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In the great global race for capital, Nepal is running backwards in flip-flops. Its stock exchange, the NEPSE, launched with much fanfare in the 1990s, has since become less a vehicle for investment than a missed opportunity. Whereas firms in low- and middle-income countries (LMICs) raised nearly $4 trillion between 1990 and 2022 through capital markets, Nepali issuers remain few; its liquidity thin; and its investor base narrow. The fallout is a market better known for volatility than value, and an economy still groping for patient capital. It is an unlikely feat: to be poorer than one’s poorer peers.
Elsewhere, capital markets have become the financial equivalent of democratic deepening. From 2000 to 2022, cumulative net issuance (CNI) in low-income countries quadrupled; in middle-income ones, it grew eightfold. Not only have more firms tapped markets, but they are increasingly leaner, younger, more productive. Nearly two-thirds of LMIC market issuance since 1999 has come from smaller firms with high marginal returns to capital. China alone accounts for 88% of this trend. In Nepal new listings are rarer than snow in May.
One reason is architecture. Successful LMIC capital markets rest on two pillars: deep domestic investor pools and sensible regulation. An overwhelming share of issuance—79% of equity and over half of bond sales—now occurs within national borders, a reversal of past reliance on external capital. This “domestic turn” is not merely patriotic: it is rational. Local markets provide lower costs; shield firms from currency swings; and align better with operating realities.
Nepal, by contrast, has neither regulatory sophistication nor investor breadth. Its rules are toothless and tangled. Although requirements on paper resemble those of mature markets, their implementation veers between performance and paralysis. Smaller firms, naturally wary of high compliance costs, find no reprieve. There is no SME exchange with relaxed norms, no shelf-registration for repeat issuers and no real support ecosystem—no credible analysts, no rating agencies, no institutional ballast. The result is a hollow market: 249 listed companies, yet barely enough liquidity to absorb a modest retirement fund.
The consequences transcend Dalal Street. Firms accessing capital markets in other LMICs have seen stonking gains: sales up 11%, capital investment up 17% and workforce growth in the year following issuance. These benefits are especially potent where credit markets are shallow and banks reluctant to lend without collateral. Capital market access allows firms to invest, expand and formalise—transforming themselves from family-run shops to scalable enterprises.
In Nepal that alchemy rarely happens. With long-term financing elusive, firms rely on retained earnings or short-term loans from banks, often underpinned by property collateral. Meanwhile domestic savings—much of it remittance-fuelled—flow into idle real estate or speculative stocks, rather than into productive enterprise. The capital market, rather allocating resources, recycles rumours and redistributes risk to the unwary.
Fixing this mess requires more than technocratic tinkering. Institutional investors—pension funds, mutual funds, insurance firms—must be given reason to care. Countries like Chile and the Philippines have shown how pension reforms can seed long-term capital, while Brazil’s Novo Mercado gives a roadmap for voluntary high-governance listings. Korea’s liberalisation in the 1990s invited foreign investors without surrendering oversight. All offer templates; none are plug-and-play.
More regulation, however, is not necessarily better regulation. A one-size-fits-all approach merely drives smaller firms back into the informal economy. Policymakers should consider phased disclosure regimes, tiered listing boards and incentives for transparency over box-ticking. Reducing the informational void—through credit rating agencies, independent analysts, better audit systems—would help investors price risk more accurately and compress financing spreads.
New instruments can help too. Green bonds and ESG-themed securities could attract capital with non-financial mandates: alongside nudging firms towards better governance. But this requires more than good intentions. Investors want confidence that reporting is accurate, emissions are measured, covenants enforced. Until Nepal builds this infrastructure thematic finance will be more branding than ballast.
Development partners could assist, not only with capital injections or training workshops but with the harder task of underwriting credibility. Market infrastructure, after all, is a public good. And once built, it allows the private sector to flourish.
Eventually Nepal must aim for dullness. The most successful capital markets in the world are boring: rules-based, predictable and unremarkable in their day-to-day functioning. The NEPSE, in its current form, is too exciting for comfort—a stage for short-term bets rather than a conduit for long-term investment.
If this continues, the cost will be high. An underdeveloped capital market leaves firms undersized, talent underutilised, capital underdeployed. It entrenches informality and injects fragility into the financial system. And that means the country’s demographic and geographic advantages remain advantages, not achievements.
It is not that Nepal lacks the capacity. Its firms, diaspora and entrepreneurs are as dynamic as any. The constraint is institutional will. If Burkina Faso can deepen its bond market and Bangladesh can tap equity markets to fuel industrialisation, Nepal has little excuse. But time is not on its side. The world’s capital is moving—and not waiting. ■
