1.

Introduction
1.1 Background
Nepal is an under developed country facing various problems of poverty, illiteracy, unemployment and so on. All these are not only the result of temporary misfortune and absolute method of productions and social organization; but also include the low level of technology, skill and instable politics and social structure. In such a situation, bank plays a vital role in the development of economy and enlistment of the society. Banks are recognized as important financial institution that helps in the economic development of the country. Gone are the days when a person had to rely upon his or her own property for operating a business or for other projects. Things are changing these days, there are the banks and financial institutions for those who have a sound purpose and a viable project. In fact the banks have a great role in lifting up the face of the economy. The major processes of production and consumption are significantly affected by the aggregate money supply consisting of the currency, demand and time deposits with the banks. Any change in the flow of aggregate money exerts considerable impact on size and consumption of real economic variables like consumption, production, saving, investment, employment etc. in the economy. Today, banks are not only the purveyors of money but also the creators or manufacturers of money in the system. Banking has been defined as accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft order or

otherwise.(M.C. Vaish, 1996: 244) So a bank must perform two vital functions they are accepting of deposits from the people and investing the sum in proper areas.

Commercial banks are intensively involved in lending activities in these days. As we can observe that there are 28 commercial banks which are concentrated in the urban areas and they are less operational in the country side in which the banks and the banking services are in real need. Not only this, the commercial banks are ready to pay fines but are not willing to allocate their funds in the priority sectors as per the NRB regulations. And the banks really search for the short term investments which are safe and yield a handsome return.

In the past it was believed that commercial banks should provide only short term commercial loans i.e. the tenure of the loan should be less than one year and should be given to the traders and merchants to finance the transportation cost and for holding the trade inventories. Along with the development of industries, there are numerous improvements and extensions in banking practices also. So lending activities of commercial banks also include short term lending to producers for the financing of inventories, other expenses and also the working capital. Today, commercial banks are the largest providers of funds to commerce, industry, agriculture in the economy. Apart from providing the fund to aforesaid areas, commercial banks even lend to the consumers for variety of purposes like education, home, vehicle, etc.

Nepal is not an exception to this. The changes in the global economic scenario have direct and/or indirect impacts on the Nepalese land. Putting in specific terms banking sector has always been in tough competitive environment. In the latter period, like other sectors financial institutions also went through several rises and falls. Another thing is that due to attractive offerings of the commercial banks, consumers are able to enjoy the high costly facilities like cars, homes and other luxuries with minimum initial

investment and later on with the payment of installments. So the visible effect is that the consumers are also interested in such retail banking offerings.

In the yesteryears the consumer financing was dealt only by the finance companies, cooperatives and the similar institutions. But the scenario is different these days, commercial banks are largely sharing their portfolio in the consumer financing sector. It is well discussed that consumer financing is advanced by the commercial banks because of unavailability of attractive industrial alternatives due to decade long conflicts. But the reality is that the commercial banks are in a state that even if the situation gets normal, they are not in a position to withdraw from the financing due to various reasons.

Another part of the coin is that the tumultuous situation of political environment, the decade long conflict had direct adverse effects on the banking sector. So interest rates and other services offered by the bank took downward path. Amidst such situation, as to the need of hour, bank also started to invest in catering consumers needs. As a result on the one hand banks total risk was also diversified and also the adverse effect on returns was also somewhat checked.

After accessing to WTO, BIMSTEC and SAFTA, the banking sector of Nepal would face more severe challenges in the days to come. From now onwards i.e. 2010 AD, Nepal Rastra Bank would allow the foreign banks to extend their branches in Nepal. Due to this there would be more severe challenges in the sector. For this, the banks are seemingly revising their portfolio and are allocating their significant portion on consumer financing.

Asian Development Bank forecasted Nepals economic growth rate to be 2.8% for the current year 2007 from the budgetary target of 5%.(TKP, March

28, 2007) This forecasted low growth rate would have effects on the banking sector also. In this context, for raising the rate of return and also for diversifying the risk, commercial banks are modifying their investment areas by including the consumer financing area.

