Money Drain for medicine
By Diwakar Chhetri
Nepali manufacturers have to solely depend on foreign countries for the supply of raw materials and packing materials. Thus our manufacturers are bound to be affected by the price demanded by suppliers.
Among different industrial sectors, pharmaceutical industry plays a crucial role for the uplift of our national economy. But how far this sector has been taken care of by the government is a matter of great debate. The total consumption of medicines in our country is worth more than Rs. 8,000 million per annum but the share of Nepali production is hardly 38 percent in it (i.e. Rs. 3,000 million). Thus, more than Rs. 5,000 million is draining out every year, which is a great economic loss to the country.
If we analyse the root cause of the problem, we will find that both government as well as pharmaceutical industries have been responsible for this.
Role of Industries:
There are more than 45 pharma units in Nepal producing medicines and most of them are engaged in the rat race of conventional marketing. Even if one rat stands first in such a race, it will still be called a rat. Most of us tend to manufacture those molecules only which are already manufactured and marketed by other units. We envy national brand leaders and we always want to be in a comfortable zone by aping the brand leaders in products and marketing. Have we ever realised that so far as the general products, inclusive of antibiotics, are concerned, Nepali manufacturers are better in quality, still 62 percent of the market is enjoyed by the Indian companies? What could be the reasons? Barring a few, most of Nepali pharma companies hardly dare to come out with newer molecules to compete with Indian companies. May be these companies do not want to take the risk, or they do not have confidence on their own products, or going to doctors’ chamber seems very long process for early profits, or joining the wagon of super hit national brands is very safe game or they do not have efficient manpower for doing their own research. Such reasons could be many. But because of such attitude Indian companies are enjoying a lion’s share of our market. Hence before manufacturing any molecule, it becomes necessary to have a complete survey of those Indian products, which are occupying lion’s share of the market in Nepal . But in order to cope with the situation, the pharmaceutical industries must be updated and should be professionally competent enough. Our pharma companies have found it very profitable to float ‘deal’ and bonus’ scheme rather than preparing a scientific literature and going to doctors’ chamber. One must be sure that such an easy path will not carry us to dignified long lasting success and neither allow us to wipe out the drug import burden. It is really high time to change our attitude and prevailing thoughts to make respectable place in the heart of customers and to knock out Indian products from the Nepali market.
Injectable products are imported in huge quantity in Nepal . Of late, National Healthcare Lab has started a noble initiative of manufacturing general injectable products. This small step has helped to reduce money drainage to some extent. Still most of the companies are not able to touch a range of antibiotics, as investment on manufacturing injectable antibiotic can’t be recovered from national market only. Now the time has come to have joint efforts to set up a sophisticated injectable factory for the manufacture of antibiotics so as to block the huge drainage of money spilling out of the country.
Even today, there is a visible difference in marketing approach between Indian and Nepali industries at customer level. Every pharma industry should be a real professional to fight back the Indian industries. Many of our doctors are very much reluctant to prescribe Nepali brands even today. Whatever prescriptions are coming with Nepali drugs are due only to the soft corner the doctors have towards Nepali brands. It has also been observed in the market that many of our patients prefer to buy Indian medicine rather than Nepali brands. This means, Nepali companies are yet to develop a kind of enduring faith in the heart of doctors and patients. This is one of the key reasons for the consumption of Indian brands in our land, which obviously leads to money drain.
Government’s Role:
Department of Drug Administration (DDA) has already been working on the different areas and it has recently issued ‘Guidelines on Ethical Promotion of Medicine, 2007’. This guideline has tried to offer a glimpse into the existing drug scenario and has tried to rectify the blunders committed by many of our domestic units. Now DDA must play a role of a catalyst for making the market more sacred and prosperous. If we observe minutely, we will find that the DDA has started giving much wider scope to Nepali pharma companies by discouraging the entry of foreign products by imposing certain rules and regulations. For example, it requires fixing labels on the package in Nepali language. Though whether this is practical for every Indian company is still debatable, it certainly helps the Nepali companies. Comparatively the tax system has also come to the favor of Nepali industrialists in certain segments. But the overall policy is yet to be in favor of Nepali industries. Nepal is quite self-sufficient in the field of gastro intestinal products, vitamins & minerals, antibiotics and NSAID (all in oral form). Hence, government should discourage the entry of such common molecules from abroad. Unfortunately, many government institutions still prefer to buy general products from the Indian companies. So, strict rules of buying only national brands by all the government institutions should be formulated and implemented.
