Business Credit: Appraisal, Collateral, Guarantees and the Credit Information Bureau

A Nepali credit committee assesses a security package and a repayment record first, and the business that connects them second. Foreign parents used to cash-flow lending find this disorienting, and the disorientation usually surfaces as a valuation argument about land the group did not expect to be pledging.

What banks lend against

The dominant collateral in Nepali commercial lending is registered immovable property, valued by a bank-panel valuer and mortgaged at the local Land Revenue Office. Everything else — corporate guarantees, personal guarantees from promoters, hypothecation of stock and receivables, charges over plant — tends to function as supporting security around a land-based core rather than as an alternative to it.

The World Bank put the diagnosis plainly when it approved a USD 95 million Sustainable and Inclusive Finance Project on 3 February 2026, targeting more than 100,000 small and medium enterprises: “inadequate collateral and limited credit histories have long constrained SMEs’ access to affordable finance while limiting lenders’ ability to accurately assess credit risk.” Part of that project money is going into the Credit Information Bureau and part into the Deposit and Credit Guarantee Fund, which is a fair statement of where the two bottlenecks sit.

For a foreign-invested company the consequence is structural. A newly incorporated subsidiary typically owns no Nepali land, has no Nepali credit history, and cannot offer the parent’s offshore balance sheet as security in a form a Nepali bank can enforce. What is left is a corporate guarantee from the parent, which the bank will accept as comfort and price accordingly, and a standby letter of credit or bank guarantee issued by a bank abroad, which converts the question from local credit assessment into a correspondent-banking question, with the frictions described in AML/CFT and correspondent banking.

Movable collateral

The Secured Transaction Act 2063 (2006) was drafted precisely to relieve the land constraint. It permits a security interest to be created over movable and intangible property and perfected by filing a notice at the Secured Transaction Registry Office, which is operated by Karja Suchana Kendra Limited under authority from the Ministry of Finance. Filings cover business equipment, inventory, accounts receivable, motor vehicles and heavy equipment. Searches run against an individual’s citizenship number, a company’s name or registration number, or a serial number for vehicles and plant. Priority follows the order of filing, and a later financier who wants to come first negotiates a subordination agreement with the earlier one.

That is a functioning first-to-file regime on paper. It has not changed the composition of Nepali bank security in the way its designers hoped, for reasons that are institutional rather than legal. Valuation of receivables and inventory is difficult where audited accounts are thin. Enforcement against movables depends on the same court system as enforcement against land, without the same certainty of realisation. And credit officers are appraised on outcomes that reward the conservative choice. A receivables-backed facility is perfectly lawful. It is simply something for which the bank has no habit.

The Credit Information Bureau

Membership of the Credit Information Bureau of Nepal is mandatory for institutions licensed by NRB that extend credit facilities of NPR 1 million and above. The bureau collects and disseminates borrower information to members for use in credit approval. Every commercial bank, development bank, finance company and most microfinance institutions report to the same bureau, so credit information works as a shared utility rather than as a competitive advantage held by one lender, and the record it holds travels with the borrower everywhere.

It also runs the blacklist. This is where the Nepali system differs most sharply from a credit-score jurisdiction. An adverse credit record in most markets raises the price of borrowing. Blacklisting in Nepal removes access, and the effects extend beyond the banking relationship into company officers’ ability to hold positions and transact. We could not obtain the bureau’s blacklisting bylaw, the grounds on which a borrower or its directors are listed, or the release procedure, and the secondary material available on the subject is the unsourced, near-identical content that this publication does not rely on. That gap is flagged rather than filled. Any group whose Nepali entity is approaching default should treat the blacklisting question as a matter for specific legal instruction.

Regulated appraisal rules

Two areas of appraisal are regulated rather than left to the lender.

Working capital is sized under the Working Capital Loan Guidelines 2079. Below the size thresholds a bank applies its own policy. Above them the cumulative limit for smaller exposures is set at 20 percent of projected annual turnover, extendable to 50 percent where operating-cycle, cash-conversion and inventory analysis supports it. Larger exposures must be split between permanent working capital and a fluctuating component, the fluctuating part capped at 25 percent of annual sales and extendable to 40 percent with documented justification. Facilities cannot be used to repay other borrowings, and misuse requires classification as bad with a 100 percent loss provision. The requirement to submit periodic working capital statements, verified by auditors for larger limits, is what converts this from a sizing rule into an ongoing reporting obligation.