1.2 Focus of the study

It is a given fact that Nepals entry into privately and publicly owned commercial and joint venture banks is comparatively new to other countries. In addition to this, due to the changes in political, economic and social factors, banking sector is bearing a great challenge. To combat such situation, one of the measures the banks have adopted is consumer financing. Many of the commercial banks are advancing in this alternative. The study focuses on the present performances of the selected commercial banks and the consumer or potential consumers preferences as to the financing. Mainly the primary data are sought for the study and also the secondary data provided to the investigator are used for the purpose.

2. Objectives of the study

As already stated the study is about the consumer financing area as under the retail banking. Due to the growing needs and the rising trend of consumer preferences the commercial banks are involved in this area. On the other hand consumers are also interested in such financing for raising their living status and other reasons. Therefore the specific objectives of the study are as follows: i) To study the performance of commercial banks in consumer financing and the existing trend of the financing ii) To determine the preferences of consumers in the financing.

iii)

To study the effectiveness of the accessibility of consumer financing.

iv)

To study the tools or means of consumer financing.

3. Review of Literature
An extensive study of the related subject materials is done. This section has been grouped under two segments- review of conceptual framework and review of previous studies. Various related books, periodicals, reports and other publications have been studied and reviewed. Review of conceptual framework attempts to clarify the concept of the study; consumer financing in this case. The meaning of the term, other aspects of consumer financing, its significance and uses, limitations are studied. In addition to this, the related studies/unpublished studies are reviewed which are related to the study. Consumer financing in the most basic sense of the word refers to any kind of lending to consumers. The term however often refers to particular type of business, sub prime branch lending ( that is lending to people with less that perfect credit ) This branch of financial services industry is more extensive in the developed countries than in other developing countries like ours. Consumer financing covers a wide range of activities, including loans from banks from indirect finance like hire purchase and loans by specialist retail finance companies. Consumer financing is an integral part of retail banking.

4. Research Methodology
A Research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. (Kothari, 1989: 86)

The study attempts to assess the performances of selected commercial banks also the consumers responses are their preferences are studied.

4.1 Population and Sample

The universe of the present study the total number of commercial banks operating in the industry. Currently, the total number of commercial banks operating in the industry is 28. Due to the big size of the universe of the study and to the difficulties in reaching the whole universe, sampling will be done. The sampling has been done in a way that its results can be generalized according to the universe. The sample includes ten commercial banks. They are 1. Himalayan Bank Limited (HBL) 2. Nabil Bank Ltd 3. Nepal Industrial and Commercial Bank Limited (NIC) 4. Everest Bank Limited (EBL) 5. Lumbini Bank Limited 6. Standard Chartered Bank Nepal Limited (SCBNL) 7. Kumari Bank Limited 8. Nepal Investment Bank Limited 9. Nepal SBI Bank Limited 10. Global Bank Limited.

4.2 Sources of data

Both secondary and primary data are used for the purpose. More emphasis has been put on primary data for analyzing the subject.

Primary dare are collected through questionnaire survey, group discussion, unstructured interview and observation method. Similarly secondary data were collected from the respective banks, viz. the annual reports published by the banks at the end of the fiscal year, in addition to these, daily newspapers, magazines and other related subject materials were continuously reviewed for the purpose. And also the concerned websites are frequently surfed

4.3 Methods of Data Analysis

Secondary data collected are tabulated into a separate form systematically. These are presented and analyzed in a descriptive way. Graphs, Tables are presented where necessary.

Simple statistical tools as percentage, ratio and arithmetic mean are used to present the resultant figures. For collecting primary data, the credit managers, retail bank/customer financing of the respective banks were requested to fill up the questionnaires, only the authorities concerning consumer financing of the banks were assessed. On the other hand, a consumer survey is to be conducted. Customers/potential consumers are included in the survey. In this study simple random sampling method is used while selecting the representative sample.

5. Limitations of the study

It is the given fact that any study conducted has certain type of limitations and constraints and this study is not an exception to this. So the specific limitations of the study can be listed as below.

1) The study is conducted only within the period of three months so related in depth analysis could not be made also due to budget constraint. 2) The study focuses only on the performances of commercial banks as to consumer financing. So overall scenario of the consumer financing could not be portrayed. 3) The consumer survey is conducted only within the Kathmandu valley so it may not represent the responses of consumers outside the valley. 4) The validity of the result based on secondary data depends upon the authenticity of the sources and publishers. 5) A considerable part of the primary data is based on subjective judgment so verification of the result may not be possible and there would be some response error.