An Introduction

First and most importantly, being directly or indirectly affiliated with the financial industry, whether being a customer or service provider, we must, in first hand, understand the gravity and significance of the concept ‘Corporate Governance.’ What is corporate governance? Corporate governance is a set of principles, guidelines or a standard rules and regulations that organizations are implied to be bounded within. Any organizations crossing the set boundary are deemed to be not prudently guided by the principle of corporate governance. In fact, organizations or companies satisfying ethical, moral and business norms are supposed to be exercising good corporate governance practices.

Basically, if we scrutinize the history of corporate governance in Nepalese financial industry, be it in Banking and Financial Institutions (BFIs) or any other institutions from within financial industry, full-fledged understanding and implementation of this core management principle is rarely found to have been practiced. If we generalize entire Nepalese financial industry and assess it as a bloc, the true implementation of CG practices in financial enterprises would be just a decade old.

In general, there are numerous components under the umbrella of the concept CG. But, internal control and risk management are such fragments of CG, which are taken as strongly influencing and controlling factors concerning financial health and performance of enterprises.

Internal Control and Risk Management

Internal control refers to a mechanism guiding and controlling organization’s overall operations. Organizational by-laws, rules, regulations and other operational parameters come under the internal control mechanism. Simply understanding, it confirms that every organizational procedures and resources are being executed within the set organizational boundary, obviously, without violating any pre determined set of control mechanism. Similar to internal control system, risk management also serves to mitigate organizational risks via pre-defined risk management guidelines and framework.

Looking Ahead

Despite, the overall portrait of CG practices seems to be in improving trend, regular updating of governing policies/rules, strict monitoring of organizational activities, focusing and promoting the concept of transparency and prudency in business conduct are sustainably needed to maintain the current pace. For this, joint effort of regulators, organizations and all the related stakeholders are indispensable. Most importantly, creating awareness on CG mechanisms, practices and its consequences to organization, stakeholders and nation as a whole is mandatory. 

Most importantly, what is required to promote good CG practices in financial industry is a sense of responsibility and understanding in the stakeholders of the financial industry concerning the interests and rights of parties involved in financial transactions, no matter whatever be the magnitude. Until and unless these components of financial industry truly comprehend or are made to comprehend the meanings and gravity of concepts like accountability, responsibility, liability etc., it is indeed, extremely complex to streamline the Nepalese financial industry maintaining good CG practices protecting involved stakeholders.