Himalaya Shumsher Rana, Nepal's first Finance Secretary, is best known as the country's first Governor of the Nepal Rastra Bank. After the political change of 1950, Rana became the Finance Secretary and held the position of central bank governor from April 26, 1956 to February 7, 1961. Rana, who worked in various countries under the United Nations from 1962 to 1986, opened Gorkha Brewery in 1987. In 1993, Rana established Himalayan Bank Ltd in a joint venture with Pakistan's Habib Bank Limited and became its chairman. Rana, who has also served as chairman of the Nirdhan Utthan Laghubitta Bittiya Sanstha Ltd and Himalayan General Insurance, is currently the Chief Advisor to the Board of Directors at the Himalayan Bank. Rana was recently honoured with the ‘Lifetime Achievement in Business Leadership Award-2022’ at the 7th NewBiz Business Conclave and Awards. In an interview with New Business Age, Rana spoke about a range of issues related to the country’s economy. Here are some excerpts:
How are you passing your time these days?
I will be turning 96 this January. It has been a long time since I retired, but I have remained active. During my career, I served with the Nepal government and worked for the United Nations in various capacities. Currently, I am busy writing books.
What kinds of books?
I am currently working on two books. One is a memoir in Nepali. Another one is the ‘Chronicle of the Ranas’ which describes the political conditions of the Rana regime and the architecture of the Durbars from Junga Bahadur Rana to Mohan Shumsher. The book also covers the history, administration, diplomacy, culture, and literature of the Rana period. The writing for both books is finished, but I still have some additional work to do before they can go to print.
You have worked a lot to develop Nepal’s financial and business sectors. You still look energetic. How do you see life in the flashback?
I feel fortunate to have had the opportunity to establish the Ministry of Finance in Nepal. The changes in 1950 marked the beginning of revolutionary changes in all sectors, and at that time, the Ministry of Finance did not yet exist. It was established at the directive of the then Finance Minister Subarna Shumsher Rana. However, his tenure did not last long. After Matrika Prasad Koirala became Prime Minister, I was appointed as the Finance Secretary. I still receive appreciation for the work I did as Finance Secretary and Governor of Nepal Rastra Bank which makes me feel that I did good work during that time.
How do you evaluate your personal life?
Looking back, I have been fortunate to not experience any crises in my personal life. However, my dismissal from the post of Governor was a crisis for me. I had just gotten married a few years before that. I had put a lot of hard work into establishing the Nepal Rastra Bank, but King Mahendra removed me, stating that I was a worker of the Nepali Congress party. I had a five-year tenure at the central bank, but I was fired within 4 years and 8 months. This was not surprising, as many others were also fired from their jobs at the time. The only people who were not fired were loyalists of King Mahendra and Biswobandhu Thapa.
Before I became the Governor, I lived in a joint family. However, after my appointment, I separated from my family and moved into a different living arrangement. At the time, I had two young children and was concerned about how to support them financially after losing my job as Governor. As a result, I applied for a job with the United Nations and was able to work there. Now, my children are grown-ups and working themselves, so I don't have to worry about them anymore.
How do you recall major accomplishments that you made?
When I started the Finance Ministry, the government's income and expenses were kept secret. At that time, the country had a feudal economic system. As a finance secretary, I began making the government's income and expenses public. There was a great need for development, but the country had no money for development activities. The only source of income was the land revenue office which collected taxes.
I worked hard to improve the management of customs offices and increase their ability to collect tax. The custom offices were not well-managed at the time, so I dedicated myself to modernising and improving their management. By hiring competent personnel, we were able to increase revenue. I also initiated the establishment of the excise and income departments. My goal was to make the government's income and expenditure fair and transparent, and people still say that I worked towards that goal.
We fixed the exchange rate between the Nepali and Indian currencies which was a difficult task at the time because Indian banknotes were commonly used in Nepal. It made Nepal's economy unified and safe. Without it, Nepal's economy could have faced a serious crisis.
