Financial system of Nepal
Kiran Thapa
Contents
1.Introduction
2. Financial market, capital market and
regulatory environment
3. Banking and regulatory environment
4. Insurance company and regulatory
Environment
5. Cooperatives sector
6. Nonbank financial institutions: Employee
provident fund (EPF) Investment companies
and Pension funds
7. Payments and Public debt management
Unit I: Introduction
Introduction to financial system
Organization/structure of financial system
functions of financial system
Importance of financial system in an
economy
Nepalese financial System
Financial system
Financial system is a mechanism which
transferred the funds between surplus
units to deficits units.
Financial system facilitates resource
transfer and mobilizes savings to the
productive sectors.
Contd.
•Component of financial system includes
financial markets, financial institutions,
financial instruments and regulations and
laws.
• Surplus and deficit units contains the
individual and households, business,
government and foreigners.
Figure of Financial system
Structure of Financial System
Financial markets
Financial institutions
Financial instruments
Regulations and laws
Contd.
Regulator
1.Nepal Rastra Bank (NRB)
2.Securities Board of Nepal (SEBON)
3. Insurance Board of Nepal
4. Department of Cooperatives
5. CRO
Contd.
Act – BAFIA 2073. Bank and Financial
Institutions Act 2073
Regulation
Bylaws, directives
Circular
Functions of financial system
Savings function
Liquidity functions
Payment function
Policy function
Wealth function
Credit function
Risk function
Importance of Financial system
• Savings-investment relationship
• Help in growth of capital market
•Foreign exchange market
•Government Securities market
• Infrastructure and growth
• Development of trade
• Employment growth
• Venture capital
Contd.
• Ensures balanced growth
• Fiscal discipline and control of economy
• Balanced regional development
• Attracting foreign capital
• Uniform interest rates
Nepalese financial system
An overview
• Transfer of funds from surplus unit to deficit unit.
Client of financial system includes
• households
• business firms
• government
• foreigners
Structure of Nepalese financial system
Financial Assets
• Equity shares
• preference shares
• Corporate debentures
• Government bonds
• Mutual funds shares
• Treasury bills
Financial market
Money market
Capital market
Corporate bond market
Derivative market = COMEN
Commodities and Metal exchange of Nepal
Government bond market
Financial institutions
• Banking institutions
- A Commercial banks
- B Development banks
C Finance company
D Micro finance institutions
Infrastructure development bank (NIFRA)
• Co-operatives
• Insurance companies
• Pension funds, SSF
• Provident funds
• Stock broker, investment banker and dealer
Contd.
HIDCL
100 millions, 91 days T-bills issued
- Stock exchange
- Over the counter (OTC) market
T-bills
Development bonds
National saving bond
Citizen saving bond
Foreign employment saving bond
Evolution of financial system
Financial system of Nepal consists of banking
and non banking institutions
-1994 BS : Establishment of NBL
2012 BS : Establishment of NRB under NRB Act
1955
2016 BS: NIDC brought the concept of
development banks
2025 BS: Insurance Act 2025 and later on new
insurance act 2049 was introduced
2040 BS: Securities Exchange Act 1983 was
introduced and followed by establishment of
Securities Exchange Commission (SEC)
Contd.
2048 BS : NIDC capital markets introduced
first mutual fund
2050 BS: Merchant banking act 2050 was
introduced; SEBON and NEPSE was
established under securities exchange Act
Development of capital market
• 1936 : Formulation and Promulgation of Company Act, 1993
(1936).
• 1976: Establishment of Securities Exchange Center.
• 1983: Formulation and Promulgation of Securities Exchange
Act, 2040 (1983),
• 1993: Securities Exchange Centre converted into Nepal Stock
Exchange (NEPSE) Ltd.
• 1993: Securities Board of Nepal (SEBON) -as the Regulatory
Body of Capital Market.
• 2007: NEPSE started Automated Computerized System for the
trading
• 2011: Entry of collective investment /schemes in the market .
• 2015: Dematerialized Transaction started (106 companies).
• 2016: Fully Automated Trading System started
Current Issues and Challenges
To expand the secondary market nation wide
To enhance the trust of investors in the capital
market
To attract and increase the entry of real sector
companies
To restructure the stock exchange and CDS
To develop alternative investment funds such as
private equity, venture capital and hedge fund.
To strengthen the commodity market and link
with the agriculture sector.
To increase the entry of institutional investors in
the market.
Thank You
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