NEPAL’S INCLUSION CHALLENGE: WHY ACCESS STILL FALLS SHORT

Financial inclusion has emerged as a core mandate of central banks in recent years, unlocking broader access to financial services through a mix of physical, digital and regulatory infrastructure, supported by affordable tools. Inclusion and accessibility are deeply interdependent - accessibility forms the foundation, while inclusion is the measurable outcome.

For policymakers, financial inclusion has increasingly become a key benchmark for assessing women’s empowerment. A range of policies has been introduced to expand access to credit through banks and financial institutions (BFIs), alongside investment avenues such as bonds, debentures, insurance schemes and IPOs, some tailored specifically for women. Yet, the effectiveness of these policies ultimately hinges on how efficiently they reach their intended beneficiaries. Structural bottlenecks continue to limit this transmission.

A Glass Half-Full

“The accessibility gap is like a glass half-full, where reasons for satisfaction and dissatisfaction are almost equal,” says Guru Prasad Paudel, Spokesperson for Nepal Rastra Bank.

Data from the 2018 National Economic Census shows that 26.85% of Nepal’s 923,356 firms are owned or operated by women. Their participation is highest in wholesale and retail trade (16.66%), followed by accommodation and food services (5.49%), and manufacturing (2.54%).

“It should be analysed from the perspective of the readiness of both service providers and receivers,” Paudel notes. “We have created infrastructure to enhance access, which serves those who are ready. The rest remain excluded due to fundamental challenges on the receiving side.”

A major barrier to formal financing lies in the informal nature of enterprises themselves. Formalisation requires targeted, sustained initiatives. Nepal’s ongoing 16th Plan highlights that nearly 49.5% of enterprises still operate informally.

The Urgency of Business Development Services

Closing this gap requires more than policy, it demands execution. Business Development Services (BDS) must be deployed with urgency and scale, operating in what can only be described as a mission mode.

Historically, policymakers have leaned on economist Simon Kuznets’ theory that inequality corrects itself through market expansion. But as senior economist Dilli Raj Khanal points out, this assumption has not consistently held true.

“The fact that half of the enterprises in an economy operate informally is a serious concern,” Khanal says. “Market forces alone cannot resolve this. Enterprises need facilitation, capacity building and targeted support.”

He adds that many entrepreneurs weigh the perceived hassles of formalisation against its benefits, and often decide against it. Streamlining registration processes, simplifying tax compliance, and pairing these with incentives and capacity development are essential.

The Nepal Living Standards Survey 2024 underscores the issue: a significant number of firms still depend on informal credit sources. Madhesh Province stands out, where 30.4% of firms rely on moneylenders, fueling cycles of debt and, in some cases, asset loss due to predatory lending practices.

Sources of Credit (Households)

•    Relatives: 42.5% 
•    Banks and Financial Institutions: 22.4% 
•    Moneylenders: 11.4% 
•    Cooperatives and Others: 23.7% 

The case for BDS becomes even stronger when gender disparities are considered. According to Nepal Rastra Bank, women hold less than 20% of credit accounts in BFIs, with most concentrated in urban areas. Despite a nationwide expansion of banking infrastructure, access remains constrained by entrenched social and cultural barriers.

Business Development Services can play a catalytic role helping firms formalise, supporting documentation and bookkeeping, and reducing operational friction. Experts argue that BDS should function as financial intermediaries, working closely with entrepreneurs to bridge knowledge and access gaps.

Many first-time entrepreneurs understand the benefits of formalisation but are discouraged by daily operational hurdles. Meanwhile, traditional artisans - such as those in handicrafts, tailoring and carpentry - often resist formalisation due to compliance burdens unless compelled by market demands or credit needs.

Evidence shows that access to formal credit accelerates formalisation. In contrast, reliance on informal financing - particularly moneylenders - significantly delays the transition.

Friction in the System

Despite official commitments to streamline processes, entrepreneurs in Nepal still face a complex regulatory environment. While initial company registration is available online, inefficiencies persist. There are reports of system manipulation and informal payments at regulatory offices.

Crucially, many processes still require physical presence whether for obtaining a Permanent Account Number (PAN), submitting documents, or paying fees. This creates friction in what should be a seamless digital ecosystem.

Entrepreneurs routinely navigate multiple layers of compliance, including company registration, tax obligations, licensing and renewals, each carrying its own cost and administrative burden. These redundancies discourage formalisation.

As a result, there is growing demand for a fully functional one-stop service centre that integrates all enterprise-related services. Digitalisation of registration, renewals and tax filing is no longer optional, it is essential.

Shova Gyawali, former President of the Federation of Woman Entrepreneurs’ Associations of Nepal (FWEAN), emphasises the need for stronger collaboration.

“Unless hassles are minimised and entrepreneurs are valued for their contributions, the formalisation process will remain difficult,” she says. “When entrepreneurs begin to see the opportunity cost of remaining informal, formalisation will follow naturally. It is the responsibility of the state to create that enabling environment.”

Status of Access to Financing Tools

•    Nepal Rastra Bank’s deprived sector lending policy mandates 5% of total loan portfolios for priority groups, including women. As of mid-June 2024, commercial banks have exceeded this, allocating 5.79% (Rs 263.07 billion). 
•    Firms with sole female ownership receive a 35% exemption on registration fees under the Industrial Enterprises Act, 2020. 
•    Women-led enterprises benefit from industrial zone incentives and export facilitation provisions. 
•    A 5% interest subsidy is available for agro-based industries across key sectors. 
•    Startup loans ranging from Rs 500,000 to Rs 2.5 million are offered at 3% interest, with project-based collateral (Startup Enterprise Loan Operation Procedure, 2025). 
•    Women entrepreneurs are supported through the Youth and Small Entrepreneur Self-employment Fund (YSEF) and local government initiatives. 
•    Women hold 2.6 million DMAT accounts—42.44% of total account holders—reflecting strong participation in capital markets. 
•    Insurance incentives include women-focused life insurance plans and tax deductions of up to Rs 40,000.

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