The Push for Corporatisation in Nepal
Nepal’s economic landscape underwent a significant shift with the liberal economic policies of the 1990s, which created a fertile environment for the private sector. Before this, the country’s economy was predominantly agrarian, with a private sector limited to small-scale manufacturing, including handicrafts. State-Owned Enterprises (SOEs) were responsible for producing and supplying most goods and services.
A preliminary move towards liberalisation began in the mid-1980s with the deregulation of the financial sector. Although banking services had existed since the establishment of Nepal Bank Ltd. in 1937, the financial sector remained underdeveloped until the arrival of foreign joint-venture commercial banks. The introduction of banks like Nepal Arab Bank (Nabil Bank), Nepal Indosuez Bank (Nepal Investment Mega Bank), and Nepal Grindlays Bank (Standard Chartered Bank) was a crucial first step that further cultivated a positive investment climate.
The blueprint
The Structural Adjustment Programme (SAP), proposed by the International Monetary Fund (IMF) and the World Bank Group in the mid-1980s, is considered the foundational plan for Nepal’s liberalisation, which gained momentum after the restoration of democracy. This major economic reform enforced comprehensive changes across legal, procedural, and institutional sectors, focusing on deregulation, privatisation, trade reforms, and attracting Foreign Direct Investment (FDI) to spur economic growth.
These initiatives built a strong economic foundation with increased resilience and stability, enabling the country to withstand a decade-long insurgency, prolonged political transitions, a major earthquake, a pandemic, and frequent natural disasters. While privatisation has boosted the economy’s potential, its full realisation has been hindered by factors such as political instability, insurgency, poor governance, corruption, and collusion. According to former Finance Minister Mahesh Acharya, “The enthusiasm for comprehensive reform initiatives has been undermined because the political leadership has been preoccupied with power struggles, power sharing, and forming coalitions.” Additionally, a lack of ownership and a shared agenda among political parties have also been major obstacles.
Privatisation has minimised the government’s role and expanded the private sector’s involvement, improving the efficiency of goods and services production and supply, which were previously dominated by State-Owned Enterprises. Concurrently, the Foreign Direct Investment and Technology Transfer Act (FITTA) was enacted to attract foreign investment in both production and service sectors. As a result of these reforms, several multinational companies entered the Nepali market, bringing not only capital but also technology and expertise that fostered a corporate culture in some local firms.
To promote greater transparency and help implement government policies, Nepal needs to prioritise and cultivate corporatisation, which would also enable more private companies to become publicly listed.
Fostering a corporate culture involves addressing a wide range of issues, including operational transparency, standardised accounting and auditing, modern human resources management, proper credit utilisation, evidence-based collective decision-making, ethical standards, prudent operations, risk-aversion mechanisms, responsiveness, and good governance. It also requires a focus on technology, innovation, minimising conflicts of interest, regulatory compliance, handling grievances, and proper disclosures.
Therefore, a new blueprint is needed for corporatisation that clearly defines the roles of regulatory bodies like the Securities Board of Nepal (SEBON), Nepal Rastra Bank (NRB), and the Institute of Chartered Accountants of Nepal (ICAN). Strengthening corporate governance is critical at this juncture, as collusion and corruption are undermining fair and ethical norms in private businesses, pushing aside transparency and prudence.
Tug of war
Nepal’s private sector has grown significantly over the years, yet a corporate culture remains absent among ‘self-proclaimed’ top corporations. These conglomerates often avoid transparency and good corporate governance, instead prioritising profit accumulation and remaining unresponsive. They are criticised not only for ignoring regulatory compliance and people-centric approaches, but also for a serious threat of collusion with political leaders, policymakers, and regulators, leading to regulatory capture.
The conflict between business leaders and Nepal Rastra Bank during the implementation of the ‘Working Capital Guidelines’ highlights the ineffectiveness of state mechanisms and regulators, and the victory of special interest groups. While policies should be developed in consultation with stakeholders and with an acceptance of pluralism, regulators should not be forced to back down from interventions that ensure the prudent use of bank credit. The private sector’s knee-jerk reaction and collective resistance to these guidelines, which were designed to promote transparency and accountability, strongly suggest dubious operations and the misuse of bank credits.
The central bank’s inability to implement these macroeconomic measures poses a threat to the stability of the entire financial sector and could lead to systemic risk.
