Financial Literacy and Financial Inclusion in Nepal
Financial Literacy and Financial Inclusion in Nepal
Financial Literacy simply refers to the ability to use and handle money wisely. On the other hand, Financial Inclusion is the process of promoting affordable, timely, and adequate access to regulated financial products and broadening their use by all segments of society. Both of them go hand in hand. Increased financial literacy by a certain percentage can lead to increased financial inclusion by an even greater percentage. In modern times like today, financial literacy and inclusion are crucial to making informed financial decisions, enhance savings and investments, reducing poverty, empowering socially, and fostering economic growth, especially, in emerging nations like Nepal, where a significant portion of the population is still excluded from the formal sector. When people are financially literate (they have financial knowledge, attitude, and behavior) and have access to financial inclusion (they have access to financial products like payment systems, savings accounts, credit cards, insurance policies, and retirement accounts), they tend to understand basic financial concepts like budgeting, saving, investment and managing debt. This can ultimately lead them to better manage their limited resources and build resilience against financial shocks. In the end, the whole financial system of a nation becomes robust and resilient, ultimately leading to sustained economic growth and stability.
In the context of Nepal, the current scenario of Financial Literacy and Financial Inclusion does not seem very appealing. According to the “Baseline Survey on Financial Literacy in Nepal” done by Nepal Rastra Bank in 2022, the national financial literacy in Nepal is 57.9%. This figure is slightly lower than the average of 26 countries’ results which is 61% in the OECD (2020) survey.
Financial Literacy by Province in Nepal
Source: NRB
The graph above shows the financial literacy rate by province. It was found that Bagmati Province (64.5%) has the highest financial literacy followed by Gandaki Province (62.4%), while Madhesh Province (52%) has the lowest financial literacy followed by Lumbini Province (55.6%). This data highlights that while overall literacy in Nepal is on the rise, financial literacy has not experienced a corresponding increase at the same rate. Furthermore, there exists a disparity in financial literacy rates between different provinces of Nepal.
According to Financial Inclusion Roadmap 2017-2022, 61% of the adult population has access to formal finance. The figure below shows Nepal's access to financial inclusion compared to MAP countries.
Table 2: Financial Inclusion of Nepal compared to MAP countries
Source: Financial Inclusion Roadmap 2017-2022
MAP (Making Access Possible), is an initiative that aims to increase financial inclusion and is managed under NRB in partnership with UNDP. The study shows that 61% of the adult population have access to formal financial services (40% formally banked and 21% using ‘other formal’ products). Of the remaining total, 21% of adults use only informal financial services, and 18% of the adult population use no financial services at all (formal or informal).
Likewise, another survey, “Baseline Survey on Financial Literacy in Nepal, 2022”, found that 73.78% of adult population use payment products (mobile banking, internet banking, connectips, cards), 86.64% use saving, investment or retirement products, 71.06% of adult population have savings account, 30.02% of adult population use the insurance product, 46.34% of adult populations use the credit cards and 71.82% rely on family and friends for saving and borrowing to meet their financial needs. The data on financial inclusion shows that while a majority of the adult population engages in some form of saving or investment, reliance on formal financial products (insurance products and credit cards) is still limited. To maximize the inclusion of as many people as possible in the formal financial system, efforts should focus on expanding access to savings accounts for all (agricultural workers, street vendors, construction workers, and domestic workers). While the government has emphasized access to financial services in rural areas using different measures like branchless banking, digital banking, cooperative banking, and microfinance programs, actual usage of these services remains low.
The Nepal government, along with the Nepal Rastra Bank (NRB), has taken various steps to enhance financial literacy. To unify and standardize financial literacy initiatives, NRB has developed the “Financial Literacy Framework, 2022”. According to this framework, all BFIs must conduct Financial Literacy Programs and take initiatives to enhance Financial Inclusion, and submit an annual evaluation report of financial literacy programs conducted by them throughout the year. Likewise, Nepalese banks and financial institutions (BFIs) are mandated to allocate a minimum of 5% of loans to the deprived sector. Furthermore, NRB plans to collaborate with the Curriculum Development Center to incorporate financial literacy into the school curriculum. Finally, different initiatives like the NRB Act (2058), Strategic Plan (2022–2026), and Monetary Policy (2022-23) have highlighted the need to increase financial literacy and inclusion. These efforts aim to improve financial literacy across Nepal, empowering citizens to make informed financial choices and ultimately fostering financial stability and growth.
In conclusion, although national financial literacy and inclusion levels in Nepal are moderately satisfactory, significant disparities persist across various demographics, including gender, age, income, education, and geographic region. Addressing these gaps is essential, as even subtle gains in financial literacy can lead to substantial improvements in financial inclusion. Efforts should therefore focus on providing tailored financial products for underserved groups—such as no-fee bank accounts, discounted interest rates, simplified account opening processes, flexible loan options, and services specifically designed for women, informal sector workers, and low-income households. Ultimately, financial literacy is not just about numbers; it’s about building financially resilient and empowered communities across Nepal.
Article By: Swikarya Aganja
