Alternative Development Finance Mobilization Act 2083 (2026): A Guide to Nepal's New Infrastructure Financing Framework

Nepal has a new law for funding big projects. The Alternative Development Finance Mobilization Act, 2083 (2026) was authenticated on 11 Asar 2083 (25 June 2026) and came into force on the thirty-first day after authentication. It is already in effect.

At its centre is the Alternative Development Finance Fund, an autonomous body corporate that can raise and deploy capital through far more instruments than ordinary government budgets or bank loans allow. Equity, debt, guarantees, project-specific funds, remittance structures and capital-market issuance are all on the table.

Who should care? Infrastructure developers, banks, institutional investors, foreign investors and public agencies. The Act matters less because it creates another institution and more because it offers a legal platform where different sources of long-term capital can be combined at project level. One caution up front: the Act is a framework, and much of its commercial impact depends on Rules and policies that have not yet been issued.

1. What the Act Sets Up

Sections 6 to 8 establish the Fund as an autonomous body corporate with perpetual succession and a separate legal personality. It can act as a development-finance institution, investor, guarantor, fund manager, capital-market issuer and financial intermediary, depending on how the Act is implemented.

That is a much wider role than a conventional lender.

2. Financing Instruments Under Section 3

Section 3 is deliberately multi-instrument. It lets financing be structured through the following.

The Fund can also use other prescribed instruments and co-issue or cooperate with banks and financial institutions wholly or partly owned by the Government of Nepal. Many of these instruments will need further regulatory and institutional development before they work in practice.

3. Which Projects Qualify

3.1 Eligible sectors

Section 4 lists a wide range of sectors:

• Energy: electricity generation, transmission and distribution
• Transport: roads, railways, airports, tunnels, cable cars, ropeways and related infrastructure
• Special economic zones, industrial parks, dry ports and information technology parks
• Specialised tourism and sports infrastructure
• Urban infrastructure and public digital infrastructure
• Irrigation, fertiliser and agricultural machinery manufacturing
• Water extraction and water-based industries
• Commercial agriculture, livestock production and related industries
• Forest-product and medicinal-herb processing industries

3.2 The national-priority test

Being in an eligible sector is not enough. