Fiscal Nepal
First Business News Portal in English from Nepal
Umesh Poudel
Nepal’s central banking leadership has often been criticized for being distant from the real economy — confined to policy rooms in Kathmandu while businesses across the country struggled with liquidity stress, regulatory rigidity, and financial exclusion.
But since assuming office, Governor Dr. Biswo Nath Paudel of Nepal Rastra Bank has attempted to redefine that image, adopting an unusually field-oriented approach to monetary leadership that many in the private sector now see as a corrective shift.
Rather than relying solely on data dashboards, banking reports, and institutional briefings, Paudel has taken central banking to the ground. Over the past months, he has travelled far beyond the Kathmandu Valley, visiting industries, borrower firms, financial institutions, and local markets across the hills, mountains, and Tarai — from eastern Nepal to the far west.
These visits were not ceremonial. They were structured listening exercises focused on small and medium enterprises (SMEs), micro, small, and medium enterprises (MSMEs), and borrowers who form the backbone of Nepal’s productive economy but often remain unheard in policy formulation.
This approach reflects a broader realization: Nepal’s financial stress is not just a liquidity issue, nor merely a regulatory problem — it is also a communication gap between policy designers and real-world borrowers.
Business owners across the country have long complained that monetary tightening cycles and regulatory provisions often affect them disproportionately. SMEs and MSMEs frequently face higher collateral demands, refinancing barriers, and compliance burdens that large corporate borrowers can more easily absorb. By engaging directly with entrepreneurs and borrowers, Paudel appears to be trying to map how policy transmission actually functions outside Kathmandu’s formal financial corridors.
Feedback from these visits reportedly influenced the central bank’s mid-year monetary policy review for fiscal year 2025/26 (2082/83 BS). In that review, Paudel emphasized that many financial problems are procedural rather than structural — meaning that borrowers are not always failing because their businesses are unsustainable, but because the financial system sometimes penalizes them too harshly for short-term liquidity mismatches.
This philosophy is evident in the central bank’s recent decisions to adjust blacklist rules and reconsider how technical financial defaults are treated.
One of the clearest examples of Paudel’s field-informed policymaking is the central bank’s response to the surge in financial blacklisting driven largely by cheque dishonour cases.
Data from Credit Information Center Nepal show a dramatic expansion in the blacklist — from about 16,000 individuals in 2020 to roughly 129,000 by FY 2024/25. Crucially, around 64 percent of these cases stem from bounced cheques rather than loan defaults.
This distinction matters. Traditional financial discipline mechanisms are meant to address credit risk, not procedural transaction failures. Yet for thousands of traders, small manufacturers, contractors, and salaried individuals, cheque dishonour has effectively become a fast track into financial exclusion.
Paudel has framed this not merely as a regulatory issue but as a socio-economic one. Blacklisting blocks access to loans, freezes credit lines, and damages business credibility. For small entrepreneurs operating on thin margins, the psychological stress alone can be devastating.
The mid-year monetary review therefore signaled a structural policy shift: Nepal Rastra Bank will gradually reduce reliance on cheque-based transactions while promoting digital payment systems.
The logic behind this move is both technological and systemic. Nepal’s banking infrastructure already supports high-value real-time settlements through RTGS for transactions above Rs 2 million. In such an environment, Paudel argues, heavy dependence on cheques represents legacy inertia rather than economic necessity.
Digital payments, by contrast, offer instant balance verification, reduced fraud risk, lower transaction costs, and improved transparency. For the central bank, promoting electronic transactions is not only about modernization — it is about preventing procedural financial crises that unnecessarily push people out of the formal system.
The shift aligns Nepal with global financial trends, where cheque usage is steadily declining in favor of mobile banking, online transfers, and institutional payment gateways. If implemented carefully, the policy could accelerate financial digitization while reducing systemic friction in trade and business settlements.
Another significant reform direction emerging under Paudel’s leadership is the recalibration of blacklist procedures.
Previously, borrowers facing temporary liquidity stress could quickly find themselves blacklisted, often before restructuring options were meaningfully explored. The new framework aims to avoid automatic blacklisting in situational cases and allows temporary removal from the blacklist — for up to six months — if borrowers present valid reasons and begin repayment arrangements.
This is a subtle but important shift. It signals that the central bank wants recovery, not punishment, to be the primary goal of financial regulation.
For banks, this approach may improve loan recovery rates by keeping borrowers within the system rather than pushing them into permanent exclusion. For businesses, it offers breathing space during downturns — particularly important in a post-pandemic economy still dealing with weak demand, high interest rates, and volatile import costs.
What makes Paudel’s tenure distinctive so far is not just the policy adjustments themselves but the method behind them.
By physically visiting industrial corridors, rural enterprises, and borrower firms, he is effectively treating Nepal’s economy as a lived system rather than a statistical abstraction. In a country where regional disparities shape financial realities, this matters enormously. Liquidity conditions in Kathmandu do not always reflect credit access in provincial towns, and national averages often mask localized stress.
Paudel’s outreach across Nepal’s geographic diversity — hills, mountains, and plains — suggests an attempt to bridge this gap. If sustained, such engagement could improve policy credibility, strengthen central bank-business trust, and reduce the perception that monetary regulation is disconnected from economic ground truth.
Nepal’s financial system is currently at a crossroads. The country faces the simultaneous challenges of credit recovery, digital transition, business revival, and regulatory modernization. Navigating these requires not only technical expertise but also institutional empathy — an ability to understand how rules affect real borrowers and enterprises.
Paudel’s leadership style indicates an awareness of this balance. His emphasis on listening tours, borrower consultations, and region-wide engagement signals a pragmatic central banking philosophy: reform must begin with diagnosis, and diagnosis must begin with listening.
Whether these initiatives translate into lasting structural change will depend on implementation, banking sector cooperation, and political stability. But at this stage, his approach is already reshaping how Nepal’s central bank interacts with the economy.
In that sense, many observers now view his tenure as a timely alignment of leadership and institutional need — a case of the right person guiding the central bank at a moment when Nepal’s financial system is seeking both modernization and inclusion.
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