Venture Capital for Development..

Nepalese economy is getting sluggish as a result of slow economic development, poor governance practices, volatile politics, unstable policy, immoral and unethical practices of some leaders, business people, bureaucrats, flagrant injustices and poor management process of getting things done in government and so forth. Despite the political turmoil in the nation, the extended investment banking activities in venture capital investment can help to reverse the economic downturn. Nepalese economy needs more investment and supply
of money in all aspects of social economic activities all over the places in the nation, but due to the higher possibility of investment loss in business investment, the financial companies facing large portion of defaults, and vulnerability of business environment caused by business, political and financial risks, are not welcoming the investments. All of these problems have are contributed to lower consumers’ purchasing capacity, and investment environment is blurred for new investment. Furthermore, it is creating a bizarre situation for the increasing number of young graduates and skillful manpower in the future. A large number of job seekers are heading to the limited opening in the stagnant job market. People are getting tired. Income sources are limited and expenditures are hiking up. Can we let this situation to continue in this way keeping that the country will fail in all aspects of socio-economic development? The major reasons of this are mere development of business and lack of good investment vehicles.

 The task is how to develop business sectors in a right way, so that it can create more jobs and reduce the business and financial risks and also the capital loss. And the investors are more eager to reinvest their earnings for new investments. It is good to have increasing trend of banking and financial companies for prospective borrowers, but they could not utilise the borrowed loan in a right way. Possibly, they will lose the investment and suffer burden of interest on loan. Consequently, the borrowers could not pay back to the financiers. Sounds awful? Also, the mobilisation of funds of financial companies will be stuck, and the company will have trouble in having reasonable funds to invest in new business sectors. These problems are common with most of Nepalese finance companies. Borrowers are not utilising funds because they lack business knowledge and have trouble in the management and finance companies just try to lend whatever the investors do or whatever the position the investors are in. Therefore, there is a big problem to be solved to create economically viable situation for financiers and borrowers. Can the government do it? Or is there any way to bring it about? By the analysis and observation, what I found is most of small investors and small business owners lack knowledge of doing business by having a lucrative stable business strategy and policy, and financiers lack good business analysts and expertise to provide guidelines and suggestion to them. The financiers just want to lend money upon the collateral rather than taking consideration of the good business prospects. If the financiers continue to make this kind of investment, it creates economic problem because of slowing down of the new investment and closing down of the existing business due to the heavy capital debt. Consequently, the borrowers end up with burden of capital, and the financiers try to go for the auction of the collateral. Does this process help to improve the Nepalese economy? Surely not. Private Banks, moreover, do not provide banking services for poor people because of a minimum balance required to open up an account. Don’t they see that there are poor people in Nepalese economy? Don’t they have a bit of social responsibility just being in the communities? It is just to make poor people poorer and rich people richer. Why all three players (Investors, entrepreneurs and government) are not properly working the things out for the economy? The borrowers are not doing well to better off by getting financed. They have a big problem of paying back to financiers, monthly payments. If finance companies do not go beyond the current business activities and investors do not try to learn or getting knowledge of doing business in a new way, Nepalese economy as well as people will keep on suffering. If the current situation keeps on going, people of all levels will suffer from such financial and social diseases. The Nepalese merchant bankers need to capitalise the idea of venture capital investment and provide such business skills to borrowers to make them capable of paying off the loan. Furthermore, the venture capitalist can develop new business and increase investment including those of small investors by having all managerial power and ensure the company’s profitable situation. In order to work this thing out, the venture capitalist firm has to have talents and skillful resources in all aspects of management; such as finance, marketing and operation. By doing this, the institutional investor can diversify some of its ideal fund in business for better investment return as well as to expand the investment opportunities in different market nitch. During my working tenure with Nepal Merchant Banking and Finance Company (NMB), I had an opportunity to work for a housing project. It was going to be a breakthrough housing project in nation, so the developer spent lots of money for the research. As a result, the project did not work due to lenders, which is Rastriya Banijya Bank. As a national bank, it could have been a source of inspiration for the developers who tried to work the things out to tap the idea for the survival of the company as well as to pay off the loans; and it could have been the win-win situation for both the developer and lenders, but it did not happen. The GM (Rastriya Banijya Bank), at that time, could have thought about it positively for the people and the Nepalese economy.

The point is that the state-run bank should not only let their fund to invest, they should also be the partners backing with some business and management expertise, and if the business got fiasco due to situation factor or political risk, the investors should not be hard for the borrowers that are trying to work the things out. Now, we can see mortgage business is growing and created jobs and revenues for the government. Thus, the government holding financial institution usually has to have a concept of venture capital investment, and the central bank should create such environment or administer a proper channel or guidelines for the financial institutions to lure the venture capital investment, joining the entrepreneurs or even go further for public-private partnership management activities. Also, the entrepreneurs should think to work with the venture capitalists for the mutual benefits, which could bring good economic returns by way of efficient management and business technology in the business process. Thus, merchant banking focusing venture capital investment would be a new vehicle that may drive financiers and investors to the right direction, support them in establishing new business and fulfill financial needs. Moreover, proper bridging of public-private partnership concept to advance the empowerment process to the people will certainly support Nepalese economy and build a stage for a free economy. Political leaders and bureaucrats should not be negative, and they should make changes in the policy from time by time as requested to turn such rules in their allies’ benefits. Moreover, increasing trend of venture capital will increase the size of the pie of the Nepalese capital market; consequently, it will arouse more investment knowledge to new investors and create a stage for the investment opportunities for the large number of small investors. As a result, investors start participating in economic activities because they believe they will have reasonable returns from the investment in the future. With better management and technology under the venture capital, the companies either public or private enhance their capabilities of the earning power to lure more investors toward the bull market. Thus new investments and more job opportunities will be forthcoming for the people and socio-economic development is expected in years to come.
prameshkc@gmail.com