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A shopkeeper in Nepalgunj wants sixty thousand rupees to buy stock before Dashain. She has run her business for six years. She has never missed a payment to her suppliers. She does not own land.

She will not get the loan. Not because the bank has no money. Nepal’s banking system is currently holding roughly one trillion rupees it cannot lend, with interest rates at their lowest in living memory. Last year, despite all that idle cash, credit to the private sector grew just 6.5 percent against a target of 12 percent. Nepal Rastra Bank cut rates. It flooded the system. Nothing moved.

The shopkeeper will not get her loan because the bank has no way of knowing she is good for it. This is the strange arithmetic at the center of Nepali finance, and it is worth stating plainly. According to the World Bank, the financing gap for micro, small and medium enterprises in Nepal stands at $6bn, around 14 percent of our entire economy. These are not marginal businesses. They produce more than 90 percent of Nepal’s industrial output and around 70 percent of what we export. They are, in the most literal sense, the productive economy.

And only 17 percent of them use banks to finance their investments. We have therefore built a financial system in which the money and the need are in the same country, in the same city, sometimes on the same street, and cannot find each other. Why? Because of what a Nepali bank asks for before it lends.

Roughly three-quarters of all bank lending in Nepal is secured against fixed assets, overwhelmingly land and buildings. This is not greed. It is ignorance, in the technical sense. A bank that cannot judge whether a borrower will repay demands instead something it can seize if they do not. Collateral is what lending looks like when you have no information. So the question becomes: why does the bank have no information?

Here the numbers are genuinely startling. The Credit Information Center collects only negative information. It records who has defaulted. It does not record who has faithfully repaid. And its coverage extends to roughly 10 percent of the adult population, against 21 percent across South Asia. It cannot see your utility bills, your insurance, your tax record. There is no single identifier tying any of it together.

Read that again and the six-billion-dollar gap stops being a mystery. A financial system that knows only who has failed, and knows that about one adult in ten, cannot lend on character or cash flow. It can only lend against land. It is not choosing collateral over judgement. It has no judgement to exercise.

The cruelty of this is precisely distributional. The person least likely to have inherited land is the same person least likely to have a borrowing record. The young founder. The returnee migrant with savings and an idea. The woman whose family property sits in her brother’s name. Only 20 percent of Nepali women borrow from a formal institution at all. The system is not merely declining to serve them. It cannot see that they exist.

Into this frustration arrives an appealing idea: peer-to-peer lending. Cut out the bank. Let savers lend directly to borrowers through an online platform. The government has now put P2P lending and crowdfunding in the budget, and Nepal Rastra Bank’s Monetary Policy for FY 2083-84 (2026-27) commits to exploring it.

I have spent a good deal of my working life on this question, and I want to say something that will disappoint the enthusiasts. A P2P platform does not solve the problem. It relocates it. Think about what such a platform actually is. It is a venue. It introduces a lender to a borrower. It does not tell the lender whether the borrower will repay, because nothing in Nepal currently tells anyone that. So instead of one bank unable to assess our shopkeeper, you now have four thousand ordinary savers unable to assess her, each risking money they cannot afford to lose, none with the faintest capacity to price the risk.

The World Bank, incidentally, listed three barriers to MSME credit in Nepal: inadequate collateral, absence of credit history, and limited financial literacy. That third one is usually read as a problem afflicting borrowers. But in a P2P market, the person being asked to make a sophisticated credit judgement is the lender, and the lender is an ordinary Nepali saver. We would be building an instrument to solve a crisis of financial literacy on the assumption that thousands of people will suddenly display expert financial literacy.

Other countries have run this experiment. Those that opened P2P markets before building the underlying information infrastructure did not democratize credit. They produced platform collapses, retail investors wiped out, and eventually a regulatory crackdown that killed the sector for a decade. China is a notorious case, but it is not alone.

So the enthusiasm is misplaced, but the instrument is not wrong. It is simply out of sequence. P2P lending is a distribution technology. It changes how credit reaches people. It cannot change whether credit can be priced. And distribution innovations only work once the pricing problem has been solved. Which brings me to the part of this story nobody is talking about, and the reason I am moderately hopeful.

In January this year, the World Bank approved a $95m operation for Nepal called the Sustainable and Inclusive Finance Project. Most coverage treated it as another lending programme. It is not. Read the components. Nearly $8m goes to rebuilding our credit information system. It will move the credit bureau from recording only failures to recording performance, the fact that our shopkeeper has paid her suppliers on time for six years. It will pull in non-traditional data: mobile transactions, utility payments. It will build credit scoring, including models designed to see women borrowers. And it will install a centralized KYC system, so that a Nepali proves who they are once, rather than to every institution separately, forever.

