Dr Gautam Vora, a Professor of Finance at The Robert O Anderson Schools of Management, The University of New Mexico, US, has an active research programme and lately he has been focused on option-valuation techniques, interest-rate modeling, investment strategies and mathematical modeling of financial plans. Dr Vora is also a Visiting Professor with Kathmandu University School of Management (KUSOM), and during his recent visit to Kathmandu, he addressed issues at a talk programme titled ‘Financial Crisis: Will Nepal Join It or Avoid It?’ organised by KUSOM. In an interview with New Business Age, he discusses the likely consequences for Nepal and its people in the event of a financial crisis, among other issues. Excerpts:

I have gathered that only about 35 per cent of the population in Nepal has access to banking services. So, the rest 65 per cent of the population will not be directly affected if, god forbid, a financial crisis was to happen here. But what is really interesting here is: most people under this 65 per cent population are barely maintaining a subsistence level anyway. The commercial sector which depends on the BFIs and the development of different industries, agriculture, construction etc will be severely affected in the event of a financial crisis. Even though we may say that the population at large might not be affected, the large chunk of the economic activity could very well be affected and that is the problem. Therefore, even the poorest of the poor will be affected indirectly. Nepal is in a very strong position because of huge amount of remittance it receives every year which is a very nice safety net. But the question is should we rely only on a safety net. Instead, we must rely on a good machine so that we don’t have to use the safety net. And so, my concern is mainly from that perspective. We are trying very hard for economic development so let’s not derail it by letting one little sector of the economy cause problems for the others. We need to study as to what per cent of the real economy depends on the financial sector. Look at the difference between the interest rates that people get on their deposits in the banks and the inflation rate. There is no incentive to save because the purchasing power is constantly decreasing. So, we do not need to have that sort of control in the economy to help save. Savings are to be used to increase the size of the economy for which we need good investments that can generate more income for the country. Finding good investment opportunities is key to bringing the whole economy together. Therefore, if the BFIs don’t do their job well, then we are bound to face major problems.