Classification and provisioning are the second. The watchlist category, which sits inside performing loans, carries a 5 percent provision. A loan that has gone non-performing can only return to pass classification after six consecutive months of principal and interest payments following settlement of arrears, a tightening applied from the third quarter of FY 2023/24. That six-month cure period is why a temporary liquidity problem in Nepal produces a provisioning consequence for the lender that outlasts the problem, and why banks restructure early and reluctantly. The mechanics are set out in asset classification, provisioning and non-performing loans.

The credit guarantee scheme

The Deposit and Credit Guarantee Fund, established under the Deposit and Credit Guarantee Fund Act 2073 (2016), does two jobs that are usually separated in other systems. It insures small depositors, and it guarantees categories of lending, the credit half of its name. Its guarantee schemes exist to make a bank willing to lend where the security package would otherwise fail, which is the same constraint the World Bank identified. The February 2026 project explicitly funds upgrades to the Fund’s management systems, claims settlement and risk-based pricing, an unusually candid statement that claims settlement has not been fast enough to make lenders rely on the guarantee.

For a borrower this matters in one specific way. A guarantee that a lender does not trust to pay does not substitute for collateral, and reduces the pricing only marginally. Whether a given facility can be brought inside a Fund scheme, and whether the lending bank actually uses those schemes, is a question worth asking of the branch rather than assuming from the policy.

Before the term sheet

Three questions decide whether a Nepali credit facility is achievable in the shape a foreign group wants, and all three are cheaper to answer before drafting than after.

Whether the group is willing to give a parent guarantee governed by Nepali law and enforceable in Nepal, or intends to rely on a foreign-law instrument that will require the lender to look outside the jurisdiction to realise it. Whether any Nepali immovable property is available to mortgage, and if not, what combination of registered movable security and offshore support is being offered in its place. And what the borrower’s, the promoters’ and the directors’ existing records at the Credit Information Bureau say, because that is the first search the bank runs, and it is the one search whose answer cannot be improved by better documentation.

Sources

1. Secured Transaction Act, 2063 (2006)

   Government of Nepal — Act No. 19 of 2063 · 2006 — in force · Tier 1 — Primary legal instrument

   Supports: The statutory basis for taking and perfecting security over movable and intangible property in Nepal.

   Accessed 26 August 2026

2. Secured Transaction Registry Office — about

   Secured Transaction Registry Office, operated by Karja Suchana Kendra Limited · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That notices of security interest over business equipment, inventory, receivables, motor vehicles and heavy equipment are filed and searched electronically, that filing establishes priority, and that subordination agreements are the mechanism for reordering it.

   Accessed 26 August 2026

3. Credit Information Bureau of Nepal — what we do

   Karja Suchana Kendra Limited · Accessed 26 August 2026 · Tier 2 — Official publication

   Supports: That institutions licensed by NRB extending credit of NPR 1 million and above must be members, and that the bureau collects and disseminates credit information for use in credit approval.

   Accessed 26 August 2026

4. Working Capital Loan Guidelines, 2079

   Nepal Rastra Bank · 2022, as amended; amendment effective 11 Bhadra 2080 (28 August 2023) · Tier 1 — Primary legal instrument

   Supports: Turnover-linked sizing of working capital limits, the permanent and fluctuating split for larger exposures, and the consequence of diversion.

   Accessed 26 August 2026

5. Unified Directives 2082 for A, B and C class licensed institutions

   Nepal Rastra Bank · Issued 16 January 2026; amended by circulars to No. 19 of FY 2082/83 dated 15 July 2026 · Tier 1 — Primary legal instrument

   Supports: That loan classification and provisioning, exposure limits, and credit information and blacklisting obligations are consolidated in the directives rather than in primary legislation.

   Accessed 26 August 2026

6. Nepal — World Bank approves $95 million to support sustainable and inclusive finance

   World Bank · 3 February 2026 · Tier 3 — Multilateral institution

   Supports: The diagnosis that inadequate collateral and limited credit histories constrain SME finance, and the planned strengthening of the Credit Information Bureau and the Deposit and Credit Guarantee Fund.

   Accessed 26 August 2026

7. Deposit and Credit Guarantee Fund — introduction

   Deposit and Credit Guarantee Fund, Government of Nepal · Operating since 2010 under the Deposit and Credit Guarantee Fund Act 2073 (2016) · Tier 2 — Official publication

   Supports: The Fund's statutory basis and its dual deposit-guarantee and credit-guarantee mandate.

   Accessed 26 August 2026

8. NRB introduces stringent directives for non-performing loan categorisation

   The Farsight Nepal · Reporting a change effective in the third quarter of FY 2023/24 · Tier 6 — Professional or news source

   Supports: The six-month cure period before a non-performing loan may be reclassified as pass, and the 5 percent provision attaching to the watchlist category.

   Accessed 26 August 2026