The Bank’s own document describes the purpose in a phrase I have not been able to stop thinking about. The aim, it says, is to deliver “improved reputational collateral for thin-file borrowers.” Reputational collateral. Your good name made it legible. Your record of keeping your word, converted into something a stranger can price.

That is the answer to our shopkeeper. Not a website. A credit history. And it explains why the Monetary Policy did not simply announce P2P lending. It committed to exploring P2P lending based on individual credit scoring. Those last four words are not decoration. They are the entire design.

A credit score is not a piece of technology. It is public infrastructure, like a road or a land registry. It converts a person’s past into something a lender who has never met them can evaluate. Once it exists, and is trusted, and reaches beyond the fortunate 10 percent, an enormous range of things become possible. Banks can lend on cash flow. Guarantees can be priced properly. And yes, peer-to-peer platforms become viable, because at last there is something for the lender to read.

Without it, P2P lending is a marketplace where nobody can see the price tags. And we will have handed our least protected savers the job that our banks have never managed to do. So, my plea, as this moves from budget speech to regulation, is for patience of a very specific kind.

Build the identifier. Build the bureau and make sure it reaches the woman who has never held a bank account. Get the credit scores working. Sort out the boundary between Nepal Rastra Bank and SEBON before licenses are issued, not afterwards in a public quarrel with people's money caught in the middle. Then run a small pilot, with a handful of platforms, tight exposure limits, and honest permission to fail.

Only then open the market. This will feel unbearably slow. There will be pressure to show results, to launch something, to declare the gap closed. That pressure should be resisted, because the alternative is not a faster bridge. It is a bridge with no foundations, and we know exactly who falls when those give way. It will not be the platform. We have spent decades asking Nepalis to prove they are creditworthy by owning land. We are finally building a system that could let them prove it by being trustworthy instead.

That is worth waiting a few years to get right. Giri writes on financial regulation and payment systems. The views expressed are personal.

A central bank speaks in two registers. One is the language of reassurance, the steady voice that tells a country its banks are sound and its savings are safe. The other is the language of scrutiny, quieter and less often heard in public, in which the supervisor records what it actually found when it opened the books. The Bank Supervision Report for 2024-25, released recently by Nepal Rastra Bank, is notable because it lets the second voice be heard clearly. That candour is worth appreciating before anything else.

On the surface, Nepal’s commercial banks are doing what banks are supposed to do. Their combined assets grew by more than twelve percent over the year, crossing Rs 7,756bn. Deposits rose by nearly fourteen percent. Capital adequacy across the system sat above twelve and a half percent, comfortably over the regulatory floor. Anyone reading only those figures would conclude that the sector is in healthy condition, and in important respects it is.

The report’s contribution is to ask a sharper question. Not how large the capital ratio is, but how it was arrived at. A capital ratio, after all, is only a fraction. The capital a bank holds sits above the line, and the risk it carries sits below. Make the lower number smaller than it ought to be, and the ratio rises on its own, without a single rupee of fresh capital being raised. The supervisor’s reviewers went looking for exactly this effect, and they describe what they saw without euphemism.

In the department’s words, capital adequacy ratios in some banks were not reflected accurately because risk-weighted exposures had been misstated and provisions for likely loan losses fell short. Translated into ordinary terms, a few institutions were carrying loans on terms that made their balance sheets look stronger than the underlying reality. The report sets out how. Loans that had already slipped into the watch-list, substandard, doubtful, or loss categories were sometimes given gentler risk weights than their condition deserved. Unpaid claims on guarantees the bank had issued were quietly left out of the risk calculation altogether. Each adjustment, taken alone, looks small. Together they lift a ratio off the page.

There was a second route to the same destination. Banks are allowed a lighter capital charge on loans that fall within what is called the regulatory retail portfolio, on the logic that many small, scattered loans are safer as a group than a few large ones. The review found cases where loans were swept into this favorable bracket on the strength of a single qualifying test rather than the full set, easing the capital they consumed. None of this is exotic. It is the everyday arithmetic of regulatory arbitrage, and the value of the report is that it names the practice plainly enough to act on. 

