Although financial institutions haveproliferated, the Nepalese people have not yet reaped thepotential gains of the government's efforts toliberalize and reform the financial sector. There are fourmain reasons for this: excessive government involvement inthe sector, a weak central bank, a poor banking environment,and a lack of adequate banking services for the poor. Thefinancial sector also faces other issues that impede itsdevelopment such as a poorly functioning credit bureau,risky finance companies, a ceiling on foreign ownership,limited financial services, poor accounting standards, andlimited use of information technology. In November 2000 thegovernment issued a paper outlining its proposed financialsector reform program for the medium term, one which toucheson all the major issues and provides sufficient basis forundertaking far-reaching reforms. While the government hascommitted to withdrawing from the sector as owner andoperator, this study makes recommendations for making thegovernment's strategy fully implementable.Recommendations center on five important principles:Withdrawing the government from ownership of financialinstitutions. Significantly strengthening the central bankto make it a fully professional institution. Restructuringthe Asian Development Bank of Nepal and closing the NepalIndustrial Development Corporation. And creating anappropriate environment for establishing a sound financial sector.
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