IMAGE: SHUTTERSTOCK
A NEPALI COMPANY that wants to expand faces a miserable choice: grovel to a bank, beg its owners for more money or postpone the investment. A third option exists. It can borrow directly from investors by issuing bonds, promising interest and returning the principal at an agreed date.
That option stays weirdly exotic in Nepal. The country has a working government securities market and a growing stock exchange. Its corporate bond market is small and incestuous. Most listed debentures come from banks and financial institutions. Manufacturers, hotels, hospitals, exporters and other businesses have barely touched the instrument.
The contrast stinks. The Nepal Stock Exchange listed 70 debenture issues worth Rs167.71bn as of June 2026, according to ShareSansar. These securities came overwhelmingly from banks and financial institutions. The figure captures the value of listed debentures, not the size of a broad market where ordinary companies routinely raise long-term capital.
The problem is part regulatory, part financial, part market design. Nepal has spent decades building a stock market where investors gamble on ownership. It has yet to build institutions that make lending directly to companies straightforward.
The easier option
For many businesses, a bank loan is simpler. Companies already know the paperwork and can negotiate directly with a lender. Banks assess borrowers and manage collateral. A bond issue forces a company to prepare disclosures, obtain approvals, appoint intermediaries and persuade investors its finances justify the promised return.
That process bleeds cash. Legal advice, credit ratings, issue management, trusteeship and regulatory compliance can make a bond uneconomical for a smaller borrower. A company seeking a small amount may find the expense of issuing securities devours too much of the money it hopes to raise.
Bank lending carries another established advantage: collateral. Nepali businesses commonly pledge land and buildings to secure loans. A company with property and an existing bank relationship finds borrowing against those assets easier than explaining its creditworthiness to a dispersed mob of investors.
A bond market needs something else: reliable financial statements, credible credit assessments and investors willing to lend against a business’s future cash flow. Those conditions are tough to establish.
A bond is a promise to repay. Its value depends on the issuer’s ability to honour that promise, the interest rate offered and the investor’s ability to sell before maturity.
Nepal’s investors have limited experience assessing corporate credit risk. The stock market provides visible daily prices and the prospect of fat gains. A debenture offers a fixed coupon, while its market price can fall when interest rates rise. If the issuer runs into financial trouble, investors may lose interest payments or principal.
Liquidity compounds the mess. A security can list on NEPSE without attracting regular buyers and sellers. Investors who need their money before maturity may struggle to find a buyer at a reasonable price. ShareSansar reported in June that institutional investors dominate debenture ownership and trading, while retail participation stays limited.
The upshot is a market where investors often buy bonds to hold until maturity. That works for pension funds and insurers with long-term liabilities. It appeals less to households accustomed to trading shares or keeping savings in bank deposits.
A further complication festers. Banks have been the main issuers partly because regulation gives them specific reasons to raise subordinated debt and strengthen their capital position. Their familiarity with financial disclosure and established investor relationships also make issuance easier.
For other companies, the route has been murkier. A 2024 assessment by the International Finance Corporation and the Securities Board of Nepal identified burdensome, largely manual issuance procedures, restrictions on unlisted companies and limited provisions for real-sector firms as obstacles to market development. It also called for better transparency and more efficient pricing through book building.
Nepal’s corporate bond market has therefore faced a circular trap. Businesses have little incentive to issue bonds when investors are scarce. Investors have little reason to develop expertise in corporate debt when few businesses issue it. Banks remain the established source of finance, reinforcing the pattern.
Beginning to change
In August SEBON published a draft Debenture Registration and Issuance Regulation intended to replace the debenture provisions of its 2016 framework. It proposes allowing a wider range of organised institutions to issue bonds, including companies outside banking and insurance. It also provides for public issuance and private placement, potentially allowing eligible issuers to approach up to 50 qualified investors directly.
The draft proposes mandatory independent debenture trustees to represent bondholders. It also sets out disclosure and due-diligence requirements and opens the possibility of foreign-currency bond issuance by Nepali companies in international markets, subject to regulatory approval. These are proposals, zero proof of a functioning market.
Easier rules can make an unprofitable company creditworthy, create buyers for illiquid securities or guarantee an issuer will repay its debts. A trustee can monitor compliance yet cannot eliminate default risk. A private placement can reduce distribution costs, yet it may also concentrate ownership among a small group of institutions.
The next test is demand. Nepal has long-term pools of savings in the Employees Provident Fund, Citizen Investment Trust, Social Security Fund and insurance companies. These institutions could provide a natural investor base for long-dated corporate debt, provided the securities meet their risk and return requirements. Individual investors could participate more widely as disclosure, pricing and secondary trading improve.
Corporate bonds would give companies another way to finance factories, hotels, hospitals, power projects and equipment. They could match long-term investments with long-term borrowing, reducing dependence on loans that may need refinancing. They would also allow owners to raise capital without issuing additional shares and diluting their stakes.
A deeper bond market requires businesses that can demonstrate predictable cash flows, investors able to assess risk and institutions capable of enforcing repayment. Nepal has begun addressing the rules. The ugly work is building confidence in the companies that will use them. ■