Any industry has to manufacture not less than hundred thousands tablets in a batch. But due to the small size of the market, most of the life-saving medicines produced expire in due course of time causing a loss to the manufacturers. Hence, the government should give subsidies to Nepali industries for manufacturing such type of life saving molecules. Looking into the input-output ratio, it will not be that feasible for Nepali private companies to set up sophisticated plants for life-saving drugs and other essential antibiotic injectables. Hence, the government, with the coordination of other Nepali pharmaceutical companies, should come up with technically superior antibiotic injectable plants.
Nepali manufacturers have to solely depend on foreign countries for the supply of raw materials and packing materials. Thus our manufacturers are bound to be affected by the price demanded by suppliers. These circumstances do not allow any domestic manufacturer to become competitive in price. Due to the small market, Nepali manufacturers have to import raw material in a very limited quantity, so the cost will definitely be high as compared to Indian companies. These cost differences are major hindrances to Nepali pharmaceutical industries for making price–competitive products.
Till date no such steps have been taken by our government to export locally manufactured medicines to neighboring countries. A noble effort initiated by one of our manufacturers was in vain, as all the exported products were returned for their expired dates, due to totally impractical laws of the importing country. The government became no more than a dumb spectator. Let’s not continue this greedy tendency of getting only milk, without feeding the cow. The government should take the initiative to facilitate the access of Nepali companies in the markets of India , Bhutan , Myanmar and other Southeast Asian countries. Unless and until the foreign market is accessible, manufacturing life-saving medicines will not be viable in Nepal at all. And if the life-saving medicines are not manufactured domestically, Nepal always has to bear the pain of the money drain and has to become a puppet in the hands of foreign industries.
(Chhetri is the General Manager of Asian Pharmaceuticals. But the opinions expressed in this article are his personal and do not necessarily represent those of the organisation he belongs to)
New Banks New Visions
For a layman, it wouldn’t be surprising if he feels that banking sector is at the saturation point in terms of the number of players. At every nook and cranny of the city (particularly in the capital) one can find dozens of banks represented either by a branch, extension counter or ATM. Added to the crowd only during the October are three more commercial banks, namely Bank of Asia, Sunrise Bank and Prime Bank while People’s Bank is preparing to start in the near future. One may ponder what made them get into this already saturated sector and what new services and facilities are they planning to bring into the market.
When this question was asked to the senior managers of the new banks, they all rejected the logic that the banking sector has reached saturation point. According to them, the country needs plenty of new investments in all the sectors from infrastructure to industry and agriculture and tourism and a lot of people are still not able to get the banking services as a result of which a lot of potential savings is not coming to the banking sector. Moreover, the investment decisions of different banks are based on different risk appetite of respective bank so that one bank may feel a proposal worth investing one while another may find it unacceptable. Hence having multiple banks increases the probability for the loan seeker of getting the loan approved.
The senior officials of the new banks explain their strategies in their won words:
Sunrise Bank: Door-to-door banking
Kishore Maharjan, CEO of Sunrise Bank, says: “At present Nepal is at the lowest point of economic growth but banking industry is witnessing a lucrative growth and banks are making good profit. Nepali banking industry is not yet overcrowded. It seems to be overcrowded in terms of the number of banking companies but they have few branches. Actually the situation can be described as ‘many banks with few outlets’.
“In our bank’s portfolio, the share of SME loan will be somewhere around 30 percent, which if materialised will prove to be a revolution in this industry. If the wealth is to trickle down to the poorest strata of the society, we must go for mass lending, which means serving 60 to 70 percent people who are lacking finance to fund their projects of the size range of Rs 1.5 to Rs 2 million. If SME businesses come up in 100’s of pockets of the country they will automatically boost our economy.
“However, the possibility of our bank specialising only in a particular field is not there as such specialisation is not feasible due to small size of the Nepali economy.
“Besides that our bank is willing to involve in personalised banking. We would be providing services going closer to customer’s door step. For example we are going to depositors’ doors and to the borrowers’ doors too as far as possible.”