Although the amount of credit mobilised from banks and financial institutions (BFIs) is nearly equivalent to the country’s GDP, it has not translated into corresponding increases in employment, production, or growth. This raises questions about where the money is going, who is helping to conceal the truth, and what loopholes are being exploited. Are legal, banking, and accounting professionals assisting in this? Do these professions lack ethical standards? And what have the regulators been doing?
Corporatisation provides a clear and transparent answer to these questions. However, only a handful of Nepali companies have truly embraced it in practice, meaning they operate transparently, adhere to compliance, and maintain ethical standards. The boards of these companies do not expect professionals like chartered accountants and legal experts to help them conceal unethical practices.
“This suggests that credit has been used for consumption, or for purposes like land speculation, rather than for productive investments. In this context, as banking professionals, we must agree that we have not properly utilised public deposits,” stated Manoj Kumar Gyawali, CEO of Nabil Bank. He added, “We need to better channel these deposits, motivate borrowers to use loans properly, and the central bank should provide guidance, supervision, and time for adjustments.”
Just a few years ago, banks and business people were in a heated conflict, blaming one another. Bank interest rates had surged at the time, which not only reduced business profits but also made debt servicing difficult. Business people accused banks of making them pay for their inefficiencies and high operating costs, arguing that if banks were more efficient and cut back on lavish operations, it would be reflected in lower lending rates. Banks, however, have a different perspective on the matter.
“Everything in the banking sector is transparent; they are well-regulated and corporatised,” stated Prithivi Bahadur Pandé, Chairman of Nepal Investment Mega Bank. “Nobody knows the actual profit of ‘XYZ’ private limited simply because they are not transparent. Before questioning banks’ efficiency, they (private companies) should be transparent and follow ethical standards.”
While BFIs must be efficient, borrowers have a greater responsibility to use public deposits prudently to maximise benefits for the entire economy. Ultimately, both the efficiency of BFIs and corporatisation are essential for achieving higher economic growth, stability, and sustainability, built on a foundation of public trust and the inclusive participation of all stakeholders.
Role of regulators and BFIs in corporatisation
As financial intermediaries, banks have a crucial role to play in promoting corporatisation. Regulatory policies are implemented through them, and the central bank relies on them for the offsite supervision of borrowers. The central bank, by working through BFIs, can promote the corporatisation of borrowers, as these entities are ultimately using public savings to achieve their potential.
“Nepal Rastra Bank should prioritise the corporatisation of the private sector. While large banks already implement corporate practices, they should also corporatise their borrowers who are obtaining wholesale credit,” stated Nara Bahadur Thapa, former Executive Director of NRB. Citing the case of Sipradi Hire Purchase Pvt. Ltd., a regulated vehicle financing company established in July 2014, Thapa noted that it has fully adhered to corporate practices. He added, “A certain incentive in the lending rate could expedite the corporatisation process in the private sector.”
A provision for credit rating has been implemented over the past few years to mitigate risks, although it is typically only used for large-ticket credits. Credit rates are normally based on a borrower’s risk profile, and corporatisation inherently lowers these risks.
“BFIs have a vital role, not just as lenders but as mentors and ecosystem builders. Through structured financing, advisory, and governance support, banks can help enterprises adhere to corporatisation processes,” remarked Raveena Desraj Shrestha (Chapman). “For this, banks must train their teams to move from being transaction managers to solution architects. Corporatisation is not just about paperwork, it’s a mindset shift, and BFIs can lead by modelling this shift internally first.”
Many Nepali organisations are family-owned businesses, State-Owned Enterprises (SOEs), or relatively young corporate entities, which requires them to balance global best practices with local social, cultural, and institutional contexts.
To foster a healthy, professional, and sustainable corporate culture, regulatory bodies should at the very least have policies that promote and support corporatisation. This would standardise operations, mitigate potential risks through effective corporate governance, and ultimately help develop the capital market by increasing the number and diversity of publicly listed companies.
Corporatisation and capital market development
India’s Reliance model is regarded as a prime example of successful corporatisation and a catalyst for capital market development. Since the 1980s, Reliance has issued public shares and invested in various industries to share profits with the public. This approach has allowed the company to expand its business empire while simultaneously benefiting the public shareholders who helped raise its capital. In contrast, most corporations in Nepal have been hesitant to adopt this model, preferring to remain family-owned businesses.
