Government Unveils Financial Sector Development Strategy, Targets 7.5pc GDP Contribution

The government has unveiled the Second Financial Sector Development Strategy, aiming to raise the financial sector’s contribution to the gross domestic product (GDP) to 7.5 percent within five years.

The strategy, which will be implemented through fiscal year 2029/30, seeks to strengthen banking, insurance, capital markets, cooperatives and non-banking financial institutions. Currently, the financial sector’s contribution to GDP stands at 6.65 percent.

Banking Sector

Under the strategy, the share of agricultural credit in total bank lending will be increased from 12.84 percent to 15 percent. The government also projects a threefold increase in electronic transactions through mobile banking, internet banking, digital wallets and QR payments.

The strategy also includes plans to mobilise financial resources through specialised instruments such as green bonds. Concerned ministries and agencies will prepare detailed action plans within two months, outlining timelines, implementing agencies, priorities and performance indicators.

While the use of debit and credit cards has increased significantly, the report notes gaps in financial infrastructure, transparency, risk management and consumer protection. It highlights challenges related to managing technology-driven risks and the lack of adequate legal frameworks for new financial instruments.

The strategy also stresses the need to enhance the capacity of the Credit Information Center, introduce credit scoring systems, and strengthen the capital and operational capacity of the Deposit and Credit Guarantee Fund.

Managing rising non-performing loans and non-banking assets through the establishment of an asset management company remains a key challenge, the report says.

Insurance Sector

The strategy targets expanding insurance coverage to 60 percent of the population. To achieve this, the government plans to introduce simple and affordable insurance products for low-income groups in coordination with local governments, cooperatives, microfinance institutions and community organisations.

Currently, life insurance coverage stands at around 48 percent of the population.

Plans also include introducing property insurance for public and private assets against natural disasters and other risks, promoting green and social bonds, and strengthening the risk-bearing capacity of reinsurance companies. The strategy also prioritises strengthening the regulatory capacity of the Nepal Insurance Authority and improving solvency and risk management standards.

Capital Market

The strategy envisions mobilising development financing through diversified financial instruments, including derivatives, bonds, mutual funds, index funds and green bonds.

It also proposes full dematerialisation of all financial instruments, including government securities, and automated trading in the secondary market. An integrated data management system will be developed to improve transparency and inclusiveness in both the securities and commodity markets.

The government has also proposed drafting new laws related to securities, commodity exchanges and financial trusts.

Cooperatives and Non-Banking Sector

Acknowledging governance failures in savings and credit cooperatives, the strategy proposes legal reforms and stricter criteria for registering new cooperatives to ensure financial stability and good governance.

Non-banking institutions such as the Employees Provident Fund, Citizen Investment Trust and Social Security Fund will be strengthened as pillars of long-term investment and social protection. The strategy also includes reforms to enhance the risk-based capital framework and governance of the Deposit and Credit Guarantee Fund.