Nepal’s rapid progress in digital finance is a well-documented success story. Mobile wallets and QR codes have fundamentally reshaped daily commerce, creating one of South Asia’s most dynamic payment infrastructure. This achievement has laid a vital foundation for a modern economy. Yet, this very success has created a significant imbalance. The nation's fintech ecosystem is heavily tilted toward payments, while the equally crucial domains of credit and investment remain underdeveloped.

While we have solved the problem of how to pay, the more pressing challenge of how to grow remains largely unaddressed by technology. This is more than a theoretical concern. It has tangible economic consequences. The country’s small and medium enterprises (MSMEs), the engine of job creation, face a credit gap estimated in the billions of dollars. Millions of households have savings in low-yield accounts that could be mobilized for productive investment. This imbalance represents a significant missed opportunity for fostering entrepreneurship, democratizing wealth, and accelerating economic growth.

The roots of this lopsided development are twofold: regulatory frameworks that haven’t kept pace with technology, and an institutional focus that has naturally prioritized payments. Key legislation like the Bank and Financial Institutions Act (BAFIA) was designed for a traditional banking era and lacks specific provisions for emerging models like digital-only lenders or peer-to-peer platforms. The Securities Act is similarly silent on innovations like crowdfunding or robo-advisory. This legal ambiguity leaves innovators in a grey area, unable to scale their solutions within a clear, regulated framework.

In addition to this, the institutional focus has logically centered on strengthening the payment systems, which has been essential. However, this has meant that the equally important areas of digital credit and investment have received less strategic impetus. The launch of the Regulatory Sandbox recently is a landmark step forward, but its initial focus on payments, while understandable, limits its potential. What was intended as a gateway for innovation risks becoming a walled garden if its scope is not expanded. To build a more resilient and dynamic digital economy, a balanced approach is essential. This requires a clear vision and decisive action on two fronts: modernizing policy and reimagining the tools for innovation.

First, the regulatory environment needs to evolve. A clear roadmap for amending key financial acts is necessary to create legal categories for new fintech players. This would provide them with a clear path from sandbox experimentation to full-scale, regulated operation, fostering responsible innovation while safeguarding the financial system. Alongside legislative updates, a more consolidated approach to fintech governance could be considered. A dedicated unit or department focused on the full spectrum of financial technology from payments to credit and investment could provide the specialized expertise and coherent policy direction needed to guide the market’s next phase.

Second, the Regulatory Sandbox should be empowered to become a true engine for full-spectrum innovation. Building on its initial success, its scope must be broadened. The next cohort of the sandbox could be transformative if it invited innovators to tackle the economy’s most significant gaps. Imagine a stream dedicated to MSME finance, testing PAN-based digital micro-loans that leverage alternative data to extend credit to viable businesses. Another could focus on retail investment, piloting robo-advisory services and micro-investment platforms to bring first-time savers into the capital markets. A third stream could enable regulated crowdfunding platforms, allowing the Nepali diaspora to invest directly in promising local startups.

Global experience shows this path is both practical and powerful. India has created specific licenses for P2P lenders, while Kenya’s M-Shwari pioneered mobile credit, demonstrating that innovation and regulation can and must evolve together. These examples provide proven models for safely incorporating new financial tools into the mainstream economy. The challenge now is to build upon the remarkable success of our payment infrastructure. Payments are the rails, but the real economic journey involves what runs on them: credit that fuels businesses, and investments that build wealth. By modernizing legal frameworks and expanding innovation initiatives, Nepal can correct its current imbalance. The goal is to create a financial system that is not only digitally efficient but also inclusive, dynamic, and capable of funding the nation's growth for decades to come. The time for this next digital leap is now.

The author is a director of Nepal Rastra Bank