2026 Guide to Nepal's Collateral‑Free Refinancing Scheme for SMEs: Eligibility, Application Process and Benefits

Nepal Rastra Bank (NRB) introduced a collateral‑free refinancing window in early 2026 to address the persistent funding gap facing small and medium enterprises. The facility operates under a credit‑guarantee framework administered by NRB's Development Finance Department and complements existing priority‑sector lending directives. Its objective is to extend working‑capital access to businesses that lack immovable collateral but demonstrate viable cash‑flow prospects.

Who can apply

Eligibility follows the enterprise classification under the prevailing Industrial Enterprises Act. Firms must qualify as micro, small, or medium enterprises with annual turnover within the prescribed medium‑enterprise threshold. According to the NRB circular governing the scheme, applicants need a clean credit history — typically defined as no overdue loans exceeding 90 days in the preceding two years — and must operate in sectors designated as priority under NRB's current priority‑sector lending directive. These sectors include agro‑processing, tourism‑linked services, light manufacturing, and ICT‑enabled services, among others. Export‑oriented units and women‑led ventures receive additional consideration in the evaluation framework outlined in the circular.

How the application works

The process begins at any commercial bank or development bank that has executed the refinancing agreement with NRB. Borrowers submit a standard loan application accompanied by audited financial statements for the last two fiscal years, a business plan detailing the intended use of funds, and a board resolution authorizing the borrowing. The participating bank conducts its own appraisal and forwards the complete package to the credit‑guarantee unit for guarantee issuance. Once the guarantee is approved, the bank disburses the loan and requests refinancing from NRB at the applicable refinancing rate. NRB processes refinancing requests within the timeframe specified in the circular, subject to documentation completeness.

Interest‑rate ceiling and fees

NRB sets a ceiling on the end‑borrower interest rate as a margin above the refinancing rate, which is linked to the policy rate. This ceiling is positioned below prevailing rates for conventional collateral‑backed SME loans. A guarantee fee applies — calculated as a percentage of the outstanding principal per annum — and is borne by the borrower. Banks may charge a standard processing fee as permitted by the circular, but are prohibited from imposing additional undisclosed charges.

Benefits and things to watch

The primary advantage is removing the collateral requirement, enabling formal credit access for firms reliant on movable assets or future receivables. Cheaper working capital can strengthen debt‑service coverage and free cash for inventory, equipment upgrades, or market expansion. However, the guarantee framework requires quarterly reporting on fund utilisation and financial health. Diversion of funds triggers guarantee recall. Borrowers must maintain eligibility criteria throughout the loan tenor; a decline in turnover or new overdues can lead to pricing step‑ups or early repayment demands, as stipulated in the circular.

Overall, the 2026 collateral‑free refinancing scheme represents a pragmatic shift in Nepal's SME financing landscape. For qualifying enterprises, it offers a realistic pathway to scale without pledging land or buildings — a constraint that limited growth under the traditional collateral‑heavy model.