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Green Finance for a Sustainable Nepal: Assessing the Banking Sector's Real Readiness to Finance Green Projects and Which Economic Incentives Really Work
This study provides a comprehensive analysis of Nepal’s banking sector’s readiness to finance green projects and assesses the effectiveness of existing economic incentives to promote green finance. Nepal, a country with high vulnerability to climate change, is in dire need of investments in sustainable development. The report examines key aspects ranging from the policy and regulatory framework, including the recently adopted Green Finance Taxonomy, to the practical implementation of initiatives by banks and the government.
The key findings indicate that despite the emergence of building blocks for green finance, such as dedicated credit products and green bond issuance, the banking sector faces significant systemic challenges. These include limited capacity to assess and manage the risks of green projects, continued reliance on secured lending, which makes it difficult to finance innovative and low-cost green start-ups, and a significant gap in financing for small and medium-sized enterprises (SMEs) that could be key players in the green economy.
The effectiveness of existing economic incentives, particularly subsidized credit programs, is seriously undermined by the government’s fiscal indiscipline and implementation problems. Tax incentives are fragmented and do not always directly incentivize environmentally meaningful outcomes. Nepal’s inclusion on the FATF “grey list” creates additional obstacles to attracting international green investment.
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By Alpha Business MediaThis study provides a comprehensive analysis of Nepal’s banking sector’s readiness to finance green projects and assesses the effectiveness of existing economic incentives to promote green finance. Nepal, a country with high vulnerability to climate change, is in dire need of investments in sustainable development. The report examines key aspects ranging from the policy and regulatory framework, including the recently adopted Green Finance Taxonomy, to the practical implementation of initiatives by banks and the government.
The key findings indicate that despite the emergence of building blocks for green finance, such as dedicated credit products and green bond issuance, the banking sector faces significant systemic challenges. These include limited capacity to assess and manage the risks of green projects, continued reliance on secured lending, which makes it difficult to finance innovative and low-cost green start-ups, and a significant gap in financing for small and medium-sized enterprises (SMEs) that could be key players in the green economy.
The effectiveness of existing economic incentives, particularly subsidized credit programs, is seriously undermined by the government’s fiscal indiscipline and implementation problems. Tax incentives are fragmented and do not always directly incentivize environmentally meaningful outcomes. Nepal’s inclusion on the FATF “grey list” creates additional obstacles to attracting international green investment.