Ask a growing Nepali startup how it financed its expansion, and the answer almost never involves venture debt. It involves land. Usually a parent’s or a founder’s own property, pledged directly to a bank.
Venture debt in Nepal remains, for practical purposes, structurally absent. Elsewhere, this type of financing lets growing companies borrow against their business itself, cash flow, receivables, even intellectual property, without giving up equity or pledging a family home. In Nepal, that option barely exists. Startups scaling beyond their earliest stage face a stark choice: dilute ownership through equity, or pledge real estate through a conventional bank loan.
What makes this genuinely puzzling is that Nepal actually has the legal tools needed to support something like venture debt. Understanding why those tools go largely unused reveals a lot about how banking regulation, not just market immaturity, shapes Nepal’s startup financing landscape.
In this article, we’ll explain what venture debt actually is, why Nepal’s legal framework technically allows for it, and why real estate collateral dominates anyway.
What Venture Debt Actually Offers
Understanding the gap starts with understanding what Nepal’s startups are missing.
According to a Wikipedia overview of the financing model, venture debt is a type of debt financing provided to venture-backed companies by specialized lenders to fund working capital or capital expenses, such as equipment purchases. Crucially, unlike traditional bank lending, venture debt is available to startups and growth companies that don’t have positive cash flows or significant assets to offer as collateral.
According to Silicon Valley Bank‘s guide to venture debt mechanics, this financing typically comes in three forms: growth capital term loans used to extend a startup’s cash runway between funding rounds, accounts receivable financing borrowed against a company’s outstanding invoices, and equipment financing for specific capital purchases. Rather than demanding physical collateral, venture lenders often structure loans around warrants, rights to purchase equity later, to compensate for the higher risk involved, and frequently rely on the due diligence a startup’s existing venture capital investors have already completed.
This model exists precisely to solve the problem Nepali founders face constantly: needing growth capital without either diluting ownership further or pledging assets they may not have. In markets with developed venture debt industries, this financing genuinely bridges that gap.
Nepal’s Financing Reality Looks Very Different
Contrast this with how Nepali startups actually raise money today, and the absence of anything resembling venture debt becomes obvious.
According to the Asian Development Bank’s 2025 Asia SME Monitor, cited by the Nepal Economic Forum, venture capital accounted for just 0.5% of MSME startup financing in Nepal during fiscal year 2024/25. Ancestral property funded the largest share, at 33.1%, while formal financial institutions, meaning banks, contributed just 16.0%. Given how small institutional venture capital already is in Nepal, the near-total absence of venture debt, a financing tool that typically depends on an active VC ecosystem to function, follows almost inevitably.
When Nepali startups do access bank financing, the terms look nothing like venture debt. They look like conventional secured lending, built around exactly the kind of physical collateral venture debt is specifically designed to avoid.
The Real Estate Collateral Problem, By the Numbers
The scale of Nepal’s land-and-building collateral dependency is striking, and remarkably consistent over time.
According to legal analysis published by corporate lawyer Sushil Parajuli in May 2026, immovable property, meaning land and buildings, currently constitutes 64.4% of all lending by Nepal’s Banks and Financial Institutions. This isn’t a recent spike either. The same analysis notes this share has fluctuated between 60.8% and 68.0% for an entire decade, essentially unchanged despite years of financial sector development and digitization elsewhere in the economy.
This figure aligns closely with historical data too. According to Nepal Rastra Bank figures reported by Business Standard, 59% of total bank and financial institution loans were disbursed against land and building collateral as of the first eight months of one earlier fiscal year, representing loans worth Rs 769 billion at the time. The consistency between these figures, roughly 59% to 68% across more than a decade, confirms this isn’t a temporary market condition. It’s a deeply entrenched structural pattern.
Nepal Actually Has the Legal Tools for Something Better
Here’s what makes Nepal’s situation genuinely puzzling, rather than simply a case of missing infrastructure. The legal framework needed to support movable and intangible asset lending, the foundation venture debt typically relies on, has existed in Nepal for nearly two decades.
According to Parajuli’s detailed legal analysis, the Secured Transactions Act, 2063 (2006) defines movable property broadly, expressly bringing within its scope accounts receivable, inventory, equipment, agricultural products, and even intellectual property license rights. On paper, Nepal has a modern legal infrastructure for exactly the kind of asset-based lending venture debt depends on.
