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This paper examines short-run and long run causal relationship between financial institutions and economic growth of Nepal. The gross domestic product (GDP), financial system deposit (FSD), credit to government and state owned enterprises (CGSOE), domestic credit to private sectors (DCPS) and gross national expenditure (GNE) have been used to find...
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Citations
... A modern and healthy financial system is required for accelerated economic growth to pool and utilize financial resources, reduce costs and risks, expand and diversify opportunities, enhance the efficiency of resources, promote productivity, and facilitate economic growth (Dhungana, 2019;Hasan et al., 2009). Therefore, the financial system needs to be structured on the grounds of international norms and practices that help to develop a strong financial foundation in the country (Jeucken, 2001;Ozili, 2021). ...
Liquidity crunches in the Nepalese banking sector have been a critical issue for the last few years. This research aims to examine the causes, consequences, and improvement of liquidity crunches in the context of the Nepalese banking industry. This study is based on primary sources with explanatory and descriptive research design. The study population is all the bankers and experts involved in the banking sector - commercial banks, development banks, and regulatory authorities of Pokhara Metropolitan City, Kaski, Nepal. The five-point Likert scale questionnaires were developed to collect the data from the 213 banking professionals based on the non-probability sampling method. This study found a significant impact of government capital expenditure, bank lending policy, and monetary policy on liquidity crunches in the banking industry. The liquidity crunch hampers the growth of business and industry, and discourages entrepreneurs because they are not getting loanable funds as and when required. It creates instability in the financial system, deteriorates the investment environment, generates high inflation and unemployment rates , and affects economic growth rate in the country. The government should increase capital expenditure capacity. Bank lending policy should be directed towards a productive investment. Appropriate monetary policy should be designed to address the liquidity crunch problem in the banking sector. For this, the government and regulatory authority may promote an inclusive and sound financial system in the nation.
... The FED variable is widely used in the literature to measure the level of financial development (e.g. Dhungana, 2019;Ozili and Ndah, 2021). Well-developed financial systems often experience high levels of financial inclusion due to the absence of market and non-market barriers in accessing basic financial services (Allen et al., 2014). ...
Purpose
This study aims to investigate the impact of terrorism on financial inclusion that is achieved through automated teller machine penetration and bank branch expansion.
Design/methodology/approach
Eight countries that are the most terrorized countries in the world were analysed using the panel fixed effect regression model and the generalized linear model.
Findings
The results provide evidence that terrorism reduces the level of financial inclusion in countries experiencing terrorism, but the presence of strong legal institutions, accountability governance institutions and political stability governance institutions mitigate the adverse effect of terrorism on financial inclusion.
Originality/value
A growing literature has shown that terrorism affects the economy, yet little is known about its impact on financial inclusion.
... The FED variable is widely used in the literature to measure the level of financial development (e.g. Dhungana, 2019;Ozili and Ndah, 2021). Well-developed financial systems often experience high levels of financial inclusion due to the absence of market and non-market barriers in accessing basic financial services (Allen et al., 2014). ...
This study investigates the impact of terrorism on financial inclusion that is achieved through ATM penetration and bank branch expansion. Eight countries that are the most terrorized countries in the world were analysed using the panel fixed effect regression model and the generalized linear model. The results provide evidence that terrorism reduces the level of financial inclusion in countries experiencing terrorism, but the presence of strong legal institutions, accountability governance institutions and political stability governance institutions mitigate the adverse effect of terrorism on financial inclusion.
... A robust banking system aids the development of the country's economy. By identifying and funding profitable business opportunities, financial institutions permit the addition of dispersed capital and promote investment (Dhungana, 2019). The banking industry fuels economic expansion by providing capital for profitable investments. ...
... The financial sector is the economic pillar that makes it possible to generate continuous economic growth through effective financial intermediation. Economic growth necessitates a modern and stable financial system to pool and utilize financial resources, lower costs, and risks, expand, and diversify opportunities, improve resource efficiency, boost productivity, and facilitate economic growth (Dhungana, 2019). MFIs are essential to economic activity in rural areas. ...
This research aims to empower Nepalese and Bangladeshi microfinance institutions (MFIs) to strengthen their microfinance governance. By contrasting the governance structures of MFIs in Bangladesh and Nepal, the study focuses on the corporate governance aspect of MFIs for sustainability. This study adopted an interpretive methodology and a qualitative research design. Internal control, timely internal audit, proper rules and regulations, institutional culture, full compliance with rules and regulations, budget and annual plan review, financial transparency, and board literacy education are the main dimension of corporate governance, broadly influencing MFIs for sustainability. The study found sustainability of MFIs is affected by proper guidelines for operation, effective internal control mechanisms, professional management, board literacy education, financial transparency, the rule of law in operation, institutional culture, and review of budget and achievement. The findings of the study might be applicable to the BFIs, MFIs, regulatory authorities, economist, HR analyst, and planners.
