Mark Zapletal of Wartenberg Trust introduced the term “impact investing” in 2005 during his groundbreaking presentation, “Impact Investing: A Door to Sustainable Philanthropy,” at the Global Family Office Summit in New York. This marked the beginning of a new era in purpose-driven finance.

Impact investing is a strategic investment approach that empowers investors to use their capital to create positive social and environmental change. By aligning financial goals with meaningful outcomes, impact investing supports initiatives that improve lives and protect the planet. This approach can be applied across various investments and caters to a wide range of return expectations, making it a flexible and sustainable investment strategy for conscious investors. 

According to the Global Impact Investing Network (GIIN), impact investments are made with the clear intention of generating a positive, measurable social and environmental impact alongside a financial return. These mission-driven investments combine purpose with profit and are guided by four key elements: intentionality, financial returns, a range of asset classes, and impact measurement.

Nepal’s impact investing market is still in its early stages, with total investments of around $17.3 million—over 90% of which has come from Development Finance Institutions (DFIs), primarily through debt financing. Despite low GDP growth and political instability, which deter returns-focused investors, those prioritizing social impact recognize significant opportunities to address Nepal’s pressing development needs.

Domestic investor participation in Nepal remains limited due to restricted access to financial services, low awareness and a lack of trust in alternative investments. Although banking access rose to 62% in 2022, lending and investment activities continue to lag. Nevertheless, recent progress is evident, with DFIs leading investments and an increasing role for private equity and venture capital (PEVC), signaling a promising shift toward private capital involvement.

Nepal’s impact investment landscape includes DFIs, local financial institutions, high net worth individuals, PEVC firms and Specialized Investment Funds (SIFs). In 2017, the Securities Board of Nepal (SEBON) introduced SIF licenses, establishing a regulatory framework for PEVC and hedge funds—a significant step toward building a supportive investment ecosystem. According to Heifer International Nepal, eight active impact investors currently operate in Nepal—five local funds, two DFIs and one regional player. Despite this, the market remains fragile, with several funds facing deployment and management challenges.

While DFIs currently dominate Nepal’s impact investing space, PEVCs are gaining momentum, with pioneering firms laying the groundwork for sustained investment and economic growth. Early entrants such as One to Watch (2010), Dolma Impact Fund (2014), Business Oxygen (2015), True North Associates (2016) and Team Ventures (2016) have been instrumental in this. Although Nepal entered the PEVC space later than many developing countries, the government has recently recognized its strong potential as a valuable alternative investment channel in supporting its development.

PEVCs are gaining traction in Nepal, driving the need for supportive legal frameworks. Initially regulated under the Companies Act 2006, PEVCs faced restrictive investment limits. However, amendments in 2017/18 and the Companies Directives 2015 introduced greater flexibility—especially for “investment companies”—allowing them to invest up to 90% of paid-up capital and 100% of free reserves. These reforms are helping Nepal’s PEVC sector grow as a vital economic force.

The development of PEVC laws in Nepal reflects a proactive effort to adapt to changing market dynamics and enhance investment opportunities. While significant progress has been made, further regulatory refinements are necessary to address ongoing challenges and fully harness PEVCs as drivers of economic growth. By adopting investor-friendly policies and progressive reforms, Nepal can attract both domestic and international investors, establishing itself as a rising hub for PEVC investment in South Asia.

The rise of PEVCs is driving business growth and portfolio diversification in Nepal. An increasing number of companies are adopting this funding model, driving innovation and scalability. Success stories like Dalle Restaurant, Foodmandu, Incessant Rain, Sajilo Sewa, Fusemachines, CloudFactory and Upaya highlight how PEVC support has been instrumental in their expansion. This trend underscores the vital role of PEVC in accelerating the growth of mid-sized businesses in Nepal’s evolving investment landscape.

According to the Nepal Private Equity Association (NPEA), renewable energy accounts for 46% of total PEVC investments. Major players like Dolma Impact Fund, Team Ventures, National Fund Management and Avasar Equity have backed hydropower and solar projects with capacities ranging from 25 MW to 70 MW. The sector’s flexible public listing options make it an attractive exit route for investors, driving continued interest from PEVC firms.

Katmandu Coffee, founded in 2008 by two MBA graduates with no prior farming experience, has grown into a leading example of how private equity and impact investing can drive sustainable business in Nepal. Early financial struggles were overcome through angel investors and a landmark FDI deal with C4D Partners in 2014, which helped scale operations and improve infrastructure. In 2021, local private equity firm True North Associates stepped in, providing not just capital but strategic support that doubled profits and formalized operations. True North Associates’s successful exit in 2024, with shares acquired by Alpha Plus Ventures for $435,000, demonstrates how impact-driven private equity can unlock value and accelerate local enterprise growth in emerging markets. Katmandu Coffee happens to be among few companies where one private equity exited, paving a path for another one to enter at a revised valuation. This has exemplified optimism for future entrepreneurs in Nepal.

