Shivanth, founding CEO of Nepalese investment bank NIBL Capital, explores how Nepal can move beyond aid dependency toward an investment-driven growth model powered by private capital, financial inclusion and local innovation.
Nestled in the lap of the Himalayas and home to nearly 29 million people, Nepal’s economic journey has been anything but linear. Once a politically isolated kingdom with a closed economy, Nepal transitioned to a constitutional democracy in the 1990s, only to face a decade-long Maoist insurgency soon after. The monarchy was replaced by a Republic in 2008, with former insurgents joining the government amid hopes for stability. It then took another decade to draft and ratify the current constitution. Just as stability seemed near, Nepal was hit by the 2015 earthquake and later the pandemic.
Nepal remains in the early stages of its development journey, striving to graduate from a least developed country (LDC) into a developing country economy. Nepal’s poverty reduction story over the last 30 years is nothing short of remarkable; its poverty rate, which was $2.15 in 1995, fell from over 55 percent to 0.37% in 2022 (World Bank).
Even as recently as the 2024/25 FY, foreign aid commitments still made up 14.5% of the national budget. To be sure, aid has played an important role in the areas of infrastructure, education, and poverty alleviation, amongst others. When Nepal first opened its doors to the outside world in the 1950s and 60s, the impact of aid was transformative. For example, USAID helped build Nepal’s first highway in 1955 and its first nursing school a year later. For these earlier decades, foreign assistance brought visible progress and shaped Nepal’s history and development narrative. However, this one-size-fits-all, donor-driven, and top-down approach to development is now outdated. It fosters a culture of dependence, leaving our economy reactive rather than proactive. Aid supported us, yes, but it also limited us, creating an environment where we looked outward for solutions, increasing bureaucracy and corruption, and also lowering our own ability to grow.
Nepal’s future will not be built on foreign dependencies anymore. For too long, our development trajectory has been shaped by donor roadmaps, grant packages, and associated metrics of success. Meanwhile, political instability and frequent changes in government prevented any lasting homegrown blueprint for development.
If we are to graduate from a LDC status and avoid the middle-income trap, Nepal must strengthen its economic, legal, and regulatory frameworks, deepen its capital markets, and expand economic freedom and liberty across sectors. We must also create an enabling environment for investment and allow the private sector to play a leading role. Our economy is growing at a healthy rate of about 4.5% ( FY 2025), but for this growth to be sustainable and translate into transformative change, we need to stop relying on overseas jobs and remittance and focus on making structural changes, creating an environment that favors investment and job creation across sectors like agriculture, infrastructure, healthcare, tourism, manufacturing, and technology.
“Nepal’s poverty reduction story … its US$ 2.15 poverty rate fell to 0.37% in 2022 – World Bank”
What if Nepal became an example, not for aid dependency, but for investment-driven growth? A new comprehensive marshall plan for real sustainable growth.
The hidden cost of aid dependency: How can a well-intentioned initiative turn out to be so costly?
The deeper cost of aid dependency is not reflected in financial statements. When governments rely less on domestic taxation and more on foreign aid, the bond of accountability between the state and its people weakens. Priorities shift to appease donor expectations rather than to address local realities. Too often, projects are designed to satisfy donor log frames and KPIs rather than Nepal’s long-term needs, sidestepping sustainable community-led solutions and sidelining local businesses. Let us not forget that aid is never just about development; it is just as much a tool of diplomacy, politics, and policymaking, entangled in broader foreign political agendas, not just local needs. Instead of one-sided aid, Nepal needs partnerships that build capacity, transfer knowledge, and co-create solutions. Where aid has missed the mark is in working with local financial institutions and incorporating local ownership from the get-go. We don’t need the fish handed to us; we need to own the fishing nets.
The turning point
In the last decade, remittances from Nepalis working abroad have poured real capital into Nepal. Millions of Nepalis are also entering the capital markets and investing for the first time through IPOs, mutual funds, and shares in hydropower projects. As of 2024, more than 6.3 million DMAT accounts exist ( Central Depository Company and Clearing data, a subsidiary of Nepal Stock Exchange), which represents roughly 21% of the population. This financial inclusion signals a powerful grassroots investment movement and a move to self-dependency, but it didn’t happen on its own; it was driven by local financial institutions. However, this shift also signals a weakness in the economy that is unable to provide jobs, pushing its citizens to seek greener pastures overseas.
The central bank has also intervened by mandating commercial banks to lend to key underserved sectors like women entrepreneurs, agriculture, and energy, and it now plans to expand mandatory green bonds and sustainable financing. Our own experience with IPOs showed massive oversubscription application rates so high that a lottery system had to be introduced.
The Agriculture Development Bank (ADB)’s 24 billion Nepalese rupee Agri bond, for example, which later allowed the ADB to extend loans to farmers across Nepal, further demonstrates the untapped potential of local finance and an immense appetite for investment.
Yet challenges remain. Much of the remittance inflows primarily fund imports rather than being reinvested or saved. With better mobilisation, especially through government-facilitated scaling, remittances could drive sustainable domestic growth and improve our terms of trade. At the same time, Nepal makes minimal use of foreign debt, which means there’s a wealth of underutilised opportunity for financing our priority programs.
Private capital: engine for growth
Private capital must become the new engine for growth. Unlike aid, which is primarily focused on solving problems, investments build systems by fostering entrepreneurship and creating sustainable jobs. Nepal’s economy is currently dominated by a few business houses, which tend to monopolise the various industries. Private equity can support skilled entrepreneurs who want to enter new markets. In recent years alone, we have seen private equity shape Nepal’s economy across various sectors like agriculture, FMCG, hospitality, and tech. With a young population, Nepal is well-positioned for import substitution, industrial expansion, and innovation-led job creation.
This isn’t just theoretical: between 2012 and 2025, Nepali PE-VC funds mobilised approximately $265 million, across 15 sectors, notably in technology and renewable energy. These investments, increasingly listed on the local stock exchange, are diversifying investment opportunities. The economic growth of Nepal accelerated in the first half of the fiscal year by 4.5% due to growth in the agricultural and industrial sectors. To further sustain this growth, Nepal could look into other financing mechanisms like quasi-finance instruments that can bridge funding gaps, especially for growing SMEs.
We already have a growing agricultural sector, thanks to improved road networks and technological advancements. We have also begun to export energy to India, signaling energy independence, and local financing models are proving their worth. The next step is to finance the future we want through sustainable finance, strengthened capital markets, and regulatory frameworks that not only support compliance but also enable innovation and faster adoption of international practices.
Every time a young entrepreneur pitches a new idea, every time a Nepali chooses investment over emigration, every time a farmer scales their business, we move closer to an empowered and sustainable future. What we now need is a culture that celebrates financial autonomy and investment, one that rebrands Nepal from a country open for aid to one open for business.