The popularity of digital lending services offered by banks—where the entire process from loan application to repayment is conducted via mobile banking apps—is growing rapidly. However, this growth has been accompanied by increasing risks, particularly in loan recovery. As the number of borrowers rises, banks are seeing a surge in non-performing loans due to weakening recovery rates.
In 2021 (2078 BS), Nepal Rastra Bank introduced the Guidelines on Electronic Loans, 2078 to streamline and simplify the loan process through the use of digital technology. The guidelines allow banks and financial institutions to provide up to Rs 500,000 in loans to customers with salary accounts and up to Rs 200,000 to other individuals via digital channels.
Following this initiative, F1Soft, a payment system operator, launched the ‘Phone Loan’ program in partnership with Nabil Bank. This service is now available in 10 commercial banks. According to the company, over Rs 8.5 billion has been disbursed to more than 342,000 customers till date.
Nepal Rastra Bank reports that 13 banks and financial institutions disbursed nearly Rs 2.98 billion in loans through digital channels in Fiscal Year 2023/24 (2080/81 BS). Its report titled Major Work and Achievements (2077–2081 BS) notes a significant increase in access to credit following the expansion of digital lending.
However, these unsecured loans are now creating recovery challenges. In early March, Nabil Bank issued a public notice to 74 defaulters who had failed to repay their phone loans, urging them to settle their dues within 35 days.
Kiran Pandit, Executive Director of the Payment Systems Department at Nepal Rastra Bank, acknowledged the problem: “Since digital loans are easy to access, even those who don’t really need them end up borrowing. This has contributed to a rise in non-performing loans.” He added that banks are now tightening digital loan disbursements due to recovery concerns.
What is a Phone Loan?
Phone loans are small, short-term, collateral-free loans offered instantly through mobile banking apps. Customers can apply via the app, and once approved through an automated system using 'Decision Analytics' software, the loan is disbursed directly to their bank account within minutes. The service is currently targeted at regular salary earners, but is gradually being extended to individuals with other fixed income sources such as pensions and rental earnings. It is particularly useful for emergency expenses like medical treatment, travel, or household needs.