... The financial sector is an economic growth engine as it is critical in allocating resources and promoting economic activities (Caporale et al., 2015;King & Levine, 1993;Schumpeter, 1934). Well-developed financial institutions promote capital formation and develop a productive business environment in the economy (Dhungana, 2019;Greenwood & Smith, 1997;Habibullah & Eng, 2006;Levine & Zervos, 1998). The expansion of the financial sector contributes to the economic growth of a nation through the effective utilization of accumulated funds in productive sectors (Hao, 2006;Levine, 1997). ...
Background: Understanding the elements and variables influencing a decision is crucial for making the best financial decisions possible. Investors make complex decisions using their instincts, perceptions, emotions, and thought processes.
Objectives: This paper aims to examine the effect of market variables on investment decisions concerning the financial market of Nepal.
Methods: The research used primary sources of data collected through structured questionnaires. The researchers have applied purposive sampling techniques and selected 168 respondents who have been involved in the transaction of the secondary financial market for at least one year in the Nepalese stock market. We used descriptive and explanatory research design, including correlation analysis and multiple linear regression model, to analyze the data with the help of statistical software.
Results: Young people from a new generation are becoming an increasingly large portion of the capital market and are actively participating in the Nepali security market. The study finds that the stock’s price, customer preferences, past stock trends, and market information in the secondary market highly impacts investment decision. However, the company’s fundamental report has no significant impact on investment decisions in the secondary market.
Conclusion: Investors need to understand the financial landscape of the country prior to investing. Policymakers should understand the behavior of investors to promote the secondary market, and proper market information should be disclosed that may help to make better investment decisions in the secondary market.
... ADB/N has now become a commercial bank. Following the adoption of the economic liberalization policy in Nepal, the financial sector has made tremendous progress in terms of the number of banks and financial service clients (Dhungana, 2019). ...
This study aims at finding how Nepalese banks and financial institutions (BFIs) struggle at managing liquidity to stabilize financial performance for the nation’s economic sustainability. Investigating the relationship between liquidity management and economic stability remains as sole purpose to ensure the Nepalese economy. This study applies the qualitative research design and aims to explore the liquidity management of Nepalese BFIs with an interpretative approach. The economic and financial stability of the country can be accomplished through adequate and proper liquidity management in BFIs. The loanable fund is easily available in the banking sector that vibrates on economic activities including production, distribution, transportation, advertising, communication, exports, and job creation, consequently affecting the total economic activities. Based on the findings, the current scenario of liquidity crisis can be minimized through appropriate financial instruments, monetary policies, an increase in the export of goods, and discouraging the import of luxury items. Remittance is a major source of foreign currency in Nepal, and government needs to encourage people to send remittances through formal banking channels. Equally, the government needs to increase the spending capacity of budgeted capital expenditure on time. Policymakers, economists, microfinance practitioners, Banks, financial institutions (BFIs), and regulatory authorities are expected to be benefitted from the conclusions of the study.
... Financial institutions assist to gather dispersed capital and stimulate investment by recognizing and funding profitable company prospects (Demirgüç-Kunt & Levine, 2009). Dhungana (2019) explores the short-run and long-run causal link between financial institutions and the economic development of Nepal. The research demonstrates a longrun link between financial institutions and the economic progress of Nepal. ...
... The research demonstrates a longrun link between financial institutions and the economic progress of Nepal. A well-developed financial system enables the economic prosperity of the country in long term (Salami &Oluseyi, 2013;Dhungana, 2019). The regulatory authority should expedite financial efficiency which may allow for boosting enough capital creation and investment in productive sectors. ...
The emergence of the financial market favorably influences the economy. The choices of an individual engaging in the financial market have a crucial part in setting the market trend, which subsequently affects the economy. This research seeks to examine the variables impacting the investment choices of people functioning in financial and non-financial sectors. The research employs a social survey design, based on 280 samples obtained by a structured questionnaire employing a convenience sampling approach. The study was restricted to the Pokhara metropolitan city of Nepal. Descriptive Statistics, Chi-square test, t-test, ANOVAs, Confirmatory Factor Analysis and Structural Equation Modeling were utilized to fulfill the study goals. The study demonstrates that there is no substantial difference between personnel working in the financial and non-finance industries on herding, market, heuristic and demographic component. However, people working in the financial industry examine more economic aspects and the total investment performance is greater for employees working in the financial sector. Further, the research reveals that self-confidence, market information, the recommendation of professionals, minimization through portfolio diversification and high-income level increases in interest in investment were the significant influential factors affecting investment decisions of an employee working in financial and non-financial institutions. The CFA establishes a significant link between observable variables and their fundamental constructs. The path analysis demonstrates that Market, Herding, Knowledge and Economic factors has a favorable influence on investment choices. The regulatory authority and related institutions should equip investors in respect of both economic and behavioral elements to make a smart investment choice.
