The State of FinTech in Nepal

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Nepal is a landlocked country with China to the North and India to the South, East, and West. It’s a multi-ethnic country with amazing features.

A home to world’s highest mountains including Mount Everest; it has the highest number of global heritage sites, prominent among them is Lumbini, which is said to be the birthplace of Buddha. Officially known as the Federal Democratic Republic of Nepal, Monarchy came to an end here in June 2008 with the introduction of the multi-party parliamentary system. Proximity to two Asia’s dominant country – India and China – presents unique development opportunities to the country.

The economy of Nepal is dependent on international aids and foreign tourists. According to Central Bureau of Statistics (CBS) of Nepal, the total population of Nepal in 2011 was 26.5 million.

According to countrymeters.info, the population of Nepal as on January 1, 2016, was estimated to be 28.7 million people, an increase of 1.18 % from the last year’s population. 61.1 percent population is in the age group of 15 to 64 years. The Himalayan Nation’s 70% population depends on agriculture which amounts to one-third of GDP. The country is also heavily dependent on remittances which account for 29% of GDP.

Out of 15.2 million labor force, 69% are engaged in agriculture, 12% in industry and 19% in the service sector. The country faces a severe lack of skilled population.

Startup scene in Nepal:

There is no dearth of entrepreneurial opportunities in Nepal, however, the lack of infrastructure such as power & water supply, Internet connectivity to support startup spirit pose a big challenge in the country. Besides this, lack of risk-taking culture and public support to new ideas is also seen as a big problem for hundreds of youngsters who want to make a big difference in the society with their entrepreneurial spirit. Enterprising youths look for financial and mentoring support which is not readily available in the country.

Despite all the hurdles, online enterprising activities are on the rise in the capital city of Kathmandu. Many tech experts view that internet connectivity in cities like Kathmandu is better than other areas. Along with this, foreign remittances and exchange of ideas with the outer world have encouraged youngsters to take risk and innovate. The literacy rate is better in Kathmandu as compared to rest of the country.

Foreign tourists often bring fresh ideas and encouragement to youngsters who are driven to start new ventures. These enterprises mostly run with the help of personal finances.

Recently the International Finance Cooperation initiated a $14 million small and medium enterprise venture fund, known as Business Oxygen (BO2) Private Limited, to support such startups (SMEs) which are at least two-year-old. This fund is managed by the Bank of Kathmandu and Beed Management Firm, which provides international management consulting and financial advisory services with its offices in Nepal, Bhutan, and Rwanda.

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According to a 2010 study, SMEs (excluding microenterprises) give employment to the huge percentage of the population in Nepal. 83% of the industrial employment generation comes from SMEs only. BO2 aims at solving the problem of access to finance to a lot of SMEs. The important sector in which BO2 wants to provide funding is renewable energy, health, agriculture and information technology.

Some of the startups which look promising in Nepal are Biruwa Ventures, MeroCampus, FoodMandu, CloudFactory, KTMcouriers to name a few. While Biruwa Ventures provide modern office spaces to startups, MeroCampus helps students in admission process by providing comparative fee structure, admission process, facilities, etc. FoodMandu offers delivery services of street food and snacks while CloudFactory offers paid tasks on the web to people. KTMcouriers is into logistic support such as pickup and delivery of goods.

Some of these startups have been running from 2008 and have tried to expand by acquiring other firms as well. For instance, CloudFactory bought two US companies, Humanoid and SpeakerText, in October 2012 to expand its services.

How big is the Fin-Tech pie in Nepal:

Nepal’s financial technology sector is quite small with the majority of initiatives in remittance services, banking platforms, and mobile telecom services. These initiatives are taken by various foreign-based companies through their subsidiaries in Nepal in their business interest which is solely need-based.

For instance, Nepalese migrant workers working in various countries find it really difficult to send money at home in real time with low remittance fees. Neema, which is based out of Nepal, has collaborated with MasterCard to offer a debit card to provide remittance services without any transfer or foreign currency exchange rate fees.

Similarly, a leading mobile-based fintech company Eko, partnered with Nepal’s Prabhu Money Group to launched Indo-Nepal remittance services. Started in 2004 as a software company F1Soft International Pvt. Ltd has today evolved as a leading FinTech company offering multiple services such as Online Payment Gateway, Mobile Banking System, Internet Banking System, Cards Management System, Digital Wallet, etc.

In another significant move, 34 microfinance entities in Nepal joined hand to make a fintech company – Nepal Finsoft. Supported by the Nepal Microfinance Bankers’ Association, Nepal Finsoft will build and maintain a shared core banking platform.

Since country’s geographical topography is difficult and causes limitations for the banking sector to expand to far-flung areas, mobile and internet banking system still has a lot of scopes to evolve.

Status of policy regulation in Nepal:

Nepal Rastra Bank, which is the monetary, regulatory and supervisory authority of banks and financial institutions, allowed branchless banking, mobile banking, internet banking and card services with its approval in December 2012 and since then a lot of companies entered into these activities in collaboration with banks.

The country is yet to come out with regulations which can allow financial technology companies to act on behalf of banks for depository or payment services.

Current status of financial institution in Nepal:

In Nepal, at present, there are 28 commercial banks, 67 development banks, 41 finance companies and 42 microfinance development banks. There are total 4,274 branches of all these financial institutions.

A lot of banks have come forward to offer technology-based services such as branchless banking which fulfills the payment and credit needs of people. These people do not have access to a formal financial system. At present, more than 213,000 people are availing services through 812 branchless banking centers in Nepal.

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Realizing the banking limitations to cover a large number of areas, banks have started mobile-based payment system, and according to estimates, there are 1.6 million mobile banking customers in Nepal. The total number of debit card users stand at 4.1 million.

Financial inclusion is one of the biggest challenges in Nepal. Financial institutions’ quick response to latest technologies is raising people’s access to finance.

According to a recent report by NRB, the United Nations Capital Development Fund (UNCDF) and the United Nations Development Programme, only 61 percent adults have access to formal financial services in Nepal. Out of these 61 percent, only 7 percent use all four types of financial products—savings, payment, credit or insurance. Out of remaining 39% population, 21 percent use informal channels and 18 percent do not have any access to financial system.

Opportunities for startups in Nepal:

The latest Management Information System (MIS) Report of Nepal Telecommunications Authority (NTA) presents an optimistic picture for the growth prospects of financial technology companies in the country. The report says that the use of mobile phone has outnumbered the total population in the country. The February 2016 data suggests that mobile penetration rate has hit 105%. Experts believe that in the last eight months the penetration rate would have gone up very fast as the use of mobile, smartphone and Internet are growing in Nepal.

Another positive indicator is the report of the Department of the custom of Nepal which says that by mid-May 2016 Nepal has imported 33.1% more handset in comparison to this fiscal year. About 45% of the total population has access to internet services. According to the NTA data, as on mid-February, the total number of Internet users was 12.51 million while it was just less than 50 Internet users in 1995.

Conclusion:

Telecom innovation has changed the way people communicate in Nepal. It’s a very good sign for the growth of financial technology companies. It shows that the country has a huge scope for FinTech revolution because not only that use of mobile is spreading fast, access to financial services is not widely available in the country. The government has to play a proactive role to promote FinTech startups to bring financial inclusion in the country.

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