Government Unveils 5-Year Roadmap to Modernize Nepal’s Financial Landscape
Author
NEPSE TRADING
KATHMANDU – The Government of Nepal has officially launched the Second Financial Sector Development Strategy (2025/26–2029/30), a strategic blueprint designed to transform the nation’s financial system into a more resilient, inclusive, and digitally-driven engine for economic growth. Succeeding the first strategy that concluded in 2021, this new roadmap integrates emerging global trends such as Artificial Intelligence (AI), Green Finance, and Neo-banking.
The strategy aims to increase the financial sector’s contribution to the Gross Domestic Product (GDP) from the current 6.65% to 7.5% by the end of the five-year period.
The Four Strategic Pillars
To ensure a balanced development across banking, insurance, and capital markets, the government has identified four central pillars:
Sustainable & Inclusive Growth: Prioritizing credit flow to productive sectors like agriculture, energy, and SMEs.
Financial Access & Inclusion: Deploying digital technology to reach unbanked populations in remote areas.
Literacy & Consumer Protection: Strengthening the legal framework to safeguard depositors and investors while integrating financial literacy into school curricula.
Stability & Supervision: Enhancing the regulatory oversight of the central bank to mitigate systemic risks and cyber threats.
Digital Evolution: Neo-Banks and Open Banking
One of the most ambitious aspects of the strategy is the formal introduction of Neo-banks—financial institutions that operate entirely online without physical branches. The plan also proposes the implementation of Open Banking, allowing for secure data sharing between institutions to foster innovation and personalized financial products.
Furthermore, the government expects a three-fold increase in digital transactions through QR codes, mobile wallets, and internet banking. To bridge the digital divide, USSD-based payment systems will be promoted for users without internet-enabled smartphones.
Insurance and Capital Market Reforms
The strategy sets a target to bring 60% of the total population under the umbrella of insurance services by 2030. In the capital markets, the government plans to introduce sophisticated instruments such as Index Funds, Exchange-Traded Funds (ETFs), and Equity Derivatives. The long-awaited operationalization of the Commodity Exchange Market is also a key feature of this roadmap.
Addressing the "Liquidity and NPL" Challenge
Acknowledging the current stress in the banking sector, the strategy outlines a path to resolve rising Non-Performing Loans (NPLs) and the accumulation of non-banking assets. A dedicated Asset Management Company (AMC) will be established to handle distressed assets, providing a relief valve for commercial banks struggling with post-pandemic recovery.
Key Performance Indicators (Targets for 2030)
Indicator | Current Status | 2030 Target |
Financial Sector Contribution to GDP | 6.65% | 7.5% |
Agricultural Lending (% of total loans) | 12.84% | 15% |
Insurance Penetration (% of population) | ~40% | 60% |
Digital Transaction Volume | Baseline | 300% Increase |
Detailed Interpretation: Why this Strategy is Different
This second iteration moves away from traditional "brick-and-mortar" banking toward a technology-first approach. By focusing on Green Bonds and a National Green Finance Taxonomy, Nepal is signaling its commitment to climate-resilient development to international investors.
The transition from a high-growth phase to a "Stability and Recovery" phase is evident in the plan's focus on Credit Scoring and Project-Based Lending. This shift aims to reduce the banking sector's over-reliance on collateral (land/buildings) and instead focus on the viability of businesses, which could be a game-changer for startups and entrepreneurs.
