Development of banking sector in Nepal

In the historical context of Nepal, the evolution of the banking industry is a relatively recent development. The records of Nepal's banking system provide a detailed account of a mixed economic life during various periods. In the unorganized money market, landlords, shopkeepers, and wealthy merchants served as lenders.

In 723 A.D., Gunakam Dev borrowed money to rebuild the Kathmandu Valley, and by the end of the 8th century (780 A.D.), a new era called Nepali Sambat was introduced by Shankadhar, a Sudra merchant of Kantipur, after settling all outstanding debts in the country.

In the 14th century, King Jayasthiti Malla of Kantipur introduced "Tanka Dhari," a term marking a significant chapter in the history of banking in Nepal. During the Malla regime in the 11th century, evidence of professional Money Lenders and Indigenous Bankers emerged. The introduction of silver coins in the 12th century marked a new economic epoch, but the absence of regulatory bodies allowed moneylenders to charge high interest rates and extra fees on loans.

The establishment of "Tejarath Adda" between 1877-1885 A.D. by the Kathmandu valley government marked a flourishing period in the banking system. This provided credit facilities to the public at low-interest rates, especially against collateral of gold and silver.

In the 20th century, the modern banking system in Nepal began with the establishment of Nepal Bank Limited in 1937 A.D., followed by the Rastriya Banijya Bank in 1966 A.D. and the Agriculture Development Bank of Nepal in 1967 A.D. Nepal Rastra Bank, established on April 26, 1956, was a significant event, leading to the establishment of numerous financial institutions.

The 1980s marked a historic period in Nepal's financial system development with the introduction of financial liberalization policies. The establishment of Nepal Arab Bank Ltd. in 1984, the first joint venture bank in Nepal, paved the way for the growth of financial institutions.

Subsequently, Nepal Investment Bank Ltd. and Nepal Indosuez Bank Ltd. (now Standard Chartered Bank Nepal Ltd.) were established through joint ventures with international partners, contributing to the sophistication of banking services.

As of mid-January 2009, Nepal had 235 licensed banks and non-bank financial institutions, including commercial banks, development banks, finance companies, micro-credit development banks, saving and credit co-operatives, and non-government organizations. By the end of Ashadh 2066, there were 26 operational commercial banks, with a mix of public, private, and joint venture banks contributing to the diverse landscape of Nepal's banking sector.