The credit system in Nepal contributes to poverty and poor performing economy. Almost everyone uses credit. Apart from food, when items are purchased, no-one can pay in full, they put down a deposit, usually a fraction of the price. The retailer accepts this but has to pay his suppliers also on a credit basis. If the retailer cannot pay his suppliers on time, the suppliers charge interest, and otherwise raise the costs of doing business. This means the retailer has to increase the price of his goods, sometimes doubling the price. That means the goods are higher priced for the next customer, who will also have to use credit to buy these more expensive goods. The poor retailer is caught in the middle. He cannot charge interest to his customers, and trying to get the money owing to him is very difficult indeed. He often has to go in person and confront his debtors, either early in the morning or late at night. This is stressful and potentially dangerous. It’s not surprising that the retailer cannot make a profit but is doing well just to break even.
The credit system is abused by the banks who charge extortionate interest and collect the money in weekly installments through agents because there is no choice or alternative for the customer. Both the customer and the retailer are caught in the credit trap.
Prices are already high because of import duties but the credit system ensures that goods are permanently more expensive in Nepal than most other countries.
The whole system is corrupt, uncontrolled, and contributes massively to the economic depression that is perpetual in Nepal.
What is the solution to this problem? It’s a global phenomenon, not just confined to Nepal, but it’s effects are shown more acutely in Nepal because of its generally low GDP per capita. Solutions are controls on banks’ credit lending, regulatory oversight, proper enforcement of penalties, retail refusal of credit terms, ?? Is this feasible, realistic, or practical? Is this just wishful thinking? I don’t think there is a solution to the problem at present…