The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute

(ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in
this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

DIGITAL ECONOMY IN NEPAL

OPPORTUNITIES, RISKS AND CHALLENGES
JANUARY 2018
 1. INTRODUCTION Total Area: 147,181 Sq. Km.
2

Total Population: 26.6 Million

Capital:
Katmandu

0.03% of world’s area

MOUNTAIN & TEMPLE
4
ECONOMY AT GLANCE

• Growth Rate (Achieved): 6.9%

(Highest in past 2 decades)
• Target Growth Rate: 7.2%
• GDP at current Price: NRS 2627 Billion
• GNI Per Capita Income: USD 772
• GDP composition: Agriculture – 32%, & non-agriculture - 68%
• Fiscal Year: July 16 to July 15
• Exchange rate: 1 USD=102 NRS
ECONOMY AT GLANCE….

• Total Export: Rs. 73.05 Billion

• Total Import: Rs.990.11 Billion
• Trade Balance: Rs.917.06 Billion ( High Trade Deficit)
• Remittance Inflow: Rs.695.45 Billion
• Foreign Exchange Reserve: Rs.1079.52 Billion
GENERAL INFORMATION

• Location: Between India & China

• Political division: After ending decades long conflict New constitution has
federal, states (7), local level (753) (Metropolitan , Municipalities & rural
Municipalities)
• Local Level Election & State Level Election (Ongoing for First time)
• Capital: Katmandu
• Political-System: Multiparty Democracy
STATE OF THE FINANCIAL SERVICES

• History of formal banking services of over 80 years

• 28 Commercial Banks, 40 Development Banks, 28 Finance Companies and 53

Micro Finance

• 40% citizens have access to formal banking services

• 60% citizens have access to formal and informal banking services including
cooperatives

• Government of Nepal emphasizing on having bank branches in all 753 local

governments
STATE OF THE TELECOM SERVICES

• 2 Major MNOs hold over 95% market shares of mobile phone services

• Mobile phone penetration reached 134% of population

• Overall Internet access reach is 63%

• 2 MNOs share in internet access is 96%

• Estimated penetration of smart mobile phone is over 30%

STATE OF THE DIGITAL ECONOMY

• 2.6 million banked customers subscribed to Mobile Banking/SMS Banking

• About 0.5 million Online/Internet banking customers

• About 0.6 million customers subscribed to e-wallets

• About 5 million Debit Cards in circulation (Visa, MasterCard, SCT, NPN etc)

• 80,000+ Credit Cards in circulation

• 1,700 plus ATMs and Estimated 12,000 plus POS (Point of Sales) Terminals
INFRASTRUCTURE FOR DIGITAL FINANCIAL SERVICE

• 3 banks recently installed Payment Gateways

• Shared switches and individual switches installed by banks & card operators

• Absence of National Retail Payment Switch at Central Bank

• Central Bank instruction to migrate to EMV Card for all issuers (larger % migrated)

• PCIDSS compliance mandatory for all card issuers

• Central Bank in process of installing RTGS and CSD to meet BIS requirements

• Ministry of Finance undergoing installation of Debt Operations Management Systems

REGULATORY ENVIRONMENT FOR DIGITAL
FINANCIAL SERVICES
• Central Bank established a separate Payment Systems Department

• Central Bank issued Payment and Settlement Bylaws, Licensing Policy for
Payment Service Providers and Payment System Operators

• Central Bank issued 4 directives on Digital Financial Services and more in

process of issuance for effective regulatory framework

• In process of coming up with Payment & Settlement Act, Oversight Framework

• Government keen on use of DFS for P2G and G2P transactions

OPPORTUNITIES

• DFS creating access to financial services even in rural Nepal for unbanked and
underbanked population

• Government policy of using banking channel for social security grants

distribution promoting use of banks and digital financial services

• Expansion of Branchless Banking (BLB) in remote locations creating platform

for savings, access to small loans and micro insurance

• 3 Licensed PSPs are aggressively expanding the agent networks through out the
country

• Many PSPs are in process of obtaining the central bank license

OPPORTUNITIES

• High growth in use of social media and internet access is creating opportunity
for wider coverage of population in online business

• Growing number of online/e-com service providers are aggressive in market

penetration

• People see value in using DFS for different Utility payments and Top ups

• DFS in introductory stage and hence huge opportunity of growth both in urban
and rural Nepal
RISKS AND CHALLENGES FOR DIGITAL FINANCE

• Fragmented growth by multiple providers with limited scale of operations

• Absence of interoperability amongst providers of MFS and cards in lack of National

Retail Payment switch at Central Bank

• Difficult geographical terrain and poor connectivity in the larger remote Nepal

• Poor financial literacy and tech use capability of general mass

• Huge resources to be invested in education, agent network, telco infrastructure against

the thin profit margin from the DFS

• Weak enforceability and support of Government to roll out DFS against strategy
Thank You for your kind
Attention