The Costs and Benefits of the Financial Consulting Industry in Nepal

With an average economic growth rate of around 5% over the past 25 years, Nepal is one of the fastest growing economies in the world (World Bank, 2019). With this growth, Nepal has seen the emergence and development of a number of skill-based industries. Amongst, these is the financial consulting industry –working with clients to plan for their financial futures by offering information and guidance on a number of financial topics. There are a number of costs and benefits associated with the financial consulting industry in Nepal.

External Benefits

Economic Growth:

Proper financial consultation could help propel economic growth in Nepal by offering businesses a source of advice for making informed decisions about financial management. This could be through connecting businesses with avenues of financing, advice on the proper implementation of financial modelling into business practices or guidance on when and how to invest in potential projects. As more and more businesses turn to financial consultants, returns and efficiency are likely to increase meaning more money is pumped back into the Nepalese economy.

Client Relationships:

In Nepal, the limited number of financial consulting firms which do exist tend to be quite small. From the perspective of the client, this can translate to a better working relationship since the service is more personable. When clients are dealing with the same people throughout the consultation process, they are likely to feel like they are talking to a friend rather than a large corporate entity with a thousand faces. This means that companies are able to create tailored solutions, as they have a deeper understanding of client needs.

Internal Benefits

Low Operating Costs:

According to numbeo.com (2019), Nepal has the third lowest rental index in the world - behind only Pakistan and Afghanistan. For financial consultancy companies located in Nepal, this means the cost of renting and operating an office is likely to be low compared to other parts of the world. Additionally, staff costs and amenities are considerably lower than most other countries. However, it should be noted that operating costs should be considered relative to the income of the company to portray an accurate picture.

External Costs

Size of Companies:

Firms aged 25 years or more in Nepal are only 50% larger than firms aged less than 5 years. In contrast, in the US, firms aged 25 years or more are over 700% larger than firms aged less than 5 years (IFC, 2018). This comparison clearly shows that small firms are prominent in Nepal, including in the financial consulting industry. This may present a problem for financial consultancies in Nepal since larger firms are arguably better equipped to overcome the constraints of the consulting industry. They have more resources available to them, including capital and infrastructure, as well as access to a larger pool of skilled workers due to being able to offer a more lucrative remuneration package.

Corruption and Politics:

According to the US Embassy (2019), there have been 25 governments in Nepal in the past 28 years. Moreover, Nepal’s 2017 Corruption Perception Index (CPI) ranking was 122^nd out of 180 countries (transparency.org). This political instability and corruption increases the difficulty and cost of doing business and not only presents problems for existing financial consultancies but can also dissuade new firms from entering the market.

Internal Costs

Financial Literacy:

A major problem faced by financial consulting firms in Nepal is a lack of availability of financially skilled workers to recruit from. A 2015 study of college students across Nepal (Thapa et al.) and their level of financial literacy found that whilst most students have a very basic understanding of financial knowledge, the majority are lacking in understanding of a number of more complex financial principles. For financial consultancies in Nepal, this means that many staff must be trained thoroughly before they can be expected to maximize productivity – an exercise which costs firms both time and money.

Cultural Challenges:

Due to the aptly named “Nepali time” it may be the case that clients show up late to business meetings or take a long time making decisions. This can slow down business operations and delay work with other clients. Additionally, Nepali staff may find it appropriate to arrive to work an hour or so late; this type of office etiquette can hinder productivity in the workplace. Consultancies should also be aware of the bargaining culture that exists in Nepal. It is common practice for customers to haggle with shop owners – something which may spill over into the business world. Some clients may expect to haggle with quoted prices from financial consultancies which can cost the business or upset clients.

The financial consulting industry in Nepal is one that is likely to continue to grow as Nepal continues to develop. It is important that professionals in the industry understand the costs and benefits and are able to adapt appropriately.