As Nepal faces development challenges and climate vulnerability, impact investing presents a timely opportunity to accelerate inclusive, sustainable growth. With rising investor interest in frontier markets and the global shift toward impact-driven investments, Nepal finds itself at an opportunity phase. Here, we will explore Nepal's potential, critical sectors ready for impact capital and the critical reforms needed to catalyze the next wave of investments.

Impact investing refers to the deployment of capital with the intention of generating measurable, positive social and environmental outcomes alongside financial returns. It represents a shift in investment philosophy: value is created not despite social good, but because of it. According to the Global Impact Investing Network (GIIN), over 3,900 organizations globally manage $1.571 trillion in impact assets, growing at a 21% compound annual rate since 2019.

This dual mandate is critical for a country like Nepal where developmental gaps are intertwined with natural vulnerabilities. Impact investing offers a unique proposition: scalable solutions for challenges like rural poverty, energy access and food security, while proving that social impact and sustainable financial returns are mutually achievable.

Strategic Sectors for Impact Capital

Agriculture

Agriculture contributes 24.1% to Nepal’s gross domestic product (GDP) and remains the primary livelihood for over 60% of the population. Though its GDP share has gradually declined, agriculture’s strategic importance is undiminished, particularly given the escalating risks posed by climate change and increasing concerns over national food security.

With support from the World Bank, Nepal's Climate-Smart Agriculture Investment Plan (CSAIP) has identified sub-sectors where targeted capital can enhance productivity and environmental sustainability. Investments in drought-resistant crops, efficient irrigation systems and digital agriculture platforms can close Nepal's yield gap and reduce its staggering 30-40% post-harvest losses. Nepal imported agricultural goods worth over Rs 203 billion over the first seven months of the current fiscal year, signaling a heavy dependence on import and the urgency for domestic production.

Several high-growth subsectors further showcase the investment potential and are proving that, with the right capital and technical expertise, agriculture can be both a source of rural employment and export earnings. For smallholder farmers, impact investments in value chain upgrades and agro-processing can create new local jobs, strengthen incomes and boost adaptive capacity to climate shocks.

Renewable Energy

Nepal has long been considered a hydropower giant-in-waiting, with an estimated 83,000 MW capacity, of which around 43,000 MW is economically feasible. Hydropower now represents a critical lever for rural electrification, reduced reliance on diesel and firewood, and clean energy exports to India under the bilateral Power Trade Agreement.

However, the broader energy picture remains less green. Biomass still accounts for 68% of Nepal’s total energy use, followed by fossil fuel (23%) and modern renewables at just 9% (MoF, 2021). While the electricity grid is relatively clean, sectors like transport, cooking and industrial heating remain heavily polluting. To realize the full potential of sustainable energy, Nepal needs impact capital not only in hydropower, but also in emerging segments like electric mobility, industrial decarbonization and clean cooking. These areas present untapped opportunities to reduce emissions, improve public health and diversify the country’s energy mix.

Tourism

Tourism is one of Nepal’s most dynamic sectors, offering both foreign exchange and community-level development. The sector saw a major rebound in 2024, with international arrivals reaching 1.147 million marking a 96% recovery from pre-COVID levels. This recovery has not only reignited interest in iconic destinations but also spotlighted inclusive models such as community-owned trekking routes and cultural circuits. Initiatives like the Lumbini Buddhist Circuit are setting a precedent: redistributing 40–60% of tourism revenue back to local communities, compared to just 10–15% under conventional models. These ventures offer greater income distribution, promote heritage preservation and create dignified employment in remote regions.

For impact investors, tourism in Nepal presents a compelling opportunity to scale sustainable business models that directly empower local stakeholders. The sector is primed for investments that yield both social and financial returns.

Innovative Capital Structures and Catalytic Instruments

Green bonds and sustainability-linked debt instruments can attract institutional capital, while blended finance, combining grants with commercial funding, can effectively de-risk small and medium enterprises (SME) lending. Technical assistance programs from organizations like the International Finance Corporation (IFC) further strengthen enterprise capacity and readiness for financing.

An agri-tech SME in Nepal, for instance, can access a mix of capital sources, including multilateral bank-backed credit lines through local banks, equity investment from DFIs and advances based on projected carbon revenues. This kind of layered capital structure could enable scalable and sustainable enterprise growth. To support such mechanisms, Nepal Rastra Bank (NRB) can play a key role by finalizing its green taxonomy and introducing tax incentives for verified impact investments.

The development of specialized financial instruments tailored to impact enterprises, coupled with technical assistance programs for SMEs, could unlock new growth opportunities. Nepal can catalyze impact investment by deploying instruments designed to meet local needs. Multilateral banks, such as the World Bank and the Asian Development Bank (ADB), and development finance institutions (DFIs) offer catalytic tools like concessional loans, first-loss guarantees and direct equity. For instance, Business Oxygen (BO2), a private equity fund backed by the IFC, recently invested $500,000 in MedPro International Nepal, an innovative out-of-hospital healthcare provider founded by a prominent cardiac surgeon. This landmark deal represents one of Nepal’s first major private equity investments in the medical sector.

DFIs have traditionally focused on Nepal’s energy, tourism and hospitality sectors. In 2013, the European Investment Bank (EIB) provided a 55 million euros loan for the Tanahu Hydropower Plant, marking its first renewable energy financing in Nepal. Similarly, EIB and KfW jointly invested $53 million in the Chilime−Trishuli transmission line. Beyond infrastructure, IFC and FMO injected $5.5 million into developing Kathmandu’s Fairfield Marriott, a three-star hotel in Thamel designed to boost tourism by meeting international hospitality standards.