According to the U.S. State Department’s 2025 Investment Climate Statement on Nepal, the Secured Transactions Act applies broadly to transactions involving pledges, hypothecation, hire-purchase, and secured sales contracts, with a dedicated Secured Transactions Registry Office established for registering these arrangements. This registry infrastructure, once a genuine gap, has been operational since 2014, according to Kathmandu Post’s reporting on the Act’s implementation timeline, when the Credit Information Bureau Nepal began functioning as the official registry office.
So Why Doesn’t This Legal Framework Get Used?
If the legal tools exist, why does land collateral still dominate so overwhelmingly? Parajuli’s analysis provides a genuinely compelling explanation, one rooted in banking regulation rather than legal gaps.
According to the same analysis, no banking statute in Nepal has ever required that every loan be secured by land. Multiple laws, including the Bank and Financial Institution Act, the Nepal Rastra Bank Act, and the Secured Transactions Act itself, expressly authorize lending against personal guarantees, cash flow, and movable or intangible assets.
However, the prudential regulatory architecture surrounding these loans tells a different story. According to Parajuli, provisioning penalties, punitive risk weights, loss-given-default floors, loan-to-value caps, and significant valuation and monitoring burdens all combine to systematically price unsecured and movable-asset lending far above land-secured lending. Perhaps most tellingly, the analysis specifically points to the personal criminal exposure bank officers face when loans default, a powerful individual incentive pushing loan officers toward the safest, most legally straightforward collateral available: land and buildings with clear title.
This matters enormously for understanding why venture debt specifically can’t take root in Nepal, even where the underlying legal permission technically exists. A loan officer facing personal liability for a defaulted loan has little incentive to accept a startup’s accounts receivable or intellectual property as security, when land offers a far more legally certain, and personally safer, alternative.
An Ironic Enforcement Twist
Adding to this irony, Nepal’s enforcement mechanisms actually favor movable collateral over land in one specific respect, yet banks still overwhelmingly prefer land anyway.
According to Parajuli’s analysis, Nepal has no equivalent of India’s SARFAESI Act, meaning there’s no statutory mechanism allowing a creditor to bypass judicial procedures and take direct possession of immovable collateral after a default. The Secured Transactions Act provides genuinely powerful enforcement tools, but only for movable assets. For land and buildings, despite constituting the overwhelming majority of collateral, enforcement still depends entirely on the court system and the Land Revenue Office’s enforcement process, with all the delays that implies.
In other words, land-secured loans are actually harder to enforce upon default than movable-asset-secured loans would be under Nepal’s own legal framework. Yet banks continue overwhelmingly preferring land collateral anyway, a clear signal that regulatory risk-pricing and personal officer liability outweigh pure enforcement efficiency in shaping actual lending behavior.
The Government’s Small Attempt to Fill the Gap
To be fair, Nepal’s government has recognized this gap and introduced at least one genuinely collateral-free financing option, though its scale remains far too limited to function as real venture debt.
According to Company Sewa’s 2026 guide, the Startup Enterprise Loan Program, 2082 offers loans of up to NPR 20 lakh, roughly $15,000, at a concessional 3% annual interest rate, with the enterprise’s own project proposal serving as security through the Deposit and Credit Guarantee Fund, rather than requiring physical collateral. According to BizSewa’s coverage, the government allocated funding sufficient to support only around 100 to 400 startups in recent fiscal years, depending on the specific budget cycle.
This program represents genuine progress. It’s collateral-free, government-guaranteed, and explicitly designed to avoid the land-pledging problem entirely. However, its scale, a few hundred thousand dollars in loan capacity spread across a few hundred startups nationally, addresses only the earliest stage of financing need. It does nothing for growth-stage companies seeking the kind of larger, more flexible expansion capital venture debt typically provides in mature markets.
Ongoing Reform Discussions Suggest Awareness, Not Yet Action
Nepal’s policy and legal community has begun actively discussing these weaknesses, even if concrete reform remains a work in progress.
According to New Spotlight Magazine’s February 2024 coverage of a Kathmandu discussion involving the International Finance Corporation and Kathmandu University’s School of Law, participants, including bankers, corporate lawyers, and academics, explicitly underscored the necessity of a more flexible and modern framework allowing movable property to genuinely function as usable collateral in practice, not just in statute. This kind of sustained institutional attention suggests Nepal’s financial and legal community recognizes the problem clearly, even as the underlying prudential regulatory incentives Parajuli identified remain largely unchanged.