Why should anyone outside a bank’s finance department care about the mechanics of risk weighting? Because the capital ratio is the single number on which a great deal of trust rests. The fund that insures small depositors prices its exposure on the assumption that reported capital is real. Investors value bank shares on it. Banks lend to one another overnight on the basis of it. When the figure flatters, every one of those judgments is made on slightly false information, and the error does not stay contained. It travels. A supervisor that catches the distortion early, and says so in print, is protecting far more than the bank in question. 

The report is equally frank about a quieter weakness, one of process rather than accounting. Every bank is meant to run an internal capital adequacy assessment, a yearly exercise in which it judges for itself how much capital its own risks demand. In a number of institutions this had withered into a formality. Some did not complete it on time. Others filled it in by simply copying across the regulatory minimum, as if the floor set by the central bank were also the ceiling of their ambitions. A few had no genuine capital plan at all, neither for the coming months nor for the years beyond. The report warns, in measured language, that an institution without such a plan will find a future crisis far harder to weather. The caution is sensible, and it is offered in time. 

Set the question of measurement aside, and the plain numbers still ask for attention. Bad loans across the commercial banks rose by more than a fifth during the year, reaching some Rs 220bn, and the share of loans that have gone sour climbed to 4.44 percent from 3.76 percent a year earlier. At the state-owned banks, the deterioration was steeper still. The assets banks repossess when borrowers default, the foreclosed property that sits on their books earning nothing, swelled by more than forty percent. These are not figures the report conceals. They are figures it publishes, and the publishing is itself a mark of confidence. 

There is an unusual backdrop to all of this. Nepal’s banks are not short of money. Deposits have flowed into the system faster than loans have flowed out, leaving the sector liquid to an almost awkward degree. Deposits now exceed the size of the economy itself, while credit has slipped back relative to it. That imbalance has its own costs, thinner margins chief among them, but it also hands the regulator something valuable: room to manage a rise in bad loans from a position of strength rather than scarcity. Profits, meanwhile, held up at the headline level, though almost entirely on the back of the state-owned banks, while private lenders saw earnings dip. The resilience is real but unevenly spread. 

What lifts this report above a routine annual filing is its honesty about the road ahead. The supervisor states openly that the task is to move past tick-box inspection toward a model that can tell when the economic substance of a loan quietly contradicts the form in which it has been reported. That is a demanding ambition. It leans on judgment rather than checklists, on experienced supervisors willing to look past a clean-looking return to the reality beneath it. Naming that direction out loud is a sign that Nepal’s risk-based supervision is growing up. 

The report does not leave matters at diagnosis. It records that corrective directives have already been issued, and the direction they point is clear enough. Reported risk weights should be reconciled honestly against what the supervisor independently calculates. Loans should be classified for what they are and provisioned accordingly. The internal capital assessment should reflect a bank’s own risks rather than echo the regulator’s minimum. The functions that exist to say no inside a bank, its risk and audit teams, should answer to the board rather than to the executives whose decisions they are meant to check. And capital should be built while the weather is fair, not scrambled for once the storm has arrived. 

None of this requires new legislation or dramatic intervention. It asks the supervisor to keep using the powers it already holds, and to use them with conviction. The most reassuring thing about the 2024-25 report is that it exists in this candid form. A central bank willing to write down, for anyone to read, where its banks have fallen short is a central bank doing the unglamorous core of its work. The findings are on the table and the directives are in force. The measure of the year ahead will be how faithfully they are carried out, by banks and supervisors alike, in the same constructive spirit in which they were set down.

The author writes on financial regulation and fintech policy. The views expressed are personal and based on a public document

Nepal today stands at an important turning point. Across the country, especially among younger generations, frustration is growing against corruption, policy paralysis, and an economic system that has left Nepal heavily dependent on imports, remittances, and external vulnerabilities. The rise of reform-oriented civic voices and new political narratives reflects a deeper aspiration: people want a Nepal that is economically confident, institutionally accountable, and capable of protecting citizens from recurring crises.

Yet Nepal’s economy remains dangerously exposed to external shocks. A conflict in the Middle East immediately affects transport costs in Kathmandu. Fuel disruptions abroad suddenly increase the prices of food, medicine, and daily essentials inside Nepal. Decisions made in New Delhi or Beijing can directly influence inflation, supply chains, and market stability across the country within days.

This is not merely an economic issue—it is a strategic vulnerability.

