Nepal Rastra Bank’s (NRB) plan to introduce peer-to-peer (P2P) lending and crowdfunding as alternative financing mechanisms remains stalled, more than a year after it first announced the initiative.

To improve access to finance for individuals and entrepreneurs who lack collateral or access to traditional loans, the central bank had published a concept paper in December 2023. The paper followed an earlier announcement made in the monetary policy for Fiscal Year 2022/23, outlining the intention to explore P2P lending and crowdfunding models. However, officials admit there has been little to no progress since.

“A year ago, NRB recommended P2P lending and crowdfunding as alternative financial sources,” said NRB spokesperson Ramu Paudel. “However, the implementation process has not moved forward.”

The High-Level Economic Reform Recommendation Commission—tasked with suggesting measures to revive the economy—also urged the government to promote P2P lending, even suggesting legal reforms if necessary. The commission emphasized that such models would be ideal for people excluded from the formal banking system.

P2P lending is a form of financing where individuals lend money directly to other individuals through digital platforms, bypassing traditional financial intermediaries. Crowdfunding, on the other hand, allows entrepreneurs to raise capital from a large pool of small investors—often through online campaigns.

“These are innovative models for raising capital directly from the public,” said Dr. Prakash Kumar Shrestha, a member of the National Planning Commission and former Executive Director of NRB’s Research Department. “While P2P lending is already well-established in global markets, in Nepal we are still in the discussion phase.”

NRB’s concept paper had laid out the potential benefits of such models, particularly for startups and small and medium enterprises (SMEs). It argued that P2P lending could enhance credit access, support entrepreneurship, and diversify funding sources.

According to Siddhantaraj Pandey, Chairperson of Business Oxygen Pvt. Ltd., this initiative could open the door to alternative investment options in Nepal. “So far, people in Nepal have only viewed banks and financial institutions as loan providers,” he said. “P2P lending has the potential to be a crucial funding channel for SMEs.”

However, he also warned that the model must be carefully regulated to avoid the risks associated with predatory lending, a growing concern amid reports of loan sharking.

While Nepal is just beginning to discuss P2P and crowdfunding, these models gained traction globally after the 2008 financial crisis, when traditional banks were reluctant to issue new business loans. In those years, online platforms helped connect individual lenders with borrowers, offering a more democratic and accessible model of finance.

NRB’s concept paper recommended issuing licenses to a limited number of companies to pilot the model. It also called for strict regulatory oversight—covering platform registration, loan limits, and interest rate caps—and stressed the need to raise public awareness about the risks and responsibilities involved.

Despite a favorable policy environment and growing interest in venture capital and private equity, the lack of concrete steps toward implementation has raised doubts about the central bank’s commitment.

As of now, P2P lending in Nepal remains a promising concept still awaiting its first practical steps.