Encouraging private sector involvement in economic activities
 Reforms that affect business environment in Nepal consist of:
• Capital market reforms
• Financial market reforms
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 Economic Reforms
1. Capital Market Reforms, 1992
Consists of (Securities Exchange Board of Nepal) SEBON and
(Nepal Stock Exchange) NEPSE
SEBON :
established in 1992; promotion and regulatory authority for capital
market.
Objectives :
• to promote and protect the interest of investors.
•to supervise and monitor the activities of stock exchange and
others involved in security business
•contribute to development of capital market
SEBON oversees the activities of Nepal Stock Exchange and
supervises market makers and stock brokers; regulates public
issue of securities.
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 Economic Reforms
NEPSE:
• Established in 1992; conducts operational functions and trading
in securities; facilitates transactions in securities through share
brokers and market makers.
• Number of listed companies in NEPSE: 228 (2012/13)
• Paid up value of listed shares: Rs. 213.48 billion

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 Economic Reforms
2. Financial Sector Reforms
Reform has been ongoing since last few years for improving the
financial situation of banks and financial institutions. The reform
process undertaken in Nepal can be grouped in 3 phases.
Phase I: Liberalization Phase-1(1984-1990)
Major reforms:
• banking sector opened to foreign investors
• interest rate deregulated; liquidity requirement lowered
• commercial banks allowed to accept deposits in foreign
currencies.
• treasury bills sold through auction
• ADB/N and NIDC allowed to issue bonds and debentures to
increase their financial resources.
• Finance Company Act, 1986 enacted to increase competition

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 Economic Reforms
Phase II: Liberalization Phase-2 (1991-1999)
Major reforms:
• Dramatic rise in the number of commercial banks; many other
joint venture banks, development banks, finance companies,
insurance companies established
• Rural development banks established in 5 development regions
to provide micro-finance services to the poor.
• Insurance Act enacted in 1992 to regulate and develop
insurance business.

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 Economic Reforms
Phase III: Restructuring Phase (2000-2008)
Major reforms:
• Restructuring of NRB and RBB; carried out programs such as
right-sizing of banks through VRS; HRD and management;
restructuring of the banks; computerization of the banks
• Restructuring strategies for ADBN, NIDC identified
• Legal framework strengthened through the enactment of NRB
Act, 2002; Debt Recovery Act 2002; Foreign Exchange
Regulation Act, 2002; and BAFIA Act, 2006
• Strengthening capacity of NRB; policies regarding phasing out
NRB’s role in providing directed credit, adopting regulatory
system of international standards, and strengthening NRB’s
supervisory capabilities had been formulated.

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 Business Environment and Market
Opportunities
a) Market expansion
• Going into new market segments within the country, and
• Going for international business in new countries.
b) Competitive advantage
c) Market mix modification
d) Environmental adaptation
e) Technological advantage

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