The recent tensions involving the United States, Israel, and Iran once again exposed how fragile import-dependent economies can become during geopolitical crises. Fuel prices surged across the region, transportation costs increased sharply, and inflation spread rapidly into smaller economies like Nepal. Businesses faced uncertainty, logistics became expensive, and households immediately felt the pressure. What made the situation more alarming was the widening fuel price disparity between Nepal and India. Diesel prices in Kathmandu rose dramatically higher than corresponding prices in Delhi, despite Nepal’s overwhelming dependence on imported petroleum routed through India. This gap is particularly concerning because diesel powers transportation, agriculture, construction, and industrial activity. When diesel prices rise sharply, the cost of almost everything rises with it.

Years ago, fuel price differences between Nepal and India were not this extreme. Today, however, Nepal often appears trapped between external dependency and internal inefficiency. This raises a serious question: why does Nepal still lack strong economic diplomacy capable of negotiating strategic economic safeguards during global instability? Economic diplomacy is often misunderstood in Nepal as simply an extension of foreign policy. In reality, it is one of the most powerful tools modern states use to protect national economic interests. Countries aggressively negotiate trade advantages, secure energy arrangements, attract industries, expand exports, and build strategic partnerships through coordinated economic diplomacy.

Nepal, despite being strategically located between two major economies, still behaves too passively in this domain. Diplomatic missions frequently remain focused on protocol and administrative functions while economic priorities receive limited attention. Meanwhile, neighboring countries are aggressively pursuing free trade agreements, export diversification, industrial relocation opportunities, and long-term energy security arrangements.

Nepal cannot afford to remain reactive while the global economy becomes increasingly competitive and geopolitically fragmented.

The country’s relationship with India and China should therefore be approached strategically. India remains Nepal’s largest trade partner, transit route, and energy supplier. China offers opportunities for infrastructure development, technology cooperation, and market diversification. Nepal’s objective should not be to choose between the two, but to engage both with maturity and strategic clarity. A stable Nepal benefits both neighbors. Excessive inflation, prolonged economic stress, or supply disruptions inside Nepal eventually create wider regional consequences. Nepal therefore has every right to use diplomatic channels more assertively to negotiate smoother supply coordination, emergency energy cooperation, transit facilitation, and price stabilization mechanisms during global disruptions.

However, diplomacy abroad cannot succeed if governance at home remains weak.

One of Nepal’s greatest problems is not the absence of policies. The country already possesses multiple foreign policy frameworks, trade strategies, and development plans. The real problem lies in execution failure. Institutions often lack coordination, accountability, urgency, and performance measurement. Many diplomatic missions do not have dedicated economic units focused solely on trade, investment, tourism, and technology partnerships.

This institutional inertia must change.

Nepal urgently needs professional economic diplomacy teams within major diplomatic missions. Diplomatic success should no longer be measured only through ceremonial engagements. It should also be evaluated through measurable outcomes such as foreign investment attracted, export markets expanded, tourism partnerships secured, and technology cooperation initiated. The country must also modernize its economic diplomacy agenda. Traditional diplomacy focused mainly on aid and political relations is insufficient today. Nepal should actively pursue technology transfer, climate financing, renewable energy cooperation, startup ecosystem development, and cross-border electricity trade. The future global economy will increasingly revolve around technology, sustainability, and strategic supply chains. Nepal must position itself accordingly.

At the same time, domestic governance reform remains the foundation of successful economic diplomacy. Foreign investors closely observe whether a country offers policy consistency, administrative efficiency, legal predictability, and infrastructure readiness. No amount of international promotion can compensate for domestic institutional disorder. Anti-corruption reform, regulatory stability, and administrative modernization are therefore essential parts of economic diplomacy itself. In this context, Nepal should also rethink how local governance contributes to economic development. An interesting lesson can be drawn from India’s district administration model. District Collectors and District Magistrates are often expected to actively facilitate economic activity, industrial growth, and revenue mobilization within their jurisdictions.

Nepal’s district administration remains far more limited in this regard. Chief District Officers primarily focus on law and order responsibilities while economic development functions remain fragmented across agencies. Nepal could benefit from redesigning district governance so that local administrations are partly accountable for revenue enhancement, business facilitation, tourism promotion, employment generation, and industrial coordination. Such reforms could gradually create healthy competition among districts to attract investment and improve economic performance.

Nepal must also prepare for a more competitive global environment as the country graduates from Least Developed Country status. Certain preferential protections and trade advantages will gradually diminish. Nepal will require stronger legal capacity, trade negotiation expertise, and international commercial diplomacy to compete effectively. Ultimately, Nepal’s economic future will depend not only on domestic politics but on whether the country develops the confidence and competence to defend its economic interests internationally. The world is entering an era where geopolitics increasingly shapes economics. Supply chains are becoming strategic. Energy security is becoming political. Inflation is becoming globalized.