The policy requiring banks and financial institutions to issue 30% of their shares to the public has significantly contributed to Nepal’s capital market development. According to Nara Bahadur Thapa, “If the same had been done in FITTA and the Industrial Enterprise Act, Nepal’s capital market would have been strengthened and diversified.” He added that this ‘would have accelerated the corporatisation process’. It is not too late to start, and through initiatives from Nepal Rastra Bank (NRB) and Securities Board of Nepal (SEBON), companies should be required to meet the corporate governance standards of public companies. This would ultimately motivate them to raise capital from the public through Initial Public Offerings (IPOs). In this regard, SEBON can facilitate the process of raising capital by issuing IPOs and Follow-on Public Offerings (FPOs).
The Ministry of Finance (MoF), NRB, and SEBON are the most critical institutions for shaping policies and the regulatory environment to foster corporatisation in the country. The Ministry of Finance can introduce various policies to encourage the transition of private companies to public listings. For example, the MoF once announced income tax incentives in the budget for the reinvestment of publicly listed companies, and there could be various other measures to strengthen and cultivate corporatisation within the country.
Corporatisation of SOEs
Nepal is making significant progress in the corporatisation of its State-Owned Enterprises, also known as Public Enterprises (PEs). Many of these SOEs are currently struggling with inefficiency, trade union disputes, lack of competitiveness, procedural issues, and growing contingent liabilities. Of the 42 legally established SOEs, only 33 are operational. They are categorised into six main sectors: Industrial, Trading, Service, Social, Public Utility, and Financial.
The fiscal budget for 2025/26 has outlined several measures to implement new governance and investment frameworks for these enterprises. The budget’s vision includes granting management autonomy, promoting technology transfer and innovation to boost competitiveness, and recommending strategies such as ownership restructuring, conversion into a company, bringing in strategic partners, and divesting shares. The government also plans to revive failing SOEs through brownfield investments under a public-private partnership model and introduce advanced technologies. The budget has, as expected, announced plans to divest 30% of Nepal Telecom’s shares to the public and bring in a strategic partner.
All of these initiatives are considered a major step toward corporatisation. Following these decisions, the SOEs will be converted into public limited companies, with the goal of enhancing their competitiveness and helping them thrive in an open market. This proposed transformation will result in more independent boards and professional management to lead these entities with a stronger corporate culture.
Faced with increasing losses and minimal dividend payouts relative to government investment, the government has decided to reduce its involvement in SOEs. The government’s investment in these enterprises has surpassed Rs. 703 billion, comprising Rs. 364.86 billion in share capital (equity) and Rs. 339.07 billion in loans. However, these SOEs have only provided a meager return of Rs. 8 billion to the government. According to the Ministry of Finance, the dividend ratio, which measures the return on the government’s share investment, was only 2.4% in 2023/24, meaning the government received just Rs. 2.4 in dividends for every Rs. 100 invested.
The Public Enterprises Advisory Committee Report, 2023, has recommended six key strategic approaches for SOE reform: continuing operations with internal improvements; restructuring ownership to boost accountability and performance; privatisation through divestment or leasing; establishing a holding company for centralised oversight; enacting a PE Board Act where a holding company is not feasible; and dissolving non-viable SOEs.
These recommendations support the corporatisation of these enterprises. The benefits of corporatisation can be leveraged by both the public and private sectors.
Experts have suggested that broader guidance, policy frameworks, and incentives are necessary to encourage the transition of private companies from their current status as family-owned businesses, which has, in fact, been limiting opportunities.
