The International Finance Corporation (IFC) has made an investment of $55 million in Siddhartha Bank to increase access to finance for small businesses and to foster climate finance in Nepal.

IFC, the private sector lending arm of the World Bank Group, has been supporting the growth of Nepal’s financial sector for the past two decades.

“This is our largest investment in any financial institution in the country,” the IFC said in a statement.

This investment is also the first-ever foreign currency syndicated loan facility in the financial sector of Nepal.

As Nepal’s economy continues to recover from the Covid-19 pandemic, small and medium enterprises (SMEs) need increased access to finance to create more jobs and support inclusive growth.

This funding will allow the bank to increase its lending to the Small and Medium Enterprises or SMEs, including women-owned businesses, thereby helping support up to 15,000 jobs, the IFC said. As much as 10 percent of the loan is earmarked for climate financing across several areas, including electric vehicles, climate-smart agriculture, and energy efficiency.

"IFC’s timely investment will help increase our lending to micro, small, and medium enterprises, especially in the remote and rural areas while also allowing us to expand and diversify our climate portfolio," said Sundar Prasad Kadel, the chief executive officer of Siddhartha Bank. "We expect it to further bolster our banking services, enabling us to offer greater value to our customers."

SMEs are the backbone of Nepal’s economy, accounting for 22 percent of the country’s gross domestic product and employing around 1.8 million people. Yet the access to finance remains a major constraint for 44 percent of SMEs, deterring their growth prospects and hampering job creation.

The SME finance gap is estimated to be around $3.6 billion.

IFC will also support the bank’s efforts to identify and evaluate green lending opportunities and provide advisory assistance designed to further strengthen the bank’s operations.

“IFC is pleased to bring more liquidity to Nepal’s financial sector in addition to our various efforts designed to meet the needs of under-served SMEs,” said Babacar S. Faye, IFC’s Country Representative in Nepal. “Siddhartha Bank's commitment to expanding its green finance portfolio will also help demonstrate the viability of this segment in Nepal.”

Climate finance is crucial for Nepal, especially with the Global Climate Risk Index 2021 ranking it as one of the 12 countries most affected by climate change.

The country’s vulnerability to floods and landslides, along with agricultural and energy-related emissions, has long-term implications for the economy and its climate goals. Nepal has set a net-zero emissions target by 2045.

IFC has so far invested over $150 million in the financial sector in Nepal since 2019.