BFIs’ Role in Formalizing Nepal’s Informal Sector: A Path to Inclusive Growth

BFIs’ Role in Formalizing Nepal’s Informal Sector: A Path to Inclusive Growth

Nepal’s economic landscape is vibrant, characterized by a diverse array of informal enterprises that embody the nation’s entrepreneurial spirit. However, within this dynamism lies a pressing challenge: the formalization of these enterprises. Despite their significant contributions to employment and innovation, many informal businesses operate outside the formal economy, hampering their access to essential resources and hindering sustainable growth. In this pursuit of transformation, Banking and Financial Institutions (BFIs) emerge as pivotal agents for change.

The Informal Sector Conundrum:

Nearly half of Nepal’s firms, accounting for 49.9% (460,422), operate without formal registration, employing over a quarter of the nation’s workforce (25.8% or 832,187 individuals). While these informal enterprises hold immense potential, they encounter various obstacles, from navigating complex regulatory frameworks to accessing affordable credit. This perpetuates a cycle of exclusion, constraining their ability to enter formal markets and expand their operations.

BFIs: Agents of Transformation:

Amidst this backdrop, BFIs are uniquely positioned to catalyze Nepal’s economic trajectory. Traditionally focused on serving formal sectors, these institutions possess the resources and expertise necessary to drive meaningful change. Leveraging their Corporate Social Responsibility (CSR) initiatives, BFIs can spearhead efforts to formalize the informal economy, unlocking a wealth of untapped potential.

Redefining CSR: A Strategic Imperative:

Underutilized CSR budgets represent a reservoir of opportunity. By redirecting these resources towards initiatives aimed at formalization, BFIs can trigger a transformative ripple effect. Simplifying registration processes, providing tailored financial products, and offering capacity-building programs are among the avenues through which BFIs can channel their CSR investments, fostering an environment conducive to growth.

A Win-Win Proposition:

The benefits of this strategic shift extend beyond corporate philanthropy. By nurturing the formalization of informal enterprises, BFIs stand to gain access to a burgeoning market segment ripe with untapped potential. Formalized businesses, in turn, benefit from enhanced access to credit, improved working conditions, and heightened market credibility. This symbiotic relationship not only fosters economic resilience but also paves the way for sustainable, inclusive growth.

Seizing the Opportunity:

The time to act is now. As Nepal charts its path towards economic prosperity, BFIs must assume a leadership role in driving change. By embracing the imperative of formalization and harnessing the power of CSR, these institutions can unlock new avenues of growth, ushering in a brighter future for Nepal’s economy and its people.

Collaboration is essential in this endeavor. Governments, regulatory bodies, and civil society must collaborate with BFIs to create an ecosystem conducive to formalization. By pooling resources, sharing expertise, and fostering innovation, stakeholders can collectively propel Nepal towards a more resilient, inclusive future.


Nepal stands at a crossroads, poised to harness the transformative potential of its informal sector. BFIs, as guardians of financial stability and agents of change, hold the key to unlocking this potential. By reimagining the role of CSR and embracing the imperative of formalization, BFIs can catalyze a paradigm shift, propelling Nepal towards sustained prosperity and inclusive development.

As the nation embarks on this journey of transformation, let us heed the call to action. Together, let us build a future where every entrepreneur has the opportunity to thrive, and every citizen has the chance to prosper.