How businesses can leverage potential through corporatisation
Corporatisation can unlock a company’s full potential by requiring adherence to certain standards, which adds value and helps transform it into a publicly listed company. Experts and seasoned corporate leaders have highlighted several benefits:
- Transparency
Transparency is essential for gaining public trust. In the current state of family-owned businesses, transparency is often lacking regarding their profits, tax filings, returns on investment, and credit utilisation. Transparency helps ensure accountability for achieving goals and curbing unethical practices. Public companies generally do not have these issues. As a key element of corporatisation, transparency paves the way for a company to become public and attract Foreign Direct Investment (FDI), as foreign investors trust the audit reports of public companies, given the independence of their boards and professional management. - Independent Board and Professional Management
Independent boards and professional management are another crucial element of corporatisation. This structure promotes core values and ethical standards, building credibility. In contrast, family-run businesses often prioritise profit and self-interest, with management sometimes instructed to make a profit ‘by hook or by crook’. A modern management approach and corporate culture can be promoted with professional management, leading to an independent Human Resources department, performance-based appraisals, clear employee growth paths including succession planning, collective decision-making, and employee training and development, all of which are hallmarks of good corporate governance. In the absence of this, there can be a lack of professional decisions and a performance-based appraisal system. Decisions are often made by a boss, with other employees expected to obey without question. This can lead to a poor work culture and frequent, often silent, layoffs. - Standardisation of Accounting and Auditing
The standardisation of accounting and auditing is an integral part of corporatisation. Corporations standardise their accounting and audit reports to comply with modern practices. In many family-owned businesses, audit reports may not be transparent, and they may conceal the truth, which can threaten the professionalism of even chartered accountants. State-Owned Enterprises have also been poor at standardising these practices, sometimes even failing to hold their annual general meetings on time. - Communication and Disclosure
Communication and disclosure are parts of transparency. Companies that value transparency and accountability have both internal and external communication policies. Corporatised companies disclose information about their operations, initiatives, and financial statements, as well as any other information requested by stakeholders. They are responsive, have grievance-handling mechanisms, and are open to feedback from consumers and other stakeholders. - Ethical Standards
Ethical standards are followed in companies with modern management and those that benchmark themselves against global standards. They operate on an ethical basis and actively avoid conflicts of interest. - Innovation
Through corporatisation, companies promote a standardised work culture where employees are focused on solutions and performance. They are encouraged to share ideas, seek feedback, and listen openly to others. - Excellence
Corporatisation motivates companies to achieve excellence in their specific domain. - Societal Benefit
Corporatisation also leads to greater societal benefits. Corporatised companies are more supportive of implementing government policies, which can help them gain regulatory support for achieving goals set by public policies. They are inclined to share profits with the public, promote values and ethical standards, and strive for excellence.
‘Private companies should opt for corporatisation’
Prithivi Bahadur Pandé, Chairperson, Nepal Investment Mega Bank
Banks and financial institutions are a prime example of corporate governance in Nepal. The banking sector is transparent and well-regulated, with no hidden or concealed information. Employees have a clear path for career advancement and are fully aware of their benefits. Additionally, there is equal opportunity for learning and development. In contrast, no one knows the actual profit of a company like ‘XYZ’ private limited due to a lack of transparency. Before questioning the efficiency of BFIs, private companies should first be transparent and follow the same ethical standards as banks. It is easy to criticise BFIs, but it is likely that many private limited companies, especially family-owned businesses, are not operating on the minimal returns that banks are today.
‘The private sector is not opposed to corporatisation’
Shekhar Golchha, Former President, FNCCI
Nepal’s private sector has experienced a series of economic fluctuations. It has consistently provided valuable feedback to the government regarding investment climate reforms. The private sector is not resistant to corporatisation; it’s actively engaged in providing production, services, and jobs. Globally, the purpose of a capital market is to raise capital for priority areas with an acute need for investment. In Nepal, the private sector has contributed significantly by developing hydropower projects and raising capital from the capital market. They have transformed the nation’s economic landscape, providing state-of-the-art services in sectors like manufacturing, health, education, and other areas of human capital development. Many private companies wish to become public limited companies and raise capital from the capital market for business expansion. However, this step requires fulfilling specific compliances and requirements. It is a dream for many to transition their traditional, family-owned businesses into publicly listed companies, and it’s expected that more will do so in the future.
‘It is concerning that credit mobilisation hasn’t been supporting growth, as this suggests a problem’
Manoj Kumar Gyawali, CEO, Nabil Bank
Banks are public entities that have nurtured businesses and fostered entrepreneurship. However, it seems that credit has been primarily used for consumption or land speculation, rather than for productive investments. As banking professionals, we must acknowledge that we haven’t properly utilised public deposits. We need to promote the corporatisation of private firms to enhance their credibility.
‘Creating incentives to encourage companies to go public is essential’
Rewat Bahadur Karki, Former Chairperson, SEBON
Incentives are needed to ensure a smooth transition for private companies to become public. The 2018/19 fiscal budget had already urged companies with a capital base of Rs. 1 billion to become public and announced incentives, including a 10% income tax waiver for three years for companies with a capital of Rs. 500 million. Similarly, private companies should be encouraged to list as public companies through various incentive schemes.
‘Banks should actively facilitate the drive towards corporatisation’
Nara Bahadur Thapa, Former Executive Director, Nepal Rastra Bank
Nepal Rastra Bank should prioritise the corporatisation of the private sector. While large banks already follow corporate practices, they should also push for the corporatisation of their borrowers who receive wholesale credit. Nepal can promote the ‘Reliance Model’ from India. The owner of Reliance not only became a globally recognised and wealthy figure, but Reliance also became a public company. As a result, it now shares profits with its public shareholders who contributed to the company’s growth through capital-raising plans.
