Foreign Loan Approval Process in Nepal: Key Legal Highlights

This article covers the legality, approval process, terms and conditions, procedures, and required documents for obtaining foreign loans by entities in Nepal.

 

Pursuant to Section 12 of the Foreign Exchange (Regulation) Act 1962 (2019) (“FERA 1962”), the Nepal Rastra Bank (“NRB”) is empowered to issue directives, bylaws, or notices to implement the provisions of the Act. Exercising this authority in accordance with Sections 10A, 10B, and 10C of FERA 1962, the Central Bank has issued “Foreign Investment and Loan Management Bylaws 2021 to regulate the foreign loan in Nepal.

 

 

Central Bank i.e., Nepal Rastra Bank (“NRB”) is the governing authority that provides the approval of foreign loans.

 

 

Nepali individuals, companies, banks, financial institutions, and other organized entities must obtain prior approval from Nepal Rastra Bank before taking foreign loans, unless exempted by law. The loan must not be for industries restricted to foreign investment under the Foreign Investment and Technology Transfer Act, 2019.

 

The application for the foreign lone along with the required documents has to be submitted before the NRB, upon the review NRB shall decide and respond within 15 working days. 

 

 

The eligibility and details required for the foreign loan approval for entities of Nepal is mentioned below:

 

S.N.	Eligible Borrower	Eligible Foreign Lender	Terms and Conditions of Foreign Loan	Loan Application to be Submitted to
1	Firm, company, industry or institution (except licensed bank and financial institution)	Foreign banks and financial institutions, Government/Inter-Government owned Development Finance Institutions (DFIs)	Interest rate: - Up to 1 Year Benchmark Interest Rate + 6% p.a. From India in INR: - MCLR + 2% p.a. - If eligible: MCLR + 2% p.a. or average MCLR + 2% p.a. From China in CNY: Up to 1 Year LPR + 2% p.a.	Department
2	Firm, company, institution, and Nepali citizen	Relatives abroad, other individual, non-resident Nepali or association/institution	Limit: Up to 1 million USD / 100 million INR Interest rate: - Benchmark Interest Rate + 2% p.a. - From India: Avg. One Year MCLR - From China: Up to One Year LPR Repayment period: 1 year minimum Purpose: Sector not prohibited by law (not real estate or securities trading).	Department
3	Industry/company with foreign investment	Foreign investor of the company/industry (including the parent company/group of companies)	Limit: Up to 2 times paid-up capital; up to 5 times if: Loan from parent/group is outstanding (avg. interest applies). Max interest rate: Not exceed 50% of premium rate without benchmark. Interest: - Free or Benchmark + 3.5% p.a. - From India: Avg. One Year MCLR - From China: Up to One Year LPR Purpose: For designated sector Approval of foreign investment authority Certified loan source	Unit
4	Industry/company with foreign investment (except licensed bank and financial institution)	Foreign Financial Institution, Government/Inter-Government owned Development Finance Institutions (DFIs)	Purpose: Project loan or financing. Recommendation from Government of Nepal Interest Rate: As mentioned in S.N. 1	Unit
5	Infrastructure Development	Parent company/group of companies	Interest rate: Non-interest bearing	Department
6	"A", "B", "C" and "D" class bank and financial institution, and infrastructure development bank	Indian bank and financial institution, Government/Inter-Government owned Development Finance Institutions (DFIs)	Limit: Up to 100% of core capital Interest: One Year MCLR + 0.5% p.a. Repayment: 6 months to 15 years Purpose: Energy, tourism, infrastructure, etc. (excluding real estate) Collateral: No collateral or bank guarantee allowed	Department
7	"A", "B", "C" and "D" class bank and financial institution, and infrastructure development bank	Foreign banks and financial institutions, foreign pension funds, hedge funds, Government/Inter-Government owned DFIs	Limit: Up to 100% of core capital Interest: - Benchmark Rate + 4.5% p.a. - From China: LPR + 1% p.a. Repayment: 6 months to 15 years Purpose: Energy, infrastructure, tourism, etc. (excluding real estate) Collateral: No collateral or bank guarantee allowed	Department
8	Public limited company incorporated in Nepal or organized institution authorized to issue securities	Foreign purchasers of foreign capital market (as per section 11 of Foreign Investment and Technology Transfer Act, 2019)	Through issuance of bonds, debentures or other securities. Recommendation of Securities Board.	Unit

