Nepal launches Rs 1 trillion alternative development finance fund to mobilize large-scale infrastructure investment

KATHMANDU — Nepal has formally advanced a major structural reform in development financing with the implementation of the Alternative Development Finance Mobilization Act, 2083, paving the way for the creation of a sovereign-backed investment vehicle designed to mobilize up to Rs 1 trillion (equivalent to Rs 1,000 billion or Rs 100,000 crore) for large-scale infrastructure and economic development projects.

Following parliamentary approval, the government has published the Act in the official gazette, bringing it into the implementation phase. Officials say the new framework marks a shift in Nepal’s development financing model—from reliance on foreign loans and annual budget allocations toward a capital market–based, institutional investment system.

A Rs 1 trillion sovereign development finance structure

At the center of the new law is the establishment of a fully autonomous and perpetual institution named the Alternative Development Finance Fund.

The fund is structured with an authorized capital of Rs 1 trillion (Rs 1,000 billion / Rs 100,000 crore), divided into 10 billion ordinary shares, each valued at Rs 100 per share. This makes the fund one of the largest structured financial instruments ever legally designed in Nepal’s development financing history.

Initially, the paid-up capital is set at Rs 25 billion (Rs 25,000 million / Rs 2,500 crore), with a legal provision allowing the government to increase both authorized and paid-up capital through cabinet decisions published in the official gazette.

Officials describe this as a flexible sovereign investment platform that can scale alongside national infrastructure demands.

Ownership structure: state-led institutional investment model

The fund follows a hybrid public institutional ownership structure designed to mobilize domestic long-term capital:

• Government of Nepal: 51% ownership
• Retirement and pension-related institutions: 25%
  (including Employees Provident Fund, Citizen Investment Trust, and Social Security Fund)
• Insurance sector institutions: 24%
  (life insurance, non-life insurance, and reinsurance companies)

This structure ensures that the majority control remains with the state while allowing long-term institutional investors to participate meaningfully in infrastructure financing.

All participating institutions are required to fully pay their subscribed capital within two fiscal years, in a maximum of two installments.

Mobilizing capital beyond traditional borrowing

The fund is designed as a multi-channel financing platform that moves beyond conventional government borrowing.

It will raise and deploy capital through:

• Infrastructure and project-specific bonds
• Direct equity investments
• Hybrid financial instruments combining debt and equity features
• Structured investment vehicles targeting institutional and retail investors

In addition, the law introduces new capital mobilization channels targeting global Nepali wealth, including:

• A Remittance Investment Fund designed to channel remittance savings into productive investments
• A Sovereign Diaspora Fund targeting Non-Resident Nepalis (NRNs) and people of Nepali origin abroad
• A Fund-of-Funds mechanism, allowing investment through existing infrastructure and sectoral funds

Government officials believe these instruments will unlock billions in currently underutilized savings, both domestically and abroad.

Focus on high-impact national infrastructure

The fund is restricted to financing large-scale, commercially viable, and nationally strategic projects.

Only projects that are included in the National Project Bank, annual government programs, or those recommended by the Investment Board Nepal will qualify for funding. The fund may also independently evaluate projects based on feasibility and economic return.

A key restriction is that no project below Rs 1 billion (Rs 1,000 million / Rs 100 crore) in estimated cost will be eligible for investment.

Additionally, projects with low financial returns, inadequate collateral, or those implemented by private individuals without institutional structure will not be financed.

Priority sectors for investment

The Act defines 15 priority sectors eligible for funding under the scheme:

Core infrastructure sectors

• Hydropower generation, transmission, and distribution
• Roads, highways, and bridge infrastructure
• Railways, tunnels, and airport development

Industrial and economic zones

• Special Economic Zones (SEZs)
• Industrial parks
• Dry ports and logistics hubs

Digital and urban infrastructure

• Information Technology parks
• Public digital infrastructure systems
• Urban infrastructure development projects

Transport and alternative systems

• Cable cars, ropeways, and podways

Agriculture and production economy

• Large irrigation systems
• Fertilizer factories
• Agricultural machinery industries
• Commercial farming and livestock development

Natural resource and industrial sectors

• Mining and mineral extraction
• Forest-based and herbal product processing industries

Officials say the selection reflects a shift toward production-led and export-oriented development priorities.

Governance structure and oversight mechanism

The fund will be governed by a high-level board chaired by the Secretary of the Ministry of Finance, ensuring direct policy alignment with the central government.

The board will include:

• Senior government officials
• Representatives from pension and retirement funds
• Representatives from insurance sector institutions
• At least two independent expert directors, including at least one woman member

The tenure of independent directors will be two years.

A professional Chief Executive Officer (CEO) will be appointed to manage day-to-day operations and will also serve as the member secretary of the board.

Authorities emphasize that this structure is intended to balance autonomy with strong public oversight.

Strong anti-conflict and transparency provisions

The Act introduces strict conflict-of-interest safeguards.

Any project proposed by entities in which fund officials, board members, or executives had ownership or decision-making roles within the previous three years will be ineligible for investment.

This measure is intended to reduce political influence, prevent insider favoritism, and ensure transparent capital allocation.

Financing model: reducing dependence on foreign debt

Economists note that Nepal’s traditional infrastructure financing has been heavily dependent on:

• Foreign concessional loans
• Bilateral aid
• Annual government budget allocations

The new fund aims to reduce this dependency by pooling:

• Domestic institutional savings
• Remittance inflows
• Diaspora capital
• Market-based investment instruments

This represents a shift toward a domestic capital-led infrastructure financing model.

Expected economic impact

Policy analysts expect the fund to have multiple structural impacts:

• Expansion of Nepal’s long-term capital market
• Increased investment in hydropower and transport infrastructure
• Greater participation of pension and insurance funds in productive assets
• Attraction of diaspora and remittance-linked capital
• Reduced pressure on annual government budgets

However, experts also caution that the success of the fund will depend heavily on governance discipline, project selection quality, transparency, and political insulation from short-term interference.

A structural shift in development finance

With the implementation of the Rs 1 trillion (Rs 100,000 crore) Alternative Development Finance Fund, Nepal is attempting to redefine how large infrastructure projects are financed.

Instead of fragmented borrowing and budget-based funding, the country is moving toward a centralized, market-driven, and institutionally anchored investment model.

If effectively executed, the fund could become one of the most significant financial reforms in Nepal’s modern economic history—linking domestic savings, global Nepali capital, and national infrastructure development into a unified financing ecosystem.