Social capital and practice of housing loan from banks in Kathmandu

Abstract

Social capital is a critical component of social interaction and it influences other non-social aspects of day-to-day life as well. This dissertation is an effort to examine the influence of social capital on housing loan from banks, which is essentially understood to be a purely economic undertaking. Banking is frequently regarded as an economic institution, yet the non-economic dimensions of the banking sector are gaining increasing attention in academic discourse. A key question arises: How does social capital, a non-economic aspect, influence the banking landscape inNepal? Social capital refers to the social resources gained through relationships and networks in a social setting. While sociologists have produced various findings on social capital, this dissertation aims to explore its specific interpretation and relevance within the context of the Nepalese economy. The first objective of the study was to investigate the provisions of social capital in banks in Kathmandu. The next objective was to describe how social capitalist embedded in the economic relationships between banks and borrowers, particularly in obtaining loan facilities. The final objective was to elucidate the role that social capital plays in securing housing loans. It was found that almost all banks and financial institutions offering housing loans in Kathmandu incorporate elements of social capital, with some similarities and differences in their implementation. Social capital manifests differently across various demographic factors, including education, health, family size, and monthly income, influencing the economic relationships between banks and borrowers. Subsequent analysis shows that aspects of borrowers' social capital significantly affect key housing loan parameters: the loan volume, repayment duration, and interest rates.vii The social dimensions of banking represent a critical non-economic phenomenon that influences banking practices. These social attributes vary based on time and regional settings. Nepal, with its rich tapestry of diverse cultures and varying levels of social capital, presents a unique context for examining these phenomena. Housing loans are a primary instrument through which banks operate, encompassing two categories: retail and real-estate housing loans. In Nepal, banks heavily invest in retail housing loans, which come with specific policies influenced by factors such as age, health, gender, education, professional background, family size and monthly income. These seven variables are central to the study's exploration of social capital's impact on banking. For this dissertation, a purposive sample of 700 borrowers from selected banks was analyzed using both qualitative and quantitative methods to test multiple hypotheses. The study focused on banks with additional housing loan provision slinked to social capital components like age, family size, salary, and gender. Eleven financial institutions were identified for their notable provisions in these areas, with approximately 700 individuals reported as having taken out housing loans in the previous year. The research findings reveal that all banks and financial institutions in Kathmandu incorporate provisions based on social capital, with some similarities in policy between different banks. However, respondents exhibit varying interpretations of social capital in relation to housing loans. Dependent variables analyzed include loan duration, interest rates, and loan amounts, while independent variables encompass age, gender, health status, education, professional history, monthly income, and family size. Statistical analyses, including p-tests, established the significance of associations among these variables, though not in all cases. viii While these findings may not universally apply across all global contexts or timelines, this dissertation offers valuable insights into the impact of social capital in economic domains, particularly regarding housing loans. Theoretically, the concept of embeddedness has gained traction as a conventional idea; this dissertation enriches that notion by situating it within the unique socio-economic landscape of Nepal.