Nepal's share market index, Nepse is performing reasonably well since the formation of Nepali Congress led government. It is now hovering between 850 and 900 for sometimes now. Among many welcome developments, the plan to dematerialize (demat) the physical share certificates into the digital ones have boosted the confidence of the investors. But the demat process has been rather very slow. In seven months since it started (coinciding with the Nepali New Year 2071), only about a million scrips of some three dozen companies could be converted to digital format. No doubt, this is a time consuming process, but such a slow pace, though, is absolutely unwarranted for.
Be that as it may, demat process would be completed, hopefully, soon. But more worrisome aspect is, other support infrastructure to augment trade in demat system remains far behind the mark. The recent lull in the market is now attributed to the fact that banks were not recognizing the dematerialized shares as security for financing investments. They may have their reasons to do so. But this reflects a clear lack of vision and coordination among the policy makers to simultaneously take forward all related developments of ancillaries so as to prevent the system from becoming lame.
Simply, banks' willingness to invest in the digital infrastructure and manpower training to handle these loan transactions doesn't seem to be forthcoming right away. And, there is no initiation from other relevant authorities like Nepal Rastra Bank and Securities Board of Nepal to facilitate this. It is though not to suggest that everything has to be shouldered by the public institutions, but policy exercises in view of the potential paradigms of such developments is unquestionably their special domain.
As things stand now, three immediate tasks must be undertaken to not let the tempo in the share market wane off. First, banks should, may be through their umbrella organization - the Nepal Bankers' Association, make their position clear with regard to their technical capabilities and cost-benefit analyses on facilitating demat transactions. They must also realize the fact that by making a digital transaction platform available, the share trading from all over the country may enhance in due course of time which in turn would help to increase their businesses. In many countries, a separate account for share trading has been a norm and a technical necessity. At the same time, they have adopted the rule of de-hooking the funds from other accounts while market volatility is emotion-racking. This effectively means that a trader can only trade from his trading account even if s/he has other functional accounts in the same bank, until inter-account transfers are made.
Second, policy coordination among the policy makers and functional relations among the market makers have been largely a neglected issue. It is also a fact that regulatory authorities have been reticent until it is too late to react. In many cases, they lack the understanding of technical knowhow and degree of urgency seems to be taking a toll. This must be changed.
Third, Nepal is one of those countries where investment in financial education at any level -from policy makers to retailers - has been close to zero. This has led to great discrepancies, policy confusions and inadequacies in every branch of the financial system, including the capital markets. Recognizing the complementarities of the several sub-branches of the entire system, a comprehensive financial education of a national scale is now an unconditional imperative. Only an institutionalized approach can address this need to its due worth.
Of course, there are some unaccomplished, larger issues of capital market reforms. It is high time to interact with the private sector to find convincing and lasting answers to the questions: why the real sector representation in Nepal's capital market has been so insignificant? Are there ways to improve it? How and when? In nutshell, Nepal's financial system is looking for a shift not only to change the paper shares to demat form, but to translate the nation's overall economic thought process from a 'brick and mortar' age to the contemporary digital age.