The Safest Bets Are Holding Nepal Back

Nepal’s private capital grew up funding dams and hotels. Its next move should be financial services.

Private capital in Nepal began as development money. When private equity first arrived around 2012, it came largely from foreign development institutions, the backers behind funds like Dolma and Business Oxygen, and it went where the risk felt lowest: into things you can touch and eventually list. Hydropower plants, cement works, hotels. For a young market, that was the sensible place to start.

That capital is increasingly coming of age and turning local. In all, private equity and venture funds have deployed around $200 million into Nepal, close to a third of it in the past year alone, and most of today’s deals are now led by funds raised at home rather than by the donors who seeded the industry. What has not changed is where the money goes. It still flows to the same hard, collateral-backed assets, and the natural next step, into younger companies and newer sectors, has barely begun.

The largest of those untapped sectors is finance itself. The payment wallets are real and well established, but beyond them lies open ground: enormous sums move through Nepal every day, and almost no one has built, or backed, the businesses that would put that money to work. For someone willing to look past the dam and the hotel, that is the opening.

If I were deploying capital into Nepal’s financial services today, I would judge each opportunity on three questions. Does it own a rail rather than rent one? Does it earn from a transaction that already happens at scale? Can it survive a small market without buying growth through giveaways? Few businesses clear all three. These come closest and I would back them.

The first is wealth. Nepalis pour their savings into a stock market worth over Rs 4.4 lakh crores (about $33 billion), yet they invest through a clunky lottery and a patchwork of broker queues. A cheap, mobile-first platform to invest, hold funds and take honest advice, the way Robinhood did in the US and Zerodha in India, would serve a demand that is already proven, not one that needs creating.

The second is insurance. Penetration sits barely at 4% of GDP, mobile connections outnumber people, and the industry still runs on paper, so the gap is enormous. The quick way in is distribution, selling simple, small-ticket cover through the wallets people already use. The deeper, more defensible prize is to own the underwriting beneath it, the digital layer that prices risk and settles claims, so that other insurers end up running on you.

The third is credit, and here I would back the plumbing rather than another lender. The banking system sits on more than Rs 1 lakh crores (about $8 billion) of idle cash, yet it has no reliable way to tell who deserves a loan: banks lend against land and collateral, not income or track record, so anyone without property to pledge is invisible to them. Build the credit-scoring engine on remittance inflows, wallet history, and telephone bills, and every lender ends up renting it. The central bank has just legitimised algorithmic credit scoring and opened a digital-lending window, so the rails are being laid right now.

What I would not fund falls into two buckets, and both are easy to spot.

The first is anything chasing ground that is already won: the wallet that wants to become a super-app. eSewa and the merged Khalti-IME have taken that market and are extending their lead. There is no reward for arriving late, with less money and less reach than the two players who built it first.

The second is any business that has to keep paying for its own growth, where the cashback or the coupon is not a feature but the entire reason a customer shows up. Most of these customers drift away once the giveaways stop, so the growth rarely compounds, and the economics are punishing.

India’s CRED, the glossiest reward-led fintech of them all, has racked up more than $500 million in losses since 2018 and is only now nearing breakeven. A market the size of Nepal cannot bankroll that kind of patience. That is rented growth, and I would not pay for it.

The rule is simple. I would back the rails and the underwriting, the parts that compound, not the apps and the giveaways, the parts that burn.

Nepal’s capital has finally grown up. The only question left is whether it has the nerve to act like it. The money is here, the moment is right, and whoever moves first will own the next decade.