Prime Commercial Bank: Targeting big as well as small
Sanjeev Manandhar, General Manager of Prime Commercial Bank, says, “We aim to finance the large projects and manufacturing firm required for the substantial development of the country. Initially, we will be investing on hydro projects, cement factories and spinning mills.”
“Moreover we will be specialising on small and medium sized businesses which have been overlooked by the present players in the market. The present banks are only looking after the secure areas rather then investing on those sectors which could boost the country’s industrial and economic development.
“However, we would not be ignoring retail banking. Rather we would be specialising on it as other banks are doing currently.”
Bank of Asia : Man & Machine focus
Deepak Rajbhandary, General Manager of Bank of Asia, says, “At the very outset, Bank of Asia is ensuring a robust operations and IT based system. It is providing related trainings to ensure enhanced service capability and quality services to the customers.
“To make marketing more meaningful, we are developing a very professional team. We are also developing a market research cell for exploring new markets. Similarly, we are busy in process and product development. We intend to maximize our IT system and the support systems, being built around it in-house.
“Besides regular banking services, the bank will be reaching out to build a sound and sustainable business based on the outcome of our research, and within the vision set by the bank towards catering the needs of the overall economy, both in urban and selected rural areas.”
People’s Bank: Multinational vision
Guru Prasad Neupane, a promoter shareholder of People’s Bank that is readying to start operation, says, “Our bank will be different. Unlike other banks who only talk of offering personalised services, our bank will actually live up to being a people’s bank with people getting priority over profit. Our bank will not discriminate among the consumers unlike the general trend where banks provide personalised services to the rich while the lower segments are neglected.
“The trend among the existing banks is that they generally extend loans to only reputed business persons while the projects of new entrepreneurs who have no business backgrounds are rejected. Moreover, loans are dispersed without considering the impact it will have over the economy and society. On top of that, the existing banks seldom indulge in monitoring the project to make it successful. Our bank will capitalize on these drawbacks of the existing operators. We will first identify the feasible areas where investment is required then we will develop the project proposals as well as the entrepreneurial capability of the individual. After that, we will be monitoring the entire project cycle to make it actually successful. So, in a way, our bank will be extending loans even to the poorest of the farmers who come up with brilliant idea but lack entrepreneurial capability.
“Our bank’s vision aligns with nation building. We, as a responsible bank, believe that the development of the country lies with people who have zeal of doing something but lack financial resources. Our goal is to reach every nook and corner of the country by opening up branches, promote entrepreneurial climate there and yet remain profitable. On the long run, we want to take our bank at the multinational level. We want to see our branch opening up also in Singapore .”
(Bibek Subedi & Manish Bikram Shah)
VIBOR Bank Setting Examples in
Customer ServiceFocus
Vibor Bikas Bank Ltd. (Vibor) that commenced operation on October 4, has introduced two new concepts in customer service in the banking industry. For the first time in Nepal it has introduced the Automated Teller Cash Dispensing System which is a much improvement in the existing ATM services of the other banks. Second, it has changed the ambience in the customer service area by reducing the height of the counters to the normal table level so that the customers can sit down on chair and transact.
This second innovation is aimed at enhancing the customers’ confidence and truly making the customer feel that the bank is at their service and not the other way, say the bank’s officials. .
The new hi-tech machines installed by Vibor are expected to boost productivity in several ways. First, they eliminate the time tellers spend counting and recounting cash and allowing the tellers to serve up to twice as many customers per hour, with increased accuracy and reliability. Second, they increase customer confidence since cash is now counted mechanically. Third, they strengthen security by reducing internal fraud opportunities and maintaining security of funds in the event of robbery. Fourth, they contain costs, because increased transaction speed is achieved without hiring additional staff. Finally, they reduce teller cash set up at start of the day as well as the time needed to balance the cash at the end of the day.
Vibor is a national level class B financial institution promoted 135 people coming from diverse backgrounds, whom the bank officials describe as non-interfering, trusting and open minded. The company is headed by Ajay Ghimire who earlier was the CEO of Ace Finance (which is now Ace Development Bank). Among the directors of the board are Bijay Rajbhandary (MD of CE Construction), Mohan Das Manandhar (Execuive Director of Ace Institute of Management), Shankar Ghimire (Executive Director of Asian Pharmaceuticals), Sharad Sharma (Chairman/Executive Director of HISI Polythene and Plastic Industries) and Aditya Kumar Khanal (Chairman of Nobel Institute).
