Private Equity Is No Longer an Experiment

The private equity and venture capital (PE/VC) industry in Nepal has crossed a point of no return. What began a decade ago as a donor-backed experiment has evolved into a domestically driven market that is reshaping how capital is mobilized, how risk is shared, and how businesses scale. The question confronting policymakers today is no longer whether private equity has a place in Nepal. It is whether the state is equipped to keep pace with its growth.

The numbers leave little room for doubt. In 2024 alone, PE/VC funds invested $64 million—nearly 40% of all capital deployed since 2012. More striking than the volume is where the money came from. Nearly three-quarters of that investment came from funds licensed under the country’s Specialized Investment Fund (SIF) regime. This marked  a clear shift away from offshore, donor-led vehicles that once defined  the  industry. Risk capital is no longer imported by default; it is being generated at home.

This transition matters because it challenges the foundations of Nepal’s financial system.  For decades, finance in Nepal has been dominated by banks, collateral-heavy lending, and short-term credit. Private equity operates on a different logic—patient capital, shared downside risk, professional governance, and growth that is not anchored to personal guarantees of fixed assets. In practice, it has already begun  to change  corporate behavior, introduce ESG standards, and demonstrate that credible investment is possible without personal guarantees.

But success has also exposed structural weaknesses. The very SIF framework that unlocked domestic capital is now showing  its limits. Funds are still boxed  into narrow legal structures, limited investment instruments, compressed lifecycles, and ambiguity around tax treatment. The absence of clear pass-through taxation, uncertainty around limited liability, and restrictions on quasi-equity and private credit are no longer theoretical concerns. They are now binding constraints in a market that clearly moved beyond its pilot phase.

The risk of capital imbalance is also growing. As fund sizes grow and exits remain tied largely to IPO-ready assets, capital is clustering around hydropower, solar energy, hotels, and manufacturing. These sectors are important, but they do not represent the full breadth of the whole economy.

Early-stage ventures, SMEs, agriculture, and innovation-led businesses remain chronically underfunded, precisely where risk capital is meant to make the greatest difference. Nepal has reached a familiar policy crossroads. Incrementalism is no longer sufficient. If regulators modernize fund structures, broaden permissible instruments, adopt tax neutrality, and rethink rigid sectoral restrictions, particularly  around foreign participation, private equity can mature into a durable pillar of long-term economic transformation. If they do not, the market will still grow, but unevenly,  conservatively and with missed opportunities. Private equity  in Nepal has learned to take risk. The more important test now is whether the state is willing to do the same.

Happy New Year 2026!

Madan Lamsal
[email protected]