June 28: The capital market has a high potential to lead the economic growth rate of Nepal, according to a recent study conducted by the International Finance Corporation (IFC) and Securities Board of Nepal (SEBON).
According to the study report, the possibility of boosting the economy is very high, especially through the expansion and diversification of the credit capital market.
Nepal will graduate into a developing country within a few years. Nepal is also committed to become a Net Zero country by 2045. Looking at the current structure of Nepal’s capital market, the study suggested that the credit market should be expanded to help achieve those goals which require high financing and sustainable economic development.
To make this a reality, Sebon and IFC are working together to comprehensively reform the bond market and to develop a program to promote corporate bond issuance. However, the study acknowledges that the credit market is very small in proportion to the overall capital market of Nepal. The main credit markets at present are money market, government bond market and corporate bond market.
“The currency market is very small. It does not have corporate money and market instruments. Most of the debt capital market is occupied by the government bond market. However, the corporate bond market is in a good state. It is limited to bonds issued by banks. Only limited institutional investors like insurance companies, mutual funds have entered into it,” states the report.
Martin Holtmann, country director of the IFC for Nepal, Bangladesh and Bhutan, says that there is a lot of potential in Nepal's credit market, but it has yet to be explored. He said that both domestic and foreign investors can be attracted if the process of bond issuance is made easier, book building mechanism is established and transparency is maintained.
Holtmann said that if these measures are adopted, Nepal can create a favorable environment for the growth of the credit market and new doors of investment will be opened for business and infrastructure development.
