Nepal Financial Inclusion Report 2023: More Nepalis have access to formal financial services

Thanks to the proliferation of banks and financial institutions (BFIs) in the country, the use of formal channels for financial services has increased tremendously over the last decade. The new report titled "Nepal Financial Inclusion Report 2023" published jointly by International Finance Corporation (IFC) and United Nations Capital Development Fund (UNCDF) shows 90 percent of Nepali adults use formal financial services. With the countrywide expansion of BFIs as well as microfinance institutions, the use of informal channels for financial transactions has gone down significantly. According to the report, only 4 percent of adults use informal channels.

The report says the percentage of adults who use formal financial services (from banks and other formal providers) has increased from 61 percent in 2014 to 90 percent in 2022. Of them, 81 percent use banking services while 9 percent use other formal financial services. In 2014, 40 percent used banks, and 21 percent used other formal channels.

"The uptake of overall formal financial services has been largely driven by both banking and insurance sector service expansion across the country under the new federal structure, and the uptake of digital financial services amidst the growing mobile and internet penetration," reads the report. The usage of formal financial services has significantly risen not only for the urban population but also for the rural population as well. In rural areas, the use of formal financial services increased to 88 percent in 2022 from 58 percent in 2014. Of the rural population having access to formal financial services, 77 percent use banking services while 11 percent use other formal financial services. The report, however, said the urban/rural divide still persists as only 50 percent of adults from rural areas have an account at a financial institution, whereas 60 percent of urban adults have bank accounts. The concentrated and mandatory branch expansion of bank branches in all the local levels including the ones in the rural areas under the new federal structure, distribution of social benefits via bank accounts, and cohesive efforts from both the local level governments and the private sector to drive financial services are some of the determining factors increasing the access of formal financial services in the rural areas. According to the report, the gender gap has also significantly narrowed. In 2022, 89 percent of women and 90 percent of men have access to formal financial services (bank and other formal), which was only 57 percent and 64 percent respectively in 2014. However, there is still a gap in the usage of banking services between male and female adults, with 83 percent of men using banking services compared to 79 percent of women. In terms of account ownership, 50 percent of women and 56 percent of men have an account at a financial institution. The growth and the narrowing of the gender gap can be primarily attributed to gender-balanced regulations, financial inclusion drive by all three tiers of governments, i.e., local, provincial, and federal governments, as well as government-supported access programs such as concessional loans targeted towards women. Access to formal financial services is highest in Gandaki Province at 96 percent, followed by Bagmati Province at 91 percent. Province 1 and Karnali Province have the lowest usage with 87 percent. Gandaki Province has the highest percentage of adults with access to formal savings at 73 percent followed by Sudurpaschim (69 percent) and Bagmati Province (66 percent). In Gandaki Province, 42 percent have bank savings while 31 percent save at other formal institutions. In terms of payments, Gandaki Province (85 percent) has the highest usage of banking channels for payment services followed by Sudurpaschim Province (83 percent) and Bagmati Province (77 percent) respectively.