... In the realm of globalization and liberalization, it is also worth noting how the individual emerging financial markets are functioning and how do they interact with the economic growth through different financial indicators. Few studies with mixed results (see Bist & Bista, 2018;Dhungana, 2019;Kharel & Pokhrel, 2012;Paudel & Acharya, 2020;Rimal, 2014;Timsina, 2014) have examined the finance and growth relationship in Nepal and in most of these studies, financial intermediation has been indicated by one or few of the variables, such as broad money, domestic credit to private sector, total credit from banking sector, private sector credit and ratio of financial system asset to total asset. Most of these studies examine causal relationship between financial development and economic growth and there still remains lack of consensus on observed relationships and appropriateness of financial depth measure. ...
... Paudel et al. (2018) observed that broad money supply negatively but insignificantly impacts economic growth where as domestic credit to private sector impacts positively with significant coefficient. Dhungana (2019), shows that there is a long-run significant positive impact of financial system deposit and negative significant impact of domestic credit to private sector on economic growth. In a more recent study, Paudel and Acharya (2020) found that broad money supply, domestic credit by banking sector and domestic credit to private sector have long-run significant positive impact on economic growth. ...
... The positive contribution of CPS on economic growth in the long-run is consistent with different empirical findings (Adu et al., 2013;Biplop & Halder, 2018;Khan et al., 2020;Puatwoe & Piabuo, 2017;Tursoy & Faisal, 2018). In the Nepalese context, the results follow the findings of Timsina (2014), Bist and Bista (2018), and Paudel and Acharya (2020) but contradicts with the findings of Dhungana (2019). The second model shows that one percentage point increase in broad money supply as a ratio of GDP causes the real GDP to rise by 1.22%. ...
This paper examines the long-run and short-run growth effects of financial institutions depth in Nepal along with the sensitivity to the choice of proxy representing financial depth. Using annual time-series data for the period from 1980 till 2019, obtained from Quarterly Economic Bulletins published by Nepal Rastra Bank, the study employed autoregressive distribute lag (ARDL) model with bounds testing procedures to examine cointegration. Domestic credit to private sector, broad money supply, total deposits and financial institution’s assets are used as proxies for financial institutions depth as indicated by World Bank. Real GDP is used to measure economic growth and the influence of macroeconomic environment is accounted by inflation and trade openness. The bounds tests found cointegration in economic growth functions and the regression results revealed that domestic credit to private sector performed better than other indicators in terms of its significant contribution to economic growth both in the long-run and the short-run. Money supply and financial deposits show significant positive contribution to growth in the long-run. The positive relationship of financial depth indicators with economic growth also supports the supply-leading (finance-led-growth) hypothesis in the long-run. Policies must be aimed at efficient allocation of affordable credit to profitable projects for short-run and long-run growth. Expansionary fiscal and monetary policy and long-term deposits are highly desirable for the long-run growth in Nepal.
... As discussed in Dhungana (2019), the history of Nepalese banking sector is not very old as the first commercial bank, Nepal Bank Limited was just established in the year 1937 and the country's central bank, Nepal Rastra Bank in 1956. It is only after the liberalization of the economy since mid 1980s the financial sector started making progress in size, number and outreach. ...
... So, both financial sector and security market can be considered to actually take off after mid 1980s with the embracement of liberal policies and financial structural changes. Nepalese studies have also found that financial sector influence the economic growth (Paudel and Acharya, 2020;Dhungana, 2019;Bist and Bista, 2018;Gautam, 2015;Rimal, 2014; and likewise there are evidences that stock market development have significant contribution to the economic growth (Bist, 2017;Regmi, 2012;G.C. and Neupane, 2006). ...
This paper empirically examines the complement or substitute relationship between Nepalese financial sector and stock market using annual data from 1988 till 2019. The time series data underwent unit root tests without structural breaks employing Dickey Fuller-GLS and Philips-Perron tests followed by tests of unit root with structural break using Zivot and Andrew (1992) model. The ARDL approach to co-integration in the presence of one structural break was employed to analyze the long-run relationship. The results reveal that there exists bidirectional causal relationship between financial sector development and stock market development in the short-run. However in the long-run it is the stock market development that significantly causes financial sector development. The significant positive relationship between financial intermediary indicator (credit-to-private sector) and stock market development indicator (market capitalization ratio) reveal that financial sector development and stock market development are complementary to each other both in the short-run and in the long-run. Saving rate is observed to have important role in determining stock market development whereas investment and inflation are found influencing to determine financial sector development.
Microfinance institution (MFI) deliquency management is a new topic in the world of microfinance. The major goal of the article is to examine at delinquency management strategies in MFIs in Nepal, as well as the causes of loan delinquency and how to improve loan delinquency. The study’s goal necessitated an evaluation of relevant literature. In Nepal, the ratio of non-performing loans (NPLs) in the microfinance sector has been rising. The study found that adopting governance in loan delivery procedures, client identification, effective credit appraisal, and review of client credit history, professional knowledge of clients, client literacy, and identification of clients over indebtedness, credit monitoring and controls, and loan utilization can reduce MFI delinquency. The aim of this research is to help MFIs improve the quality of their loan portfolios. It shows that institutionally efficient MFIs may be able to meet both their social and financial goals. The conclusions of this article will aid MFIs in reducing NPL and better managing delinquency.
