World Bank Approves $95m to Expand SME Finance and Jobs in Nepal

The Sustainable and Inclusive Finance Project (SIF) will strengthen Nepal’s financial infrastructure, improve risk-sharing mechanisms and help unlock lending for underserved businesses, including women-led enterprises.

The World Bank has approved a $95 million financing operation to expand access to finance for more than 100,000 small and medium enterprises (SMEs) in Nepal, supporting job-led growth and private sector development in one of the country’s most critical economic segments.

The Sustainable and Inclusive Finance Project (SIF) will strengthen Nepal’s financial infrastructure, improve risk-sharing mechanisms and help unlock lending for underserved businesses, including women-led enterprises.

“This operation will strengthen Nepal’s Deposit and Credit Guarantee Fund to expand risk-sharing, enhance financial sustainability and introduce new guarantee products for underserved segments,” said David Sislen, World Bank Country Division Director for Maldives, Nepal and Sri Lanka.“By easing access to finance and reducing transaction barriers, the project will broaden financial inclusion, support SMEs’ integration into regional and global value chains, and foster job creation and private sector–led growth.”

Strengthening Credit Guarantees for SMEs

At the core of the project is support for Nepal’s Deposit and Credit Guarantee Fund (DCGF), which plays a key role in enabling banks to lend to SMEs that lack sufficient collateral.

The project will:

• Expand DCGF’s risk-sharing capacity

• Introduce new guarantee products for underserved segments

• Improve financial sustainability through risk-based pricing

• Shift toward first-loss coverage, encouraging greater lender participation

These reforms are designed to reduce risk for lenders while improving access to affordable finance for businesses that have historically struggled to secure credit.

Building on Financial Sector Reforms

The SIF project builds on reforms supported by the World Bank’s Financial Sector Stability and Finance for Growth Development Policy Credit (DPC) series, concluded in 2024, which prioritised access to finance for SMEs and other underserved groups.

The project also aligns with the Government of Nepal’s second Financial Sector Development Strategy, reinforcing national efforts to modernise the financial system and support inclusive growth.

Improving Credit Information and Data Systems

To complement expanded guarantees, the project will invest in the Credit Information Bureau of Nepal (CIBN), strengthening the foundations of credit assessment and risk management.

Key investments include:

• Expanding data coverage and integrating alternative data sources

• Enhancing data security and privacy

• Upgrading institutional and technological capacity

The International Finance Corporation (IFC) has been supporting CIBN’s reform efforts, helping improve the quality and usability of credit information for lenders.

Tackling Longstanding Barriers to Finance

Limited collateral and thin credit histories remain major obstacles for Nepalese SMEs, restricting both borrowing and lenders’ ability to assess risk.

“Inadequate collateral and limited credit histories have long constrained SMEs’ access to affordable finance,” said Sabin Raj Shrestha, Senior Financial Sector Specialist for South Asia and Task Team Leader for the project.“The DCGF will be strengthened by upgrading its management information system, improving claims-settlement efficiency, and transitioning to risk-based pricing and first-loss coverage.”

Driving Jobs and Private Sector Growth

By improving access to finance, the project aims to stimulate entrepreneurship, productivity and employment, helping SMEs scale up operations and create jobs across the country.

The World Bank says the investment represents a significant step toward a more inclusive, resilient and growth-oriented financial system—one that better supports Nepal’s businesses, workers and long-term economic development.