Global giants like Apple and Amazon grew with PEVC backing—and Nepal's technology sector is following suit. Companies like CloudFactory, Fusemachines, Sastodeal and WorldLink have secured funding from Dolma Impact Fund. Team Ventures has backed AI-driven healthtech firm Wiseyak, while True North Associates has invested in Sajilo Sewa and ACT360. One to Watch supported Smart Tech Solutions, and Foodmandu attracted investment from all three firms—highlighting the vital role of PEVC in driving Nepal's technology innovation.

With Nepal’s import-heavy economy and large trade deficit, the manufacturing sector urgently needs PEVC investments. Beyond capital, PEVC firms bring industry expertise and strategic support, driving growth, innovation, and global expansion. This makes the sector a key focus for future investment inflows.

Nepal’s agriculture sector holds strong potential, but limited capital access hinders growth. While PEVC firms have invested in areas like warehousing, coffee, sugar, tea, livestock and floriculture, attracting larger investments remains a challenge. Addressing these barriers is key to unlocking the full potential of agri-focused PEVC funding.

PEVC funding is boosting Nepal’s tourism industry, with key investments driving expansion and innovation. The Lakeside Retreat in Pokhara, supported by Business Oxygen, is set to host over 19,000 tourists annually. Reliable Venture has backed Akama Hotel, while Aloft Kathmandu received funding from National Fund Management. Hathway Investment also supports Chandragiri Hills Ltd. These strategic investments are accelerating entrepreneurial growth in Nepal’s vibrant hospitality sector.

PEVCs are becoming key drivers of impact investing in Nepal. Impact investing is no longer a fringe concept—it is a growing global movement, and Nepal stands at a critical juncture to harness its potential. The post-pandemic world has pushed investors to rethink capital deployment with a focus on resilience, sustainability and inclusivity. In Nepal, where gaps in basic services, infrastructure and economic opportunity are stark, the need—and opportunity—for impact capital is immense. Despite regulatory bottlenecks and infrastructural deficits, the rising interest from DFIs and PEVC funds signals a shift toward a more purpose-driven investment landscape.

In spite of all these benefits, Nepal's PEVC ecosystem faces major hurdles, including a limited pipeline of investable companies, low awareness among entrepreneurs and resistance to shared ownership and compliance norms. Many businesses are family-run with minimal exposure to institutional investment practices. The lack of financial literacy, especially around share dilution and value creation, further impedes growth. Without greater education and increased foreign investment, Nepal’s PEVC sector may struggle to scale.

PEVCs play a crucial role in addressing the limitations of the traditional banking sector, which tends to minimize risk. In contrast, economies require high-risk investment players like PEVCs to drive innovation, fuel entrepreneurship and support sustainable economic growth. But, while the returns could be significantly higher, the risk is significantly higher too. For instance, Sastodeal highlights the core risks in the private equity landscape—from unreliable investor commitments and weak regulatory support to poor financial planning and aggressive expansion. Despite early success and major backing from Televentures and Dolma Impact Fund, the lack of sustainable funding, limited financial literacy and intense global competition from key players like Daraz ultimately led to its shutdown, underscoring the risks PEVCs face in emerging markets. In addition to challenges exemplified by Sastodeal, PEVCs in Nepal also face significant hurdles in the hydropower sector. One of the primary concerns is the long gestation period—profits typically materialize only after several years of investment. This extended waiting time, coupled with high upfront capital requirements and regulatory complexities, makes hydropower a less attractive option for many PEVC investors seeking quicker returns.

While there has been mixed outcomes from PEVCs in Nepal, it is important to acknowledge the substantial benefits these investments bring to Nepali entrepreneurs and the broader economy. PEVC funding provides critical capital, strategic guidance and professional expertise that help businesses scale, innovate and contribute to job creation and economic growth. Despite the challenges, the role of PEVCs in fostering entrepreneurial development and driving economic progress in Nepal remains significant and promising, contributing highly to impact investing.

All things considered, Nepal’s evolving political stability, increased consumption driven by remittances and growing entrepreneurial ecosystem make it fertile ground for impact investments that drive both financial and social returns. As local and international investors seek businesses that improve healthcare, education, technology and livelihoods, Nepal presents a compelling case for capital that does more than just earn—it transforms. With supportive regulatory reform and continued momentum from pioneering funds, impact investing could become a cornerstone of Nepal’s development narrative.

(Ranjit and Gadtaula are analysts at Business Brainz, a research and insight firm empowering B2B sales and marketing teams globally from Nepal. Gadtaula also serves as a member of the Investment Committee – Expert Category at Alpha Plus Ventures.)

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