The Securities Board of Nepal (SEBON), the apex regulatory body for the country’s capital market, just celebrated its 28th anniversary via a webinar. But as it did so, the country’s capital market suffers from weak regulatory capacity, lack of institutional ability to effectively monitor the market, and inadequate market infrastructures. When the world is abuzz with the mantra of digital departure, the SEBON collects market information manually and gives outdated data to concerned investors.
Addressing the virtual event, Finance Minister Dr. Yubaraj Khatiwada expressed his optimism that Nepal would soon have a robust capital market to meet the country’s huge financing needs. He shared his hope that Nepal’s capital market would become more and more competitive in South Asia, so that investors start diverting their investment here from other countries. But that seems like wishful thinking, given the paucity of homework towards that end.
Despite repeated assurances to advance the capital market, the government has not let the SEBON be operationally independent. Although it is an independent agency, it is often not able to pursue its mandate independently. A SEBON official stated in a recent roundtable organized by Milken Institute in Kathmandu that the SEBON was being forced to function as an extension of the Ministry of Finance.
Nepal’s capital market is so weak that it can mobilize precious little funds for long-term investment. That leaves the country vulnerable to deficit of finance to develop large infrastructure projects. The onus is on the ministry to enable the SEBON to independently carry out its activities and to work toward making the capital market more robust. However, there is also a need to reform the ownership and governance of the Nepal Stock Exchange (NEPSE) in order to improve the country’s capital market, and eventually make it lucrative for investors from South Asia.
Capital market’s efficiency also depends on investors having access to high-quality information on government debt structures, funding needs, and debt management strategy. One such basic practice is disseminating issuance calendar for government securities. Unfortunately, the calendar has become a victim of weak institutional coordination and communication.
Nepal can learn from India’s well-developed system of information dissemination on government securities. Far from having high-quality public dashboards displaying critical information for investors, the SEBON does not even have a basic Information Management System (MIS) to collect, process, and analyze market data. This leaves it vulnerable to the manipulation of shady investors.
When there was an upsurge in the secondary market a couple of months ago on the back of the news of the exit of Finance Minister Khatiwada, the SEBON was relying on un-vetted data to make the market cheer up. One did not know if these data sources were reliable, but they did play a vital role in decision-making. The absence of real-time market data and analysis for investors has time and again proved costly.
Unfortunately, neither does the SEBON have funds to buy such a system nor can it work independently to secure such funds from development partners, as the ministry always comes in between. And that is hardly helpful.
The Securities and Exchange Board of India (SEBI), which is just a year older than the SEBON, was established in 1992. Today the SEBI regulates one of the most vibrant capital markets in Asia, and mobilizes much-needed funds for India’s growing economy. If Khatiwada is honest about his commitment to improving the state of Nepal’s capital market, he should learn from his Indian counterpart and let the SEBON operate independently—away from the ministry’s revenue- and rent-seeking mindset.
Nepal’s financial markets rank as the least developed in South Asia. They cannot be competitive without strengthening the SEBON’s regulatory capacity, changing ownership and governance mechanism of the NEPSE, and developing critical market infrastructures. A couple of lines in the budget speech to advance the capital market without a clear roadmap will not be enough.
Khatiwada, who can now perk up the market only with news of his exit, has a great opportunity to clean up his investor-unfriendly image by letting the capital market proper unhindered.
