The Ministry of Finance has tabled five bills in the parliament for endorsement in the winter session. The Bill to Amend Nepal Rastra Bank (NRB) Act 2001, the Bill to Amend Securities Board of Nepal Act (SEBON) 2006, the Bill to Amend Bank and Financial Institution Act (BAFIA) 2017, the Bill to Amend and Unify Public Debt Management Act 2002, and the Bill to Amend and Unify Insurance Act 1992—are all supposed to be discussed and subsequently approved by the parliament, which may or may not happen in the upcoming session. These bills, once endorsed, will determine the fate of the country’s financial sector. But that’s not the point I want to make here.

The question I am more interested in is: was there sufficient discussion before the bills were submitted to the parliament? And do we have a culture of wider discussion and consultation on proposed legal changes?

One of the proposed amendments on BAFIA will make commercial banks seek Nepal Ratsra Bank (NRB) approval for the appointment of new chief executive officers (CEOs). This is highly problematic as the provision may turn commercial banks into recruitment centers for party cadres who could be appointed as per the discretion of the NRB governor. Put differently, the governor will be a puppet in the regulatory body’s chair to ensure the recruitment of politically loyal people in commercial banks.
This in turn results from the practice of appointing the NRB governor based on political loyalty rather than merit. The rationale behind the new BAFIA provision, as the proposed bill explains, is to ‘get the approval from the NRB’. This doesn’t explain anything.

Now let’s evaluate the broader ecosystem of public discourse and platforms. BFIs are supposed to take the initiative for wide public policy discourse, but such a culture is almost non-existent in Nepal. The reason is a widespread assumption they can easily get their job done by exploiting the unhealthy nexus between politicians and businessmen. Also, the government of Nepal has developed the Financial Sector Development Strategy (FSDS) 2017 with a slew of proposals to improve the country’s financial market. But the results are not in line with the broader goals due to lack of consultations.

This is where sector-wise think tanks should intervene. Unfortunately, our think tanks too have the challenge of competing for donor money. The private sector doesn’t see any value in supporting public policy discussion. After all, powerful politicians and businessmen are the promoters of most BFIs. In the absence of enough funds to conduct research and provide a platform for robust discussions, these bills will continue to appear out of nowhere. At most, they will be drafted by a coterie of bureaucrats sitting in Singhadurbar, who invariably look at these issues with prejudice.

There is no rule of thumb on how much regulation is right to ensure financial sector stability. Globally, there are equally powerful arguments on both the sides—whether regulation should be iron-fisted or if the market should decide everything. Financial crises keep surfacing in countries with either system.

At the country level, we must develop a culture of discussing and generating multiple ideas by investing in research and publications via think tanks. Private funding on think tanks also carries an associated risk of producing biased reports. But it is nonetheless necessary for a vibrant public policy discourse. The legislative complexity rises exponentially when the size of the economy grows, and we must be ready for wider discussion to let the financial sector flourish. It’s the responsibility of the private sector to contribute to the discussion, not just seek short cuts .

The author is an economist.