DRIVING SUSTAINABLE FINANCE IN NEPAL
How FMO and its partners are turning market creation from concept to impact through Invest for Impact Nepal
In emerging markets like Nepal, development finance institutions (DFIs) face a paradox: the need to channel more capital into the private sector, yet there are too few investable opportunities that meet their standards for size, structure, and sustainability. Instead of competing over a handful of investible deals, what if DFIs joined forces to create a larger pipeline of impact-ready opportunities?
Market creation in a nutshell
That was the starting point for Invest for Impact Nepal (IIN) – a platform developed by FMO, British International Investment (BII) and the Swiss Development Cooperation (SDC) – whose goal was to demonstrate what “market creation” can look like in practice. In short, market creation involves creating investible opportunities through a multi-dimensional approach that addresses barriers, both at the enterprise level to make businesses investment-ready, and at the ecosystem level to seed and nurture new market segments and businesses.
By combining ecosystem reform, capacity building and stakeholder collaboration, IIN is reshaping Nepal’s foreign investment landscape. “IIN was a test case: a platform for DFIs and development partners to collaborate in small and fragile markets,” says Buddhika Samarasinghe, Program Director for IIN. “Instead of fighting over the same deals, the idea was to work together to expand the pie – so that everyone could have a more impactful share.”
Buddhika Samarasinghe Program Director for IIN
“You need someone who’s informed and impartial. Not a lobbyist, not a government agency, but a platform that sees where the system is getting stuck and helps unblock it for everyone.”
Nepal: a fragile market with systemic hurdles
Nepal has long been perceived as a high-risk investment environment, with structural barriers that deter foreign capital. Political volatility, an economy highly dependent on remittances, policy inconsistency, and a patchy regulatory framework all contribute to investor hesitancy. In addition, information is scarce – both for foreign investors trying to understand the market, and for local institutions aiming to access international capital.
Yet the need for private sector finance is pressing. “You’re dealing with a country where small and medium enterprises (SMEs) are lacking capital, and the financial sector itself is still maturing to meet international standards,” explains Buddhika. “DFIs are the vanguard of foreign investors – and if they can’t invest, no one else will. Unlike commercial investors, DFIs like FMO are willing to take higher risks to make opportunities investable over the long term and showcase the opportunity for others.”
This is where market creation becomes critical. IIN’s goal is to address these barriers head-on – not through a single intervention, but by building a more functional financial ecosystem. The platform works on two fronts: by expanding the pool of investable companies, and by increasing investor confidence through policy reform and better market intelligence.
It’s a strategy that has already delivered tangible results. In 2020, only two DFIs, FMO was one of them, were making debt investments into two commercial banks in Nepal, worth a total of USD 75 million. Fast forward to 2025, and that number has grown to 12 DFIs investing in six banks, with a combined value of over USD 748 million.
NEPAL IN 2020
DFIs engaged:
Banks invested:
Combined value:
NEPAL IN 2025
DFIs engaged:
Banks invested:
Combined value:
Professionals trained on sustainable finance:
Source: figures baed on public disclosures of investors and investees in Nepal, and Invest for Impact evaluation including evaluation Invest for Impact Nepal – phase one
Sharad Tegi Tuladhar Chief Policy, E&S and Climate Project at NMB Bank
“By making ESG mainstream and convening regulators, policymakers, banks and DFIs, Invest for Impact Nepal has created a level playing field and made it easier for us to mobilize resources.”
From pioneers to peers: engaging local banks
NMB Bank is a long-standing FMO partner with a strong sustainability agenda. With FMO as its largest shareholder, and support from BII, NMB Bank had already begun aligning with international environmental, social and governance (ESG) standards – including integrating IFC Performance Standards into its policies.
But implementation wasn’t easy. “The policy side is there,” says Sharad Tegi Tuladhar, Chief Policy, E&S and Climate Project at NMB Bank. “But the challenge lies in implementation: getting private sector clients to adopt ESG in their own operations. There’s limited local expertise, and we’ve had to rely on external consultants.”
Through IIN, NMB Bank gained a platform to both deepen its own ESG practices and help bring the rest of the sector along. “We were ahead of the curve, so we contributed to IIN’s working groups and knowledge-sharing efforts,” Sharad continues. “The platform helped convene stakeholders and create a level playing field – raising awareness and capacity across the industry.”
