IMAGE: CLAUS HETTING
DEVELOPMENT FINANCE institutions (DFIs) are not household names. They are government-backed banks from wealthy countries, whose job is to invest in private businesses in places where ordinary investors fear to go. They do not build roads or schools. They do not hand out grants. They put money into companies and expect it back, with a return, on the grounds that profitable businesses create jobs and pull economies forward. In Nepal they have been doing this for a decade. Between 2014 and 2023, according to data compiled by Invest for Impact Nepal, a platform backed by the British and Dutch development banks, these institutions collectively deployed $1.09bn.
That sum came in tranches, through deals too technical for a budget speech and too boring for a press release. The single biggest chunk was a $453m debt package assembled in 2019 by a consortium of eight institutions—led by the World Bank’s private-sector arm, the IFC, and including the British development bank BII, the Dutch FMO, the Asian Development Bank, and several others—to build the Upper Trishuli-1 hydropower plant, a 216 megawatt project in central Nepal that now lights homes and runs factories across the country. That single deal accounted for more than four in every ten dollars of the decade’s total.
The rest was scattered more widely. Nepal’s banks, which badly needed capital they could not raise locally, became the next favourite destination. The Dutch FMO made its first equity investment in NMB Bank back in 2008, eventually building a stake worth over $26m. The US Development Finance Corporation approved a $100m direct loan to NMB Bank in 2022—a striking commitment from Washington to a country more often discussed in the context of geopolitical balancing between India and China. Britain’s BII invested equity in WorldLink, Nepal’s largest internet service provider. The IFC put $56m into Global IME Bank in 2024, the largest commercial bank in the country by assets, specifically to fund loans to small businesses and women-owned enterprises. Private equity funds, principally the Dolma Impact Fund, attracted a further $100m from a dozen DFIs combined and used it to back a hospital, a logistics company and a telecoms firm.
By sector, energy swallowed roughly 80% of the total. Banks took about 10%. Private equity funds received around eight. Hospitality and technology divided the rest. That lopsided picture suggests something worthwhile.
Hydropower in Nepal is, in development-finance terms, close to a sure bet: the mountains provide the water, the government provides the licence and India provides a hungry market for electricity exports. A bank loan backed by a dam is a manageable risk. A loan to a garment factory in Birgunj, or equity in a software startup in Lalitpur, is not. The upshot is a portfolio that has largely reinforced what Nepal already does well rather than building what it does not yet have.
The latest chapter has moved in a more interesting direction. In April 2025 NMB Bank issued Nepal’s first-ever local currency green bond—$60m, anchored by IFC and BII with MetLife, the American insurer, buying alongside. The money is earmarked for electric vehicles, solar installations and small businesses working on sustainable projects, with an expected 8,000 jobs to be created over five years.
Two months later, Nepal Infrastructure Bank followed with a $36m green bond listed on the Nepal Stock Exchange, funded by Swedfund and Finnfund, the Swedish and Finnish development banks. Both deals were firsts: the first thematic bonds ever issued in Nepal’s capital markets and the first time international investors had bought bonds placed privately by a Nepali issuer. They are small in global terms and significant in local ones.
What is still missing is the regulatory plumbing that would make all of this easier. For years foreign investors could not easily repatriate profits, lock-in periods on equity investments stretched to three years, and the central bank’s rules on foreign borrowing were opaque enough to discourage all but the most patient institutions. Progress has been made: the Nepal Rastra Bank formally recognised DFIs in its foreign investment regulations in 2024; and the Securities Board cut the lock-in period from three years to one. But Nepal still has no mechanism for companies to hedge against the exchange rate swings that can turn a profitable investment into a loss. These are the basic furniture of an investment-grade economy, and Nepal does not yet have them.
DFIs are paying close attention to what happens next, for a specific reason. Nepal was due to graduate from its status as a least-developed country in November, a milestone that will cost it the preferential trade terms and concessional financing that come with that classification. This month the country asked the United Nations to delay its graduation until 2029 because the government says the economy is too weak to cope with losing special trade benefits, cheap financing and other international support. Once it graduates, however, the DFIs’ own mandates—which typically prioritise the poorest and most fragile economies—may push them to redeploy capital elsewhere.
Already some are signalling caution. “DFIs are closely monitoring Nepal’s trajectory,” notes one analysis from the sector. “Only a limited number are currently prepared to make direct investments.” The $1.09bn built up over a decade could prove harder to sustain at the same pace once Nepal is officially, if modestly, richer.
The government of Balendra Shah has spoken warmly about attracting private capital. The hundred-point reform programme unveiled in April includes commitments to simple regulations, improve capital markets and attract diaspora investment. How well it also addresses the specific demands of development financiers such as the predictable enforcement of contracts will determine whether the next decade’s tally improves on the last one’s. A billion dollars invested is a good start. It is not, by itself, a transformation. ■
