Nepal’s financial system has disbursed loans totaling Rs 5.55trn to approximately 1.94m borrowers. Governor Biswo Poudel recently highlighted this trend while presenting new data on small borrowers—defined as those with loans under Rs 10m. On that occasion, the chief of the central bank, Nepal Rastra Bank (NRB), raised concerns about the concentration of large loans among a small group of individuals and whether such lending practices are contributing meaningfully to economic productivity.
Around 1.94m Nepali people have accessed loans from commercial banks, development banks and finance companies. Of these, approximately 1.869m small borrowers have taken loans totaling
Rs 1.99trn.
These small borrowers include lower-middle-class individuals who often borrow to start small businesses, send family members abroad for work or fund vocational training. Many also take loans to purchase land or vehicles, or to build homes. However, this group is financially vulnerable. According to NRB data, 28.8 percent—equivalent to Rs 549.85bn—of their loans have become non-performing, accounting for 4.34 percent of total lending.
Mid-level borrowers, defined as those with loans between Rs 10m and Rs 100m, are also under financial stress. This segment includes approximately 6,793 borrowers, holding Rs 1.254trn in loans. Roughly 11 percent of this amount is non-performing, indicating severe repayment challenges, especially post-covid, as many small and medium enterprises failed to recover.
At the other end of the spectrum are large borrowers—those with loans exceeding Rs 100m. This group consists of just 7,763 borrowers, who collectively hold Rs 2.39trn. Even more concentrated, 1,552 individuals manage over Rs 1.34trn in loans, highlighting a stark imbalance in credit distribution. Despite handling large sums, the rate of non-performing loans in this group is significantly lower.
The data indicate that the larger the loan, the lower the likelihood of it being classified as non-performing. Borrowers in the higher brackets often have the advantage of restructuring loans, accessing new credit to service old debt and leveraging networks within the banking system. This circular lending practice, often facilitated by banks themselves, poses systemic risks and raises ethical questions.
Loans in the Rs 10–500m range account for 95 percent of Rs 1.048trn in outstanding loans, with a non-performing loan (NPL) ratio of 22.14 percent (Rs 232bn). Notably, NPL ratios decrease as loan sizes increase. For loans between Rs 50–100m, the NPL rate drops to 4.83 percent, and for
Rs 100–200m, it falls to 3.01 percent, with the highest loan brackets seeing NPLs as low as 0.04 percent.
There is a stark contrast in Nepal’s loan distribution and associated credit risks across borrower categories. While small and mid-level borrowers (with loans below Rs 100m) collectively hold significant portions of the total loan portfolio—Rs 1.99trn and Rs 1.254trn, respectively—they also exhibit alarmingly high non-performing loan (NPL) ratios of 28.8 percent and 11 percent, indicating financial vulnerability and limited resilience. In contrast, large and very large borrowers (with loans above Rs 100m), though few in number, control disproportionately high volumes of credit—up to
Rs 2.39trn—with remarkably low NPL ratios (3.01 percent and 0.04 percent). This inverse relationship between loan size and credit risk reveals a systemic concentration of financial resources among a limited elite, raising concerns about financial equity and governance. The findings underscore the need for regulatory reforms to rebalance credit flows, safeguard small borrowers, and address emerging issues of financial inequality and systemic risk.
This disparity raises concerns over the governance and equitable distribution of financial resources. NRB data reveal that out of 1.94m borrowers, just 194 individuals—0.01 percent—have accessed loans exceeding Rs 2.25trn, or 3.9 percent of the total loan volume. On an average, each of these individuals has taken loans of over Rs 1.11bn. These statistics underscore a critical issue: a limited number of individuals control a disproportionate share of banking sector credit.
This concentration of financial power has drawn attention in parliamentary discussions. In a recent meeting of the Finance Committee of the House of Representatives, clause-by-clause deliberations on the amendment of the Banks and Financial Institutions Act (BAFIA), 2073, are underway. The proposed amendments aim to address conflicts of interest, ensure fair loan distribution and introduce stricter governance measures to prevent the undue concentration of credit.
The ongoing legislative review seeks to establish clearer guidelines on eligibility for loans and address the structural weaknesses that allow such imbalances. Key concerns include whether bank directors and affiliated individuals are receiving favorable treatment and whether existing legal frameworks are sufficient to prevent misuse of financial resources.
As the debate continues, it has become evident that financial inequality is deepening. There is a pressing need for reforms to ensure that credit distribution contributes to inclusive growth, supports small and medium enterprises, and reflects principles of transparency and social justice.
The author is a senior fellow and program executive at SNG Solution