Do you have anything that you wanted to do but could not do for one reason or the other?
I don't think I could have done much more in the banking and financial sectors. However, I believe I could have done more in the insurance sector, as Nepal's insurance companies at the time were simply copying the policies of Indian insurance companies. I also wanted to open a reinsurance company, but the unstable government policy at the time prevented me from entering the reinsurance field. However, reinsurance companies have since been established in Nepal.
Did you not think of establishing a stock exchange in Nepal?
I did not pay attention to this. The time was quite different then.
Do you think commercial banks and insurance companies are working as expected?
Many commercial banks have come into existence. This has helped the import and export trade, as well as the buying and selling of land. They have also contributed to the expansion of industries and the creation of jobs in the country. For example, the Himalayan Bank that I established employs around 1,500-1,600 people and provides them with good facilities and salary.
However, the banks are currently facing difficulties. Deposits are decreasing while demand for credit is high, and there are complaints about interest rate hikes. Until two years ago, banks were making profits and shareholders were receiving good returns. But now, they are struggling. On the other hand, the insurance industry and businesses have grown. However, I feel that Nepal has more insurance companies than it needs. They may face a crisis at any time, even though they are making profits now.
There is a dispute regarding increased bank interest rates. Some argue that since banks made a good profit in the past, they have to compromise during the ongoing crisis and support businesses and industries. How do you take this?
During a crisis, it is important for the government to adopt the right policy and take appropriate measures to steer the country's economy in the right direction. The government must be conservative in order to keep the economy under control.
Britain is facing this problem right now, and so is the rest of the world. In order to address the possibility of an economic crisis, it is necessary for bank interest rates to be raised, even though this will likely cause trouble. There is no other way around it.
At present, all kinds of industries and businesses, big and small, are struggling due to the high bank interest rates. To keep the economy balanced, the government should have adopted a concrete national policy on import and export and supported the opening of new industries. The Nepal Rastra Bank may even have to print new notes to inject fresh cash into the banks which could then be lent to industries to boost economic activity and growth in the country. Unfortunately, no one has dared to take these steps.
Don’t you think the printing of excessive notes will deteriorate inflation in the country?
Yes. It will contribute to inflation. But, the government would need to implement a special policy to control potential inflation. This requires a clear policy.
Do you mean to say that Nepal Rastra Bank failed to play an effective role to tackle the current crisis?
The Nepal Rastra Bank, like other central banks around the world, has been functioning according to its mandate and adopting policies to tighten the economic system through various measures. However, in the current situation, instead of working to loosen the economy, the central bank has been tightening the financial system. As a result, inflation is increasing rapidly, and the source of new income has not increased. The common people are bearing the brunt of this inflation.
Some people say that for an import-based economy like Nepal, a tight economic policy is necessary. What is your take on this?
This is correct. If the central bank does not regulate imports, it could create problems.
Nepal has many industries that are reliant on imported raw materials. Don’t you think tight economic policies will put such industries in trouble?
Import of raw materials should not be stopped. It is important to facilitate the import of raw materials, but Nepal should not import goods that it can produce domestically, such as eggs, bananas, and milk. The government should increase taxes on the import of these goods and formulate a national policy on import and export. Simply banning the import of certain goods for six months is not enough to address the issue.
Our government employees are educated and competent, but they are not able to implement the policies they believe are right because they have to follow the policies set by their superiors at the central level. This is why the economy has not been able to pick up the expected pace.
General elections were held on November 20. Many youths have been elected to the parliament. How do you see the current political landscape?
The results of the November 20 elections show that people are angry and frustrated, and this anger is directed at the ruling parties. Some people with new mindsets and energy have been elected in recent polls. I hope these newly-elected youths will introduce new policies.
However, there is a trend both in Nepal and elsewhere that some new faces get elected and reach government positions, but then disappear after a short time if they are unable to fulfil the expectations and needs of the people.