What Genuine Reform Would Require
Given this diagnosis, meaningfully closing Nepal’s venture debt gap would require addressing the regulatory incentive structure directly, not simply expanding legal permissions that already technically exist.
First, revisiting the personal criminal liability bank officers face for loan defaults would directly address the strongest disincentive against movable-asset lending. Without this change, loan officers will likely continue defaulting to land collateral regardless of what the Secured Transactions Act technically permits.
Second, recalibrating provisioning penalties and risk weights specifically for well-documented movable and intangible asset loans could make this lending category genuinely price-competitive with land-secured loans, rather than structurally more expensive by regulatory design.
Third, expanding the Startup Enterprise Loan Program’s scale and extending it toward growth-stage, not just early-stage, companies would help bridge at least part of the gap venture debt fills elsewhere, even without requiring the full development of a private venture debt industry.
Finally, continued institutional dialogue, following the IFC and Kathmandu University discussions, between regulators, bankers, and legal experts remains essential for translating recognized weaknesses into genuine regulatory reform, rather than leaving a technically modern law functionally unused.
Why This Gap Deserves Long-Term Tracking
The absence of venture debt in Nepal deserves sustained attention as a structural indicator of the country’s startup financing maturity.
First, tracking the share of BFI lending secured by land and buildings, currently fluctuating between 60.8% and 68.0% for a full decade, would reveal whether any genuine shift toward movable-asset lending is occurring, or whether this pattern remains as entrenched as the past ten years suggest.
Second, monitoring whether the Startup Enterprise Loan Program’s scale expands meaningfully beyond its current few-hundred-startup capacity would show whether Nepal’s government views collateral-free financing as a genuine priority or a symbolic gesture.
Third, tracking whether prudential banking reforms specifically targeting movable-asset lending incentives emerge from ongoing institutional discussions would indicate whether Nepal’s technically modern secured transactions framework will ever translate into practical use.
Conclusion
Venture debt in Nepal doesn’t really exist, not because the country lacks the legal infrastructure to support it, but because banking regulation actively discourages banks from using that infrastructure. The Secured Transactions Act, 2063 has permitted movable and intangible asset lending for nearly twenty years. Yet, land and buildings still secure somewhere between 60% and 68% of all bank lending, a figure that has barely moved in a decade.
This gap forces Nepali startups into an uncomfortable binary: dilute ownership through equity, itself scarce given venture capital’s mere 0.5% share of startup financing, or pledge real estate, often a family’s only significant asset, to access growth capital. The government’s small collateral-free loan program offers a genuine, if narrow, alternative for the earliest-stage ventures, but nothing yet fills the gap for companies ready to scale.
Until Nepal addresses the personal liability and prudential incentives currently pushing bankers toward land collateral, its modern secured transactions law will remain exactly what it’s been for two decades: a legal framework that exists on paper, waiting for the regulatory conditions that would let it actually function.
FAQ: Venture Debt in Nepal
What is venture debt, and why does it matter for startups? Venture debt is growth financing that lets startups borrow against their business, cash flow, or receivables, without pledging physical collateral or giving up additional equity.
Does venture debt exist in Nepal today? Not in any meaningful, developed form. Nepali startups seeking debt financing almost always encounter conventional bank loans requiring land or building collateral instead.
Why do Nepali banks rely so heavily on land as collateral? Regulatory factors, including provisioning penalties, risk weights, and personal criminal liability for loan officers on defaults, make land collateral far safer for banks than movable-asset lending, even though both are legally permitted.
Does Nepal have laws supporting movable asset collateral? Yes. The Secured Transactions Act, 2063 (2006) permits loans secured by receivables, inventory, equipment, and intellectual property, but banking practice rarely uses these provisions.
What percentage of bank loans in Nepal are secured by real estate? Land and buildings have secured between 60.8% and 68.0% of all Nepali bank lending consistently over the past decade.
Are there any collateral-free loan options for Nepali startups? Yes, but limited. The government-backed Startup Enterprise Loan Program offers loans up to NPR 20 lakh without physical collateral, though it supports only a few hundred startups annually.