Countries that fail to negotiate proactively will repeatedly suffer external shocks.

Nepal therefore faces a defining choice. It can continue operating with reactive policies and passive diplomacy, or it can build a new model centered around strategic economic diplomacy, institutional accountability, and national economic resilience. The aspirations emerging from Nepal’s younger generation are not unrealistic. Citizens are demanding a state that functions effectively, negotiates confidently, and protects the economic dignity of its people. In the years ahead, economic diplomacy may become the difference between a Nepal that remains permanently vulnerable and a Nepal that finally becomes economically sovereign.

Nepal has been ‘on the verge of a breakthrough’ for so long that the phrase stopped meaning anything. Every government since the 1990s has promised transformation. Every budget speech has invoked the nation’s rivers, its mountains, its ‘untapped potential’. And then, reliably, the coalition collapses, the reform stalls, and the file goes back to sleep on someone's desk.

So when Finance Minister Swarnim Wagle walked into office and repealed 15 obsolete laws on his very first day, you could be forgiven for wondering if this time was genuinely different. That is a real thing that happened. Not a committee recommendation, not a white paper for further study. Actual laws, scrapped, on day one.

That single act told the private sector something no budget speech could: the government understands that laws written decades ago are not neutral. They are friction. They are the price a businessperson pays just to exist. Getting rid of them is not a reform. It is a confession that the state had been in the way.

The broader commitment paper the government has since released is ambitious to the point of being uncomfortable. Double per capita income to $3,000. Expand GDP from Rs 61trn to Rs 100trn. Do it within five years. On paper, the National Planning Commission already projected Rs 89trn in three years under ordinary conditions. So the stretch is real, but it is not delusional. The gap between Rs 89trn and Rs 100trn is a policy gap, not a physics problem.

What makes this round of ambition feel different is the specific texture of the proposals, not their scale.

Take the ten-year guarantee on tax rates and investment conditions. Foreign investors who have considered Nepal and walked away were not always frightened by the tax rate itself. They were frightened by the uncertainty. A rate that changes with every cabinet shuffle is worse than a high rate, because you cannot price uncertainty into a business model. You can price a high tax. You cannot price a government that might change the rules before your factory is even built. By pledging stability for a decade, the government is essentially selling something it has never successfully sold before: predictability.

Then there is the electricity target. Thirty thousand megawatts in a decade is, frankly, a staggering number. Nepal’s entire installed capacity today is somewhere around 3,000 MW, and actual generation consistently falls short even of that. But the direction matters as much as the number. Nepal sitting on one of the world's richest hydropower reserves while importing electricity from India is one of those economic ironies that stops being funny after a few decades. The ‘Green Battery of South Asia’ framing is not new. What is new is a government that has the parliamentary majority to actually push through the land acquisition, transmission corridor, and cross-border power trade agreements that have historically died in committee.

On education, the proposal to introduce AI and coding into school curricula and aim for 1.5m digital jobs is the right instinct, but it needs honest framing. A country that is currently exporting its most educated people to Gulf construction sites and Malaysian factories cannot shortcut its way to a digital economy in five years. The pipeline is longer than that. What the government can do in five years is stop actively destroying its universities. 

Banning party-affiliated unions and political activity in educational institutions, as the commitment paper proposes, would be a start. Nepali academia has been so thoroughly politicized that even basic administrative decisions, such as faculty appointments and exam schedules, have become bargaining chips in union negotiations. That is not hyperbole. Ask any student who has lost an academic semester to a strike called for reasons entirely unrelated to education.

The FATF situation deserves more public attention than it gets. Nepal is on a greylisting watch. That is not a bureaucratic inconvenience. It means Nepali banks face enhanced scrutiny in international transactions, which in practice means higher costs and slower processing for remittances, trade finance, and investment flows. The country receives remittances equivalent to roughly a quarter of its GDP. Any friction in that channel is a direct tax on working-class households. The government’s commitment to a time-bound anti-money-laundering action plan is not a technocratic footnote. It is, economically, one of the most consequential items in the entire paper.

The diaspora provisions are interesting and slightly unusual. A ‘Return to Motherland’ package designed to bring back first-generation emigrants for retirement or reinvestment acknowledges something most governments prefer not to say out loud: the people who left were not unpatriotic, they were rational. The conditions at home did not justify staying. Creating conditions where return is financially sensible, through double taxation agreements and targeted incentives, is a smarter approach than moral appeals to national loyalty.