Collectively, the promoters hold 61 percent of the total capital of Rs. 340 million. However, no individual promoter holds more than 3 percent while the average shareholding is 0.45 percent and the standard deviation 0.46. Vibor plans to sell the remaining 39 percent stake to the general public within one year.
MONEY LAUNDERING A GLOBAL ISSUE
By Harendra J. Thapa 
Money laundering (changing black money into white) has been a major issue of the financial systems across the globe. Studies show that the flow of the money laundered globally per annum stands to whopping sum of over USD 1 Trillion. It was after the 9/11 terrorist attack in the USA that the global community felt the severity of its impact. It is evident that the issue does look menacing and the financial fraternity globally needs to bolster uniform regulatory policies to jointly counter this menace.
Money laundering is the process by which the money earned through illegal means/activities are converted into financial assets which appear to have legitimate origin. The illegal activities could be tax evasion, burglary, extortion, smuggling, corruption and so forth. Money laundering also refers to the funds meant to aid the terrorists activities like the 9/11 Twin Tower Case.
The money laundering process advertently misuses the services of the bank and financial institutes to meet the purpose of the launderers, who thus use the bank and financial institutions as the refineries to cleanse their illegal proceeds. The money laundering is a complex process which comprises of major three stages as mentioned hereunder:
Placement
It is the first stage whereby the launderers deposit the proceeds of illegal activities through multiple transactions in a single account. It may also happen that the launderer opens many accounts for the proceeds to be deposited and the deposits in totality make a substantially huge amount. This method is called smurfing.
Layering
It is the stage whereby the launderers make series of complex transfers .One transfer makes a layer on top of the other and so on to confuse the origin of the transactions. The transfers are made in small value so that they happen to be much below the threshold limit and thus escape the scrutiny of “audit trial report” and “suspicious transaction report”.
Integration
This is the final stage of money laundering whereby the laundered money finally merges with the legitimate economic and financial system. The money thus is used in buying assets, real estate, stock securities etc. The shell companies (just a shell where no real business occurs) are also used at this stage.
Money laundering can have diverse effects in the financial system. It can create unpredictable changes in money demand, expose sound financial system and institutions to high reputational and operational risk and tend to contaminate legitimate financial transactions. It may create volatility in the international capital flow and impact exchange rate due to unanticipated transfers taking place across the border.
The issue of money laundering did not sprout overnight. Many incidents of money laundering have taken place in the past. For an example, the case of money laundering in connection to the Watergate Scandal is prominent. During this scandal, significant sum of money was sent to Mexico by then US President’s “Committee to re-elect the President” in the form of proceeds for campaign contributions. The money was later brought back to the USA through a company in Miami . Yet another example of laundering is the huge deposit made in Riggs Bank of the USA by former Chilean dictator Augusto J R Pinochet which turned out to be the proceeds of illegal activities like tax evasion and embezzlement.
The financial institutions may fall an easy prey to the misuse of their services by the money launderers. Thus to bring about the counter measures to tackle money laundering globally, FATF (Financial Action Task Force) was established in 1989 during G-7 Summit in Paris. The main objectives of this were to trace out the money laundering techniques, to devise and introduce counter measures and to have uniform anti–money laundering policies set up globally. FATF so far has come up with 49 recommendations/principles of anti-money laundering and combating the financing of terrorism (AML/CFT). It has 34 members worldwide working and coordinating closely to monitor and implement the principles. As a tool of anti–money laundering, USA Patriot Act of 2001 has specified that financial institutions should take specific actions for KYC (Know Your Customer) which would enable all the financial entities to have good knowledge of their customers and the types of transactions they would be associated with. With such KYC system in place, a financial institution would be able to identify any kind of unusual or suspicious transaction and so be able to curb the money laundering. Basel Principles too have highly emphasized on KYC requirement as being one of the key areas to curb money laundering. In the context of Nepal, circular dated 25 Chaitra, 2062 issued by Nepal Rastra Bank has urged banks to implement KYC.