Do you think people’s representatives elected from new political parties will bring policy as per people’s needs and expectations?
The people are unhappy with the way the old parties operate, and as a result, they have elected new candidates from new parties. The election results show that there will be a significant number of young people in the new government. After they take power, something new will definitely happen.
Do you think that country has moved ahead on the path of change?
Certainly. Society cannot remain in the status quo and is always seeking change, which will not stop.
What suggestions do you like to give to the new generation?
The new generation should follow through on their words and actions. All young people should unite and work to create jobs within the country by establishing industries and factories. Many youths are leaving their families and children behind to work abroad. It is important for the newly-elected representatives to create job opportunities within the country so that the youth can stay and work here instead of wasting their energy in unfamiliar lands. They need to create an environment that enables people to work and thrive within the country.
Villages in the hilly region are losing their youth as they migrate abroad in search of work. This trend must be stopped. Nepalis should be able to work in Nepal. Both the private sector and the government must work together to create job opportunities within the country.
Many are saying that the country has more banks than it needs. What do you say?
Nepal has more banks than it needs, but there is no ideal number either. While formulating the merger policy, the Nepal Rastra Bank should have considered this fact. According to this policy, a few banks are merging. But, this is not happening as expected
What is your take on development banks and finance companies?
A minimum paid-up capital has been set for commercial banks. Bankers came up with the concept of development banks when they were unable to raise the necessary capital to establish new commercial banks. However, despite their name, development banks have not invested in the development sector. They are functioning as mini-commercial banks. There is not much difference between the operations of commercial banks and development banks.
How do you assess the role of finance companies and microfinance companies?
I do not see any role of finance companies. On the other hand, microfinance companies are very important. However, the number of microfinance companies already exceeds the need. The Nepal Rastra Bank should have carefully considered this before granting licences.
Five types of financial institutions are active in Nepal. Which of them are necessary for Nepal?
Commercial banks are necessary, and Nepal also needs development banks. However, for development banks to be effective in Nepal, they must be operated with the purpose of investing in development and have a paid-up capital that is double that of commercial banks.
We need cooperatives as well. They can be useful in providing loans to locals who have no source of income. But, there has been a trend of opening cooperatives with members of a single family or a group of relatives. These cooperatives tend to invest in the projects of the promoters which goes against the cooperative philosophy. I do not see the relevance of finance companies in Nepal.
Do you think that microfinance companies in Nepal have polluted the Bangladeshi model?
Nepal needs microfinance companies. Initially, people from the Marwadi community were attracted to setting up such companies because they could earn high interest rates. A trend began after microfinance companies started offering 18% interest on deposits.
Nepali microfinance companies should have followed the Bangladeshi model, but it did not happen. I was also a shareholder of Nirdhan Utthan Laghu Bittiya Bittiya Sanstha at one point. Microfinance companies should provide loans to people with low income sources, but this is not happening. Instead, more than four or even five microfinance companies are lending to the same borrower, while the poor are left without access to credit. I have also heard that borrowers from microfinance companies are committing suicide for failing to pay their debt these days.
Agriculture Development Bank Ltd was established to develop and promote agriculture in Nepal. However, the bank is also functioning as a commercial bank. Isn’t it paradoxical?
The government should have thought about it seriously. The bank is functioning like a commercial bank, which is not appropriate in the financial sector.
An infrastructure development bank has also been established in the country. How do you see it?
It is still in its early stages, so it remains to be seen what it will do. We will have to wait and see how much money it can collect and where it will invest and what impact it will have on infrastructure development in the country.
Do you like to add anything else?
Inflation is increasing and corruption is escalating. The rich are getting richer while the poor are getting poorer. We need to reverse this trend and create an equitable environment. I have long advocated for the introduction of inheritance tax. There is a trend of becoming corrupt in order to live a luxurious life after retirement, and there is a race to make large amounts of money through illegal means. Inheritance tax can act as a deterrent to some extent. The government should impose a tax on the property inherited by a son from his father.