The proposed Economic Charter is the most politically ambitious item of all. Getting all major parties to agree that the economic agenda is off-limits to coalition horse-trading is, to put it mildly, a hard ask in a system where economic policy has always been one of the main things that gets traded. But the logic is sound. Investors do not need a particular ideology in government. They need assurance that when the ideology changes, the contracts still hold and the permits still mean what they said they meant.

None of this works without the bureaucracy. The ‘Time Cards’ for public service delivery and the expansion of the Nagarik App into a full digital service platform are the unglamorous end of the reform agenda. They are also the end that citizens actually experience. A farmer in Dang does not care about the GDP target. She cares whether the agricultural credit she applied for three months ago has been processed. Digitizing the state means her answer comes in days, not seasons.

What the commitment paper cannot do is deliver itself. Nepal has had good plans before. The 2015 earthquake reconstruction framework was well-designed. The federal transition roadmap had genuine technical quality. The implementation in both cases was, charitably, uneven. The difference this time is meant to be the two-thirds parliamentary majority, the technocratic leadership, and the ‘Balen-style’ political culture that has developed around actually delivering visible results rather than delivering speeches about results.

Whether that difference is real will be clear within eighteen months. Infrastructure projects either break ground or they do not. Laws either get passed or they stall in committee. Investors either start arriving or they keep flying over Kathmandu on their way to Vietnam.

Nepal has earned its skeptics. It has also earned, barely but genuinely, a second look.

The author is a senior financial sector professional with experience in central banking, enterprise risk management, AML compliance, and regulatory policy

Nepal’s banking system is once again at an inflection point. As Nepal Rastra Bank signals a possible relaxation of blacklisting provisions, a broader debate has quietly emerged within the financial sector. The issue is not merely about easing rules or providing relief to borrowers. It is about preserving the delicate balance between credit discipline and financial stability at a time when both are under strain.

Recent data from the Credit Information Bureau paints a stark picture. Over the past seven fiscal years, the number of blacklisted individuals has surged dramatically, reaching nearly 170,000 by FY 2024-25. The increase has been particularly sharp in the last three years, reflecting deeper structural stress in the economy. Check bounce cases account for a significant portion of this rise, while loan defaults have also accelerated, especially in retail segments such as credit cards, phone loans, and personal borrowing.

This trend cannot be dismissed as a mere statistical anomaly. It reflects underlying vulnerabilities in household finances, business cash flows, and credit underwriting practices. The post-pandemic recovery has been uneven, and many borrowers continue to operate in a constrained economic environment. At the same time, credit expansion in earlier years, particularly in unsecured and consumption-driven lending, is now translating into higher defaults.

Against this backdrop, the central bank’s concern is understandable. A rapidly expanding blacklist can limit access to formal finance and potentially shrink the pool of eligible borrowers. In an economy that relies heavily on small and medium enterprises, such exclusion can have broader implications for growth and employment. The question of whether the current system is overly restrictive is therefore a legitimate one.

However, the issue becomes more complex when viewed from the perspective of financial stability.

Blacklisting in Nepal has evolved into more than just a regulatory mechanism. It serves as a critical tool for enforcing credit discipline. The reputational cost associated with being blacklisted has historically played a significant role in encouraging timely repayment. In a system where formal enforcement mechanisms can be slow and costly, such behavioral incentives are particularly important.

Any move to dilute this signal must therefore be approached with caution.

One of the key concerns raised by the banking sector relates to the composition of blacklisted cases. Not all entries in the blacklist represent the same type of risk. Check bounce cases, for instance, are fundamentally transactional issues between private parties. They do not necessarily reflect systemic credit risk in the banking system whereas loan defaults directly involve public deposits and the integrity of financial intermediation.

Treating these categories uniformly can lead to policy distortions. It risks overestimating the extent of genuine credit stress while underestimating the importance of maintaining discipline in bank lending. A more nuanced approach is needed, one that distinguishes between different types of defaults and tailors regulatory responses accordingly.

Another important dimension is the recent removal of the threshold that previously exempted small borrowers from blacklisting. While this change may have been intended to standardize the framework, it has also contributed to a surge in the number of blacklisted individuals. Defaults on relatively small amounts, including credit card dues and short-term consumer loans, are now being captured alongside larger and more complex cases.

This raises questions about proportionality. A system that imposes identical consequences for vastly different levels of default may end up being both inefficient and inequitable. It can discourage risk-taking among small entrepreneurs while doing little to address larger structural risks.

At the same time, there is a genuine concern within banks that any relaxation of blacklisting provisions could encourage a culture of non-payment. Credit discipline, once weakened, is difficult to restore. Even a perception that enforcement is becoming lenient can alter borrower behavior. This is particularly relevant in the current environment, where recovery efforts are already challenging and non-performing loans remain a concern. The policy challenge, therefore, is not whether to relax or maintain the current system in its entirety. It is about how to recalibrate the framework in a way that preserves its core strengths while addressing emerging weaknesses.

A starting point would be to introduce greater differentiation within the blacklisting system. Separating transactional defaults, such as check bounce cases, from credit-related defaults would improve clarity and allow for more targeted policy interventions. This would ensure that measures aimed at easing business constraints do not inadvertently weaken the enforcement of loan repayment.

Another important step would be the introduction of a structured rehabilitation mechanism. Instead of treating blacklisting as a binary status, the system could allow for graduated re-entry based on demonstrated improvement in repayment behavior. Borrowers who make partial repayments, comply with restructuring agreements, or show consistent financial discipline over time could be moved to a monitored category. This would create incentives for recovery without compromising accountability. The suggestion from the banking sector to allow limited account operations for blacklisted individuals also merits consideration. Maintaining restricted access to banking services would enable better tracking of financial transactions and improve the prospects of loan recovery. At the same time, it would allow businesses to continue basic operations, reducing the likelihood of complete financial exclusion.

Revisiting thresholds and proportionality is equally important. Reintroducing differentiated treatment for small-value defaults could help prevent over-penalization while maintaining strict enforcement for larger exposures. Such an approach would align regulatory outcomes more closely with the scale of risk involved.

Beyond regulatory adjustments, there is also a need to strengthen credit information systems. More granular and real-time data on borrower behavior would enhance risk assessment and reduce reliance on blunt instruments such as blacklisting. A more sophisticated information ecosystem would allow both banks and regulators to identify emerging risks earlier and respond more effectively. The timing of these discussions adds another layer of significance. With key leadership positions at the central bank currently vacant and a new government in the process of formation, the policy direction adopted in the coming months will have lasting implications. This is a period that calls for careful calibration rather than abrupt shifts.

Ultimately, the objective must remain clear. The stability of the financial system depends on a delicate balance. Depositors must have confidence that their savings are secured. Banks must be able to extend credit with reasonable assurance of repayment. The regulator must ensure that this relationship is maintained through credible and consistent policies.

At the same time, the system must remain responsive to changing economic realities. Excessive rigidity can be as damaging as excessive leniency. The goal is not to choose between the two, but to find a balance that supports both discipline and inclusion. A rising number of blacklisted individuals should be seen as an early warning signal. It highlights underlying stress in the economy and points to areas where policy refinement is needed. Addressing this challenge requires a measured approach, one that combines regulatory clarity with practical flexibility.

Nepal’s financial system has made significant progress in recent years in strengthening governance, improving supervision, and enhancing transparency. Preserving these gains is essential. Any reforms in the blacklisting framework must build on this foundation, not undermine it. In the end, the question is not whether the system should be strict or lenient. The question is whether the system is effective. A well-calibrated framework can enforce discipline, support recovery, and promote inclusion at the same time. Achieving this balance will be key to safeguarding financial stability in the years ahead.

The opinions expressed here are personal views

When a major neighboring currency weakens, Nepal cannot afford to ignore it. The recent pressure on the Indian rupee is not only India’s problem. Because  Nepali rupee is pegged to the Indian rupee, Nepal inevitably feels the impact. When the rupee weakens against the US dollar, the Nepali currency moves in the same direction. That simple fact ties Nepal’s economic stability closely to developments across the open border.

The rupee’s recent weakness is not the result of a deliberate policy choice by India. It reflects a mix of global shocks and structural realities. Oil prices have surged because of geopolitical tensions in the Middle East. Investors have become more cautious and moved toward safer assets such as the US dollar. At the same time, interest rates in the US remain relatively high, making dollar assets attractive.

India’s own economic structure also plays a role. The country imports a large amount of crude oil and many industrial inputs that are priced in dollars. When oil prices rise, India’s import bill increases quickly. This pushes up demand for dollars and puts pressure on the rupee. Even though India has strong growth and a vibrant services sector, its merchandise trade deficit remains large.

There's a growing argument that a weaker currency helps developing economies by making exports cheaper. In theory, that can be true. Countries with strong manufacturing bases can gain competitiveness from mild currency depreciation. But that argument has limits. India imports a lot of fuel, machinery, chemicals, and electronic components. When the rupee weakens too sharply, the cost of these imports rises. That increases production costs and fuels inflation.

In other words, a weak currency is not always a blessing. It can also act like a tax on the economy.

For Nepal, the implications are more complicated because of the currency peg. Nepal Rastra Bank maintains a fixed exchange arrangement where 100 Indian rupees equal 160 Nepali rupees. This peg has long served as a monetary anchor. It simplifies trade with India and provides stability in a small and import-dependent economy. But the peg also means Nepal imports India’s exchange-rate movements. When the rupee weakens against the dollar, the Nepali rupee weakens too. That affects import prices and inflation inside Nepal.

The most obvious impact is on fuel. Nepal imports petroleum products largely through India. If global oil prices rise and the rupee falls, Nepal faces a double shock. Transport costs increase. Electricity backup becomes more expensive. Food distribution costs rise. Construction materials and industrial inputs also become costlier. Inflation can therefore increase even if domestic demand is weak. Nepal’s central bank has long recognized that inflation in India often spills over into Nepal because of the currency peg and the close trade relationship.

This does not mean Nepal is currently in a crisis. In fact, the country’s external position is stronger than it was just a few years ago. Foreign-exchange reserves have recovered significantly since the stress period of 2022. Remittance inflows remain robust, providing a vital cushion for the economy. Inflation has also moderated from earlier peaks.

But comfortable numbers today do not guarantee long-term security. Nepal’s external stability is more comfortable than it is structurally secure. The economy still depends heavily on remittances and imports. A combination of higher oil prices, slower remittance growth, or a surge in imports could again tighten the external account.

Remittances illustrate this paradox well. They are a lifeline for Nepal. Millions of Nepalis working abroad send money home, supporting families and boosting consumption. These inflows help finance imports and stabilize the balance of payments. But they also reinforce an economic model built on migration and consumption rather than production and exports.

For many young Nepalis, the path to economic success still runs through a foreign airport.

This structural dependence means Nepal remains vulnerable to external shocks. When global conditions change, the impact travels quickly through exchange rates, import prices, and financial flows.

What should Nepal do in this situation? First, policymakers should not panic about the currency peg. The peg remains useful because India is Nepal’s dominant trade partner. It provides stability and credibility in monetary policy. Changing the exchange-rate regime abruptly would likely create more uncertainty than relief. Instead, the focus should be on strengthening the defenses around the peg.

Nepal Rastra Bank should continue to maintain strong foreign-exchange reserves. Adequate reserves give the central bank the ability to manage volatility and reassure markets during periods of stress. Careful monitoring of imports and external payments is also essential.

Second, the government should manage imported inflation carefully. Fuel pricing is a good example. Sudden price increases can hurt households and businesses, but delaying adjustments for too long can create fiscal problems. A balanced approach that smooths price changes while protecting vulnerable groups is more sustainable.

Third, Nepal must reduce its structural dependence on imported energy. Hydropower remains the country’s greatest economic advantage. Expanding domestic electricity use and exporting surplus power can reduce fuel imports and strengthen the external balance over time.

Fourth, export diversification is essential. Tourism, hydropower exports, agro-processing, and niche manufacturing sectors all offer potential. Without stronger exports, Nepal will continue to rely on remittances and imports to sustain growth.

Finally, governance and economic management matter. Investors and entrepreneurs need stable policies, efficient infrastructure, and predictable regulations. Without these foundations, economic transformation will remain slow.

Households and businesses should also avoid overreacting to currency movements. A weaker rupee does not mean people should rush to buy dollars or speculate in foreign currency. Panic behavior can create unnecessary instability. Instead, firms should focus on managing costs and adjusting contracts when imported inputs become more expensive.

Some sectors may even benefit modestly. Remittances sent in dollars or other foreign currencies increase in value when converted into Nepali rupees. A weaker currency can also help certain exports in third-country markets. But Nepal’s export base remains limited, so the inflationary impact of currency weakness is likely to dominate. In the end, the lesson is simple: Nepal is not in immediate trouble, but it cannot afford complacency; external conditions remain uncertain; oil prices are volatile; global financial markets can shift quickly; and the Indian rupee may remain under pressure for some time.

Nepal should use this period of relative stability wisely. Strong reserves and remittances have provided breathing space. That space must be used to build a more resilient economy. Because when the rupee trembles, Nepal inevitably feels the shock. The real challenge is ensuring that the country becomes strong enough to withstand those shocks.