 

Note: 

Kindly note that “Unit” defined above means the Foreign Exchange Facilitation Unit under the Foreign Exchange Management Department of the Rastra Bank at One Stop Services Center established as per the Section 37 of the Industrial Enterprises Act, 2020., whereas “Department” means Nepal Rastra Bank, Foreign Exchange Management Department.

 

 

Following procedure has to be followed for obtaining the foreign loan in Nepal:

 

• Step 1: Loan Agreement between Parties
• Step 2: Collection of Required Documents
• Step 3: Submission of application to Nepal Rastra Bank 
• Step 4: Nepal Rastra Bank shall review the application and provide the approval
• Step 5: Recording of approved loan within 6 months 

 

Once all the required documents are collected and the application is submitted to NRB, the entire foreign loan approval process typically takes around 20 to 30 days.

 

 

The Document required for foreign loan approval can be categorized into following categories in terms of parties. They are:

a. Document required for both contracting parties of Loan Agreement

b. Document required for Lender

c. Document required for Borrower

 

A. Document required for both contracting parties of Loan Agreement

S.No.	Documents
1	Certified copy of the loan agreement between the lender and the borrower
2	Commitment letter regarding inflow of the approved loan through banking system
3	Document stating the need for the loan from abroad and the plan for loan utilization
4	Document showing the basis for loan repayment including exchange risk
5	Timeline schedule for loan disbursement and repayment
6	A self-declaration of no foreign currency misappropriation and compliance with anti-money laundering, anti-terrorism financing, and applicable laws
7	Other necessary documents as specified by the Nepal Rastra Bank

 

B. Document required for Lender

S.No.	Documents related to lender (Institution)	Remarks
1	Certified copy of the institution's registration certificate	Notary
2	Certified documents disclosing the beneficial owner	Notary
3	Certified copy of the decision of the board of directors or authorized personnel regarding loan disbursement	Notary
4	Certified copy of the latest audited financials	Notary (applicable only if investment amount is less than or equal to USD 1 million or its equivalent in foreign currency)
5	Certified copy of documents related to the source of the foreign loan	Notary

 

C. Document required for Borrower

S.No.	Documents related to borrower	Remarks
1	Copy of institution's registration certificate
2	Copy of business operation license (if applicable)
3	Copy of permanent account number certificate
4	Copy of memorandum of association and articles of association	Not required for institutions listed in the stock market
5	A copy of the decision of the Board of Directors or the authorized personnel to avail loan
6	Copy of the latest audited financials	Not required for institution listed in stock market
7	Copy of the latest tax clearance certificate/submission of tax returns	Not required for institution listed in stock market
8	Evidence of not being in the blacklist of the Credit Information Bureau	Without elapse of six months while submission of the application with all documents

 

 

To record the amount of a foreign loan remitted into Nepal, the borrower must submit an application to NRB within 6 (six) months of the remittance, along with the necessary documents and prescribed form.

 

 

For foreign loans approved and recorded by NRB along with an approved repayment schedule, borrowers can obtain foreign currency exchange from banks and financial institutions to repay principal and interest without requiring additional NRB approval. To access this facility, borrowers must submit an application with documents. The bank must respond in writing within seven working days. Repayment must be made to the same foreign lender and country from which the loan was received, ensuring the funds are deposited into the lender’s bank account.

 

 Date of Publication: May 26, 2025 

 

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