Local Impact in Action

Shreenagar Agro Farm: Shreenagar Agro Farm (SAIL) has transformed Nepal's poultry sector through its integrated farming model, benefiting 5,000+ smallholder farmers with 40-60% higher incomes via contract farming. Operating breeder farms, hatcheries and feed plants across Rupandehi and Palpa, SAIL has created 170+ jobs (35% for women/differently-abled workers) while reducing post-harvest losses by 30%. Aligned with eight SDGs, SAIL provides complete support, from training to market access, making it a model for sustainable agribusiness in Nepal.

Gham Power: Gham Power has installed 2,500+ solar systems in Nepal, pioneering solar-as-a-service for farmers. Its pay-as-you-go solar pumps and microgrids replace diesel, cutting costs by 50% and raising crop yields by 30%. Backed by Acumen and Shell Foundation, it also generates carbon credits, proving solar's dual economic and climate impact.

AQysta: A hydropower-based irrigation company, demonstrates how impact capital can drive climate-smart agriculture. Its flagship Barsha Pump, a zero-fuel, water-powered irrigation system, has helped more than 1,500 smallholder farmers increase crop yields while cutting diesel costs by 30-50%. The model also reduces 1.5 tons of CO₂ per pump annually, making it eligible for carbon financing. Investors like DOEN Foundation and Aqua for All have backed aQysta with more than $2 million in funding, recognizing its alignment with SDGs 2 (Zero Hunger), 6 (Clean Water) and 13 (Climate Action). The company’s success in Nepal, where agriculture employs 60% of the workforce but remains vulnerable to climate shocks, shows the potential for replicable, high-impact solutions.

Structural Barriers to Address

Despite growing interest in impact investing, Nepal’s ecosystem continues to face several systemic barriers that limit scale and long-term investor confidence. Enterprises face high costs and limited reach due to underdeveloped infrastructure, transportation bottlenecks and patchy digital connectivity, with rural areas disproportionately affected. These physical limitations are compounded by bureaucratic complexities. Investors often encounter overlapping regulatory mandates, inconsistent enforcement and lengthy approval processes, all of which erode policy credibility and delay capital deployment. Political instability further compounds the problem, with frequent leadership changes undermining policy continuity and long-term planning.

A major constraint lies in the limited access to capital, especially for early-stage ventures. Nepal’s financial sector remains dominated by traditional bank lending, with venture capital and private equity still in their infancy. This leaves a significant financing gap for high-impact enterprises that require patient, risk-tolerant capital. Equally important is the lack of a national impact measurement framework. Without standardized metrics or third-party verification, it is difficult for investors to assess outcomes, and for enterprises to credibly demonstrate their social and environmental impact.

Some encouraging progress, however, has been made. The central bank’s Green finance taxonomy, and IFC’s local currency financing facility and innovative natural hedging strategies represent early steps in addressing structural gaps. However, broader reforms, particularly those focused on standardizing impact reporting, streamlining regulations and deploying blended finance mechanisms are essential to unlock Nepal’s full potential as a destination for meaningful and scalable impact investment.

Lessons from India

India’s experience with impact investing offers valuable insights for Nepal as it seeks to build a more robust ecosystem. In 2023 alone, over $1.5 billion was deployed across India’s impact sectors, with climate-tech and financial inclusion emerging as dominant themes. Climate-tech enterprises attracted $804 million across 123 deals, while financial inclusion, driven by fintech and SME financing platforms, secured $695 million in 48 transactions. These numbers highlight not only investor appetite but also the importance of market design, catalytic policy support and credible metrics.

PharmEasy’s $420 million raise and Udaan’s $340 million round demonstrate how digitally enabled platforms can achieve both impact and scale. India’s regulatory clarity, well-developed capital markets and expanding base of institutional investors have helped it channel private capital toward social priorities aligned with the Sustainable Development Goals (SDGs). Gender Lens Investing (GLI) has also gained momentum, with 17% of funded enterprises led by women in 2023. The strong convergence of capital with SDGs, particularly SDG 3 (Health), SDG 8 (Decent Work), and SDG 9 (Industry & Innovation) underscores how structured, data-driven ecosystems can accelerate results. For Nepal, this underscores the importance of replicable financial instruments, local fund managers and standardized reporting mechanisms.

Charting the Path Forward

For Nepal to fully unlock its impact investing potential, several strategic interventions are needed. Prioritizing infrastructure development, particularly in energy and transportation, can help address foundational constraints across sectors. At the same time, streamlining regulatory processes and ensuing policy coherence will go a long way in boosting investor confidence and accelerating project execution.

As Nepal advances on its development journey, impact investment offers a powerful tool to bridge the gap between ambition and available capital. Strengthening collaboration between government, investors and local communities will be key to ensuring that investments deliver both financial returns and sustainable social outcomes. By addressing systemic challenges and leveraging its unique assets, Nepal can position itself as a regional leader in impact investing, attracting capital that not only drives growth but also delivers inclusive, sustainable change across South Asia.

(Team Ventures is an industry-agnostic alternative investment firm with a diverse portfolio spanning the energy, technology, real estate, manufacturing, financial institutions, agri-infrastructure, and electric vehicles segment.)

(This opinion article was originally published in  May 2025  issue of New Business Age Magazine.)