Fintech firms must allocate profit to reserves before declaring dividends: Central bank

KATHMANDU: In a major policy move aimed at enhancing transparency, governance, and financial resilience in Nepal’s evolving digital payment ecosystem, the Nepal Rastra Bank (NRB) has issued a set of comprehensive Dividend Distribution Guidelines, 2082 targeting licensed entities performing payment-related functions—excluding banks and financial institutions.

These new guidelines, released by NRB’s Payment Systems Department, are designed to regulate how profits are distributed, ensure sustainable reinvestment, and build robust financial health among non-banking payment operators such as Payment Service Providers (PSPs), Payment System Operators (PSOs), and other fintech companies operating under NRB’s purview.

New Guideline Seeks to Bolster Capital Base and Institutional Integrity

The central bank stated that the objective of the guidelines is to make dividend distribution and profit management transparent, systematic, and strategically aligned with long-term institutional stability. According to NRB, the move is also intended to foster a more secure, efficient, and risk-bearing digital payment environment in Nepal, supporting the country’s goal to expand cashless transactions and digital finance.

Core Objectives of the Guidelines

The Dividend Distribution Guidelines, 2082, outline the following key objectives:

Provide a systematic process for making decisions on profit and dividend allocation.

Ensure regulatory capital adequacy among licensed institutions.

Support planned reinvestment and resource management for consistent business growth.

Enable implementation of Business Continuity Plans (BCPs) for crisis readiness.

Strengthen public trust in Nepal’s digital payment ecosystem by enhancing operational soundness and accountability.

Mandatory Dividend Policy and Reserve Funds

Entities covered under these guidelines are now mandated to formulate an official dividend distribution policy, which must be approved by their Board of Directors. This policy must explicitly address:

Strategies to maintain regulatory capital levels.

Clear outlines for both cash dividends and stock dividends.

Provisions to set aside earnings into the following mandatory reserves:

Risk Bearing Reserve

A specified percentage of profit must be allocated to manage unexpected operational losses. The usage of this fund must be reported to NRB with detailed expense breakdowns.

General Reserve

Institutions are required to build a general-purpose reserve to reinforce financial strength and long-term sustainability.

Infrastructure Development Reserve

Specifically for Payment System Operators, a portion of annual profit must be directed toward this reserve to fund future technological or infrastructural expansion.

Other NRB-Mandated Reserves

Institutions must also comply with any other fund allocation requirements as specified by NRB from time to time.

Strict Pre-Conditions for Dividend Declaration

Before any dividend—whether cash or stock—can be distributed, institutions must fulfill stringent pre-conditions to ensure financial soundness:

Accumulated profit must be positive.

Dividend declaration is allowed only for the fiscal year in which the profit was realized.

Cash dividends cannot be distributed from share premium or bargain purchase gain.

Net worth must remain positive, especially when declaring stock dividends.

Institutions must maintain adequate cash reserves during the declaration of cash dividends.

There should be no loan covenant restrictions barring dividend payments.

No serious unresolved financial liabilities identified in recent NRB inspections (on-site or off-site).

Documentary Requirements for Dividend Approval

Dividend distribution must be formally approved by NRB, and the application must include the following documents:

Board decision proposing the dividend.

Audited financial report and tax clearance certificate of the prior fiscal year.

Fund allocation details to the Risk Bearing, General, and Infrastructure Development Reserves.

Blacklist clearance from the Loan Information Center (valid for six months).

A self-declaration confirming:

No unpaid loans with banks or financial institutions.

No outstanding tax liabilities.

Full compliance with Nepal’s prevailing legal and regulatory framework.

Significance in the Current Fintech Landscape

With Nepal witnessing an exponential rise in digital payment adoption, this guideline is viewed as a proactive regulatory framework to protect institutional integrity while fostering innovation. It aligns with global best practices, where payment aggregators, e-wallet companies, and settlement service providers are required to maintain a balance between profit-sharing and risk-resilient capital accumulation.

Furthermore, these measures are expected to increase investor confidence, promote operational accountability, and ensure that dividend decisions are based on genuine, sustainable profit—not speculative accounting or short-term performance spikes.

Implication for Future Profit Distributions

While these new rules may temporarily limit the aggressiveness in dividend payouts, especially among emerging fintech firms, they are designed to ensure that the institutions are well-capitalized, resilient to shocks, and aligned with NRB’s long-term vision of financial digitization and inclusion.

Market observers believe that the Dividend Distribution Guidelines, 2082, will encourage a culture of prudent financial planning, help fintech firms prepare for scaling, and ultimately enhance the safety and trustworthiness of Nepal’s digital economy.