Other commercial banks received tailored support from IIN, including advisory services to establish environmental and social management systems (ESMS), strengthen client protection, and improve gender financing. These interventions were guided by real-world needs and bank-level buy-in, not generic toolkits. “We assess which banks are serious, engage with their staff, and only then deploy technical assistance,” says Buddhika. “It’s targeted and informed.”
Training a new generation of ESG leaders
One of the platform’s most transformative achievements has been building local ESG expertise – both inside financial institutions and across the wider economy. When IIN started, Nepal had very few qualified professionals to deliver ESG training or implementation. To solve this, the platform partnered with the Nepal Bankers’ Association and the Barcelona School of Management to deliver a certified ESG training program. The first two cohorts trained 80 professionals; the top 20 were selected for a train-the-trainer program, ensuring the initiative could become self-sustaining. It has since entered its third cohort – now fully funded by the banks themselves.
“We also looked beyond the banks,” adds Buddhika. “With FMO’s support, we co-developed a postgraduate diploma in sustainable business management with Nepal’s largest university. This is a gamechanger. It means new graduates will enter the workforce with the skills needed to drive sustainability from within.”
This multidimensional approach – combining technical assistance, knowledge-sharing, and education – has helped shift ESG from a niche concern to a sector-wide standard. “None of the banks except NMB had E&S officers when we started,” says Sharad. “Now they do. There’s real awareness that sustainability is part of future-proof finance.”
NMB Bank continues to lead by example, becoming the first bank in Nepal to disclose the carbon footprint of its loan portfolio in 2022. “That number has now grown to six banks,” Sharad notes. “We’re raising the bar on transparency and disclosure.”
Catalyzing capital and confidence
While technical progress has been impressive, the long-term success of IIN will be measured by its ability to attract sustainable, international investment into Nepal’s priority sectors. The early signs are encouraging: “IIN has helped build confidence across the board,” says Sharad. “By making ESG mainstream and convening regulators, policymakers, banks, and DFIs, it’s created a level playing field and made it easier for us to mobilize resources.”
That’s particularly important for sectors with transformational potential–such as renewable energy, including hydropower, as well as agriculture and tourism–where NMB Bank is actively looking to crowd in international capital. Sharad adds: “The credibility of the ecosystem is improving, but we need better information, stronger collaboration, and implementation of sustainable practices in order to keep making progress.”
IIN’s role as a neutral, strategic facilitator has been vital in this regard–offering the kind of sector-wide visibility and coordination that individual institutions cannot deliver alone. “You need someone who’s informed and impartial,” says Buddhika. “Not a lobbyist, not a government agency, but a platform that sees where the system is getting stuck and helps unblock it for everyone.”
“In emerging markets like Nepal, DFIs face a paradox: the need to channel more capital into the private sector, yet too few investable opportunities. That’s where market creation comes in.”
From readiness to resilience
After four years of operation, IIN has evolved from an experimental platform into a cornerstone of Nepal’s financial sector transformation and a blueprint for similarly complex emerging markets. It has shown how market creation can move from theory to practice through deliberate, multi-level engagement.
For FMO, it also confirms the value of its Pioneer-Develop-Scale strategy. “FMO really incubated this idea,” says Buddhika. “They’ve embraced the market creation agenda, invested above and beyond, and shown that it’s not just about doing deals–it’s about changing the ecosystem.”
The progress is undeniable: a growing number of investable institutions, a better-informed investor and investee community, and a new generation of professionals driving ESG from the inside. Perhaps most importantly, there’s momentum–from policymakers, regulators, banks, private equity, venture capital funds and DFIs–to continue the journey.
IIN’s experience offers valuable lessons for other post-conflict or emerging markets aiming to foster investable ecosystems through collaboration. “It’s not about us,” Buddhika concludes. “It’s about the ecosystem. And that’s exactly where real impact begins.”
About Invest for Impact Nepal
Invest for Impact Nepal (IIN) is a local platform based in Kathmandu, established by FMO, British International Investment (BII), and the Swiss Development Cooperation (SDC). Formed in the wake of Nepal’s post-COVID economic decline, IIN supports the country’s banking and private equity sectors to enhance ESG practices, improve investment readiness, and strengthen the financial ecosystem. The platform operates with a small core team of five local staff and is fully financed by its founding partners.
FMO's Progression Model: Pioneer-Develop-Scale
