Financial Inclusion Empowers Citizens

The recent announcement of the 2024 Nobel Prize in Economic Sciences being awarded to Daron Acemoglu, Simon Johnson, and James A. Robinson has stirred significant interest globally, particularly in nations grappling with the complexities of economic development. Their pioneering research into the formation and impact of institutions on economic prosperity offers profound insights, especially for countries like Nepal. Here, we will explore the implications of their studies for the Nepali economy and how these lessons can be practically applied to foster growth and stability.

The Nobel laureates emphasise that institutions — both formal systems such as governments and informal norms guiding behaviour are key to economic success. Their research identifies two categories: inclusive institutions, which enable broad participation and encourage prosperity, and extractive institutions, which channel resources to a small elite, stifling growth and perpetuating inequality. Nepal’s political instability and governance issues have weakened its institutions. Poor transparency, limited inclusivity, and inadequate accountability have hindered economic potential. These challenges align with the laureates' findings, which underscore the need for countries like Nepal to build inclusive institutions to unlock sustainable development.

Inclusive Institutions 

Inclusive institutions ensure that economic opportunities are accessible to everyone, spreading the benefits of growth. For Nepal to cultivate such institutions, it must adopt policies that tackle inequality and promote equal access to resources. Two critical areas needing immediate attention are education and healthcare. Education empowers individuals and equips them with the skills necessary for competing in the global economy. Investment in healthcare ensures a healthy workforce vital for productivity. Both sectors are essential for fostering inclusive growth.

Financial inclusion is another key factor. Policies that expand access to banking, credit, and insurance services can empower citizens and stimulate economic activity. Financial inclusion, particularly at the grassroots level, encourages entrepreneurship and reduces poverty by allowing individuals and businesses to fully engage in the economy. Acemoglu, Johnson, and Robinson’s research shows that historical events and legacies significantly shape modern institutions. Nepal’s institutional framework has evolved under the influence of its monarchy, political transitions, and socio-cultural diversity. Understanding these historical influences is essential for designing effective reforms.

Although Nepal was never colonised, many of its rulers have exhibited behaviour akin to extractive colonial regimes. Power has often been concentrated within few elites, from the Rana autocracy to the monarchies, and even within contemporary democratic governments. These patterns have contributed to poverty and inequality, as resources are controlled by a small segment of the population. Acknowledging these institutional flaws can guide efforts towards reform and economic inclusion. The Nobel laureates' research also highlights the connection between political stability and economic performance. Political stability builds investor confidence, encourages long-term planning, and minimises economic risks, all of which are crucial for sustainable growth.

Nepal has experienced frequent political upheaval, with unstable governments undermining development and discouraging foreign investment. This instability has created uncertainty, reducing the likelihood of long-term economic initiatives taking root. To achieve sustained development, Nepal must prioritise building stable political institutions and ensure smooth transitions of power. Prime Minister KP Sharma Oli’s vision of “Happy Nepali, Prosperous Nepal” reflects the importance of stability in driving economic progress. Strengthening mechanisms for transparency, accountability, and public participation will further ensure that political stability translates into economic prosperity.

The research by Acemoglu, Johnson, and Robinson offers practical insights for Nepal’s economic development. Comprehensive institutional reform should be at the forefront, focusing on inclusivity, accountability, and good governance. Nepal must strengthen its legal frameworks, reduce corruption, and improve the efficiency of public institutions to achieve these goals. Investing in education is critical. Providing access to quality education and vocational training will equip citizens with the skills required to participate in the economy effectively. Likewise, fostering entrepreneurship and innovation will create new growth opportunities, encouraging job creation and economic diversification.

Expanding financial inclusion is essential for empowering citizens and promoting economic participation. Financial literacy programmes and policies that facilitate access to banking, credit, and insurance will enable more individuals and businesses to engage actively in the economy. These efforts will help reduce poverty and promote a more equitable distribution of resources. Civil society organisations play a crucial role in advocating for reform, holding authorities accountable, and supporting marginalised groups. Strengthening these organisations will enhance their capacity to contribute meaningfully to institutional development.

International partnerships also offer valuable support for Nepal's reform efforts. Collaborating with development agencies, global institutions, and academic organisations provides access to technical expertise, funding, and best practices. These partnerships can accelerate Nepal’s progress towards building effective and inclusive institutions.

Roadmap

The 2024 Nobel Prize in Economic Sciences brings to light the vital role of institutions in driving economic prosperity. For Nepal, the research by Acemoglu, Johnson, and Robinson offers valuable insights into building inclusive institutions, recognising historical challenges, and fostering political stability. Institutional reform is not a simple task, but the lessons from the Nobel-winning research provide Nepal with a clear roadmap for sustainable development. By focusing on inclusivity, improving governance, and ensuring transparency, Nepal can unlock its full economic potential and create a brighter future for all citizens.

Prime Minister Oli’s vision of “Happy Nepali, Prosperous Nepal” encapsulates the spirit of this transformative journey. Aligning Nepal’s efforts with this vision will foster political stability and economic growth, creating opportunities for every citizen to thrive. Now is the time for Nepal to embrace these insights and embark on the path towards a prosperous and inclusive future.

(Prof. Bhusal is a faculty member of humanities and social sciences, TU)