Investment Banking in Nepal vs. the Global Sector: A Sector in Waiting
In modern finance, investment banking plays a pivotal role—connecting capital with opportunity, facilitating mergers and acquisitions, and helping businesses navigate complex markets. Globally, the sector is mature, fast-paced, and highly regulated. In Nepal, however, investment banking is still in its early development phase, mostly operating under the scope of “Merchant banking”. The reason Nepal only has merchant banks—but not full-fledged investment banks— comes down to a combination of economic size, regulatory structure, market maturity, and institutional capacity.
Global Investment Banking: An Overview
Globally, investment banks perform sophisticated financial functions, such as:
- Equity and debt capital raising
- Mergers and acquisitions (M&A) advisory
- Derivatives structuring
- Portfolio and asset management
Major players like Goldman Sachs, J.P. Morgan, and Morgan Stanley dominate the sector. Their operations are supported by strong legal and regulatory systems like the U.S. Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA), as well as robust financial infrastructures and deep capital markets.
Investment Banking in Nepal: An Emerging Function
In Nepal, the concept of investment banking is largely equated with merchant banking, a category legally defined and regulated under the Securities Businessperson (Merchant Banker) Regulations, 2008, issued by the Securities Board of Nepal (SEBON). These regulations authorize four primary services:
- Issue management: All the functions related to issue and sales management of securities including drafting of prospectus, offer documents and other related documents,
- Underwriting: Underwriting by entering into agreement with body corporate and undertake to purchase the unsubscribed portion of securities offered by body corporate,
- Share registrar services: Provide share registration related services such as maintaining register of ownership of securities and execute name transfer on behalf of the body corporate,
- Portfolio management: Provide portfolio management services to the clients by entering into an agreement.
To operate, merchant bankers must be licensed by SEBON, meet minimum paid-up capital thresholds (ranging from NPR 10 million for a share registrar to NPR 70 million for all services combined), and comply with strict reporting obligations under SEBON guidelines. (Schedule 9,Securities Businessperson (Merchant Banker) Regulations, 2008)
Foreign Investment Rules: What FITTA 2019 Allows
The Foreign Investment and Transfer of Technology Act, 2019 (FITTA) restructured Nepal's foreign investment regime. While the Act broadly encourages FDI, it explicitly excludes sectors governed by specialized laws, such as the financial and banking industry under the Nepal Rastra Bank Act and BAFIA.
Still, FITTA opened doors for foreign investors in several finance-adjacent areas:
- Investment in venture capital funds
- Purchase of listed securities in the secondary market
- Capital infusion via foreign securities issuance
- Reinvestment of dividends and technology transfer
Furthermore, foreign investors must invest a minimum of NPR 50 million to qualify under FITTA (Notice of Ministry of Industry, May 29, 2019).
Banking Regulation: The Role of BAFIA and NRB
The Bank and Financial Institution Act, 2073 (2017) governs commercial banks, development banks, finance companies and microfinance financial institutions.
Under BAFIA, Banks are prohibited from engaging in non-banking commercial activities, such as real estate trading or share brokering. NRB holds regulatory oversight and can compel mergers and acquisitions. BAFIA indirectly limits the scope of investment banking by restricting cross-holdings between financial institutions and prohibiting certain types of credit relationships with insiders.
Although banks may engage in merchant banking through capital divisions, a separate SEBON license is required.
Nepal vs. Global Investment Banking
Opportunities and Growth Drivers
Sectoral Expansion
Sectors such as hydropower, infrastructure, and digital services require structured capital, syndicated loans, and cross-border financing—functions traditionally fulfilled by investment banks.
Rising Capital Market Activity
NEPSE’s growing market capitalization, increased public awareness of mutual funds, and recent reforms by SEBON (such as SME board listing rules and digital trading systems) support greater investor engagement.
Governmental Push for Investment
Efforts by the Investment Board Nepal (IBN) and reforms under FITTA suggest a deliberate attempt to court foreign capital through policy liberalization—although implementation gaps remain.
Barriers to Sectoral Growth
- Regulatory Fragmentation: Investment-related approvals still require multiple layers—SEBON, NRB, DOI/IBN—despite FITTA’s promise of an “automatic route,” which remains undeveloped in practice.
- Restricted Foreign Participation: The Negative List and FITTA’s exclusions limit the potential for foreign joint ventures in advisory and finance-related services.
- Limited Innovation: Products such as REITs, ETFs, and derivatives are virtually non-existent, limiting deal structuring capabilities.
- Talent Shortage: There’s a lack of professionals skilled in valuation, modeling, and M&A advisory. Local institutions like ICAN and business schools must take initiative in building this ecosystem.
Conclusion: A Sector with Latent Potential
Nepal’s investment banking space remains underdeveloped—but not without hope. With targeted policy interventions, streamlined regulation, and robust training programs, Nepal can build a modern investment banking ecosystem that bridges capital and entrepreneurship.
Policymakers, regulators, and market actors must now work together to define investment banking as a distinct function, nurture domestic capability, and create room for foreign collaboration.
The foundation is in place. What remains is structural alignment—legal, human, and institutional—to let Nepal’s investment banking sector emerge not just as a financial service, but as an engine of national growth.
References
Securities Businessperson (Merchant Banker) Regulations, 2008, Securities Board of Nepal (SEBON), Regulation 16 and 17.
Foreign Investment and Transfer of Technology Act, 2019, Section 2(2), Government of Nepal.
FITTA, 2019 – Schedule (Negative List of Prohibited Investment Sectors).
Gazette Notification, Government of Nepal, Ministry of Industry, Commerce and Supplies, May 29, 2019.
Bank and Financial Institution Act, 2073 (2017), Section 49(1)(b).
BAFIA, Sections 45, 48, and 77; Nepal Rastra Bank Act, 2002, Section 55.
SEBON Capital Market Reforms Roadmap, 2023; NEPSE trading data, 2024.
FITTA, 2019, Section 8 and 9; Observation based on DOI and IBN approval practices.
Article By: Surma Singh
