IFC's Local Currency Lending Policy Offers Nepali Entrepreneurs a Chance to Escape Exchange Rate Risk

Kathmandu. The International Finance Corporation (IFC) has begun prioritizing local currency lending to promote the private sector in developing countries. Having introduced a policy of local currency lending and financial facilitation in the early 2000s, IFC's move means Nepali entrepreneurs can also advocate for such facilities.

In the current context, especially with the US dollar's value rising sharply, domestic borrowers are forced to bear unnecessary financial burdens as exchange rates increase relative to returns. If they can access loans in local currency or convert existing loans into Nepali rupees, businesses will benefit directly.

Recently, private sector air service provider Yeti Airlines Limited made a far-sighted decision to convert its foreign currency loan into Nepali rupees, accepting a loss of over NPR 30 crore at once to eliminate exchange rate risk. Although this decision immediately shows a high exchange rate loss on the balance sheet, it will have a positive impact on profits in the near future. IFC has also introduced the concept of local currency investment for the private sector to shield it from exchange rate risk.

The main objective of this policy is to address the compulsion of local businesses to bear significant financial risks from exchange rate fluctuations when taking foreign loans in US dollars or other strong currencies. To date, IFC has channeled investments in more than 70 local currencies across more than 70 emerging and developing countries, including India, Brazil, Colombia, Nigeria, Indonesia, and Vietnam.

The main objectives of local currency lending are to free borrowing businesses from exchange risk, extend long-term capital to small and medium enterprises, and sustainably develop the domestic capital market and bond market of the respective country.

For a developing country like Nepal, IFC's local currency lending policy could prove to be a great boon for Nepali entrepreneurs. Businesses earning in Nepali rupees will completely eliminate the financial burden and risk of loss from dollar appreciation when repaying loans in US dollars if they have access to financing in local currency.

When IFC invests in local currency by issuing Nepali rupee bonds or through banks, bank liquidity will increase. This will enable projects in small and medium industries, women entrepreneurship, and the green energy sector to obtain long-term capital without exchange risk.

IFC, which has long been a partner in Nepal's private sector development and infrastructure construction, has increased its total investment commitment in Nepal to over USD 800 million by the end of 2025. Of this, over USD 600 million in debt assistance has been channeled to Nepali banks and financial institutions, hydropower projects, and the infrastructure sector, while equity investment of USD 50 to 70 million is in hydropower, financial institutions, and private company shares.

Among IFC's major debt investments in Nepal's private sector, the 216 MW Upper Trishuli Hydropower Project is considered the largest and most historic, where IFC mobilized over USD 450 million in financial resources through its own and partners' contributions.

In the financial sector, IFC provided USD 55 million to Siddhartha Bank for SME and green finance promotion, and loans worth millions of dollars to Global IME Bank, Nabil Bank, NIMB, and Laxmi Sunrise Bank for small industries, climate finance, and international trade facilitation.

In the tourism and service sector as well, IFC has been contributing to the development of Nepal's private sector by providing significant debt investments in infrastructure construction such as Kathmandu Marriott and Chhaya Center.