Government Announces Major Reform in Banking and Financial Sector Through FY 2083/84 Budget
Kathmandu — The Government of Nepal has announced a landmark reform in the country's banking sector by introducing a credit score-based lending system, replacing the traditional practice of providing loans primarily against physical collateral.
The provision was unveiled through the national budget for fiscal year 2083/84, with the government pledging to establish the necessary legal framework that will allow banks and financial institutions to issue loans based on an individual's or business's creditworthiness.
Shift from Collateral-Based Lending to Credit-Based Financing
Currently, obtaining a loan in Nepal generally requires borrowers to pledge assets such as land, houses, or other physical property as collateral. Under the proposed system, banks will evaluate a borrower's financial behavior, repayment history, and overall credit profile before approving loans.
The reform aims to modernize Nepal's financial system and align it with international banking practices, where credit scores play a key role in determining loan eligibility.
Banking Experts Welcome the Move
Nabil Bank Chief Executive Officer Manoj Gyawali stated that credit score-based lending is widely practiced around the world, although Nepal still needs to develop the necessary infrastructure and data systems for its effective implementation.
According to him, the system could utilize Nepal's National Identity Card database and financial records to assess an individual's borrowing and repayment history.
"Credit score-based lending means evaluating whether a person has responsibly repaid previous loans and fulfilled financial obligations on time. Based on that record, banks can determine loan eligibility without necessarily requiring physical collateral," he explained.
Financial sector experts believe the system could also encourage greater use of credit cards and other modern financial products in Nepal.
Greater Access to Finance for Startups and Entrepreneurs
The new policy is expected to significantly improve access to finance for small businesses, startups, young entrepreneurs, and individuals who lack valuable assets despite having strong business ideas and income potential.
For years, many aspiring entrepreneurs have struggled to obtain bank financing because they did not own land or property that could be pledged as collateral.
Once implemented, businesses with strong growth potential may be able to secure financing based on their credit profile, business performance, and financial discipline rather than solely on asset ownership.
Digital Financial Infrastructure to Support the System
To fully implement the new framework, Nepal Rastra Bank is expected to issue detailed guidelines and strengthen the country's credit information infrastructure.
The Credit Information Center's database will likely be expanded and integrated with digital financial systems to create comprehensive borrower profiles.
The government also plans to leverage advanced technologies, including artificial intelligence and digital financial platforms, to automate credit assessment and improve lending decisions.
Potential Impact on Nepal's Economy
Economists believe the introduction of credit score-based lending could:
- Increase financial inclusion
- Promote entrepreneurship and innovation
- Improve access to business financing
- Reduce dependence on real estate-backed lending
- Formalize more economic activities within the banking system
- Strengthen Nepal's digital financial ecosystem
If successfully implemented, the reform could mark one of the most significant changes in Nepal's banking sector in recent decades, creating new opportunities for individuals and businesses that have traditionally been excluded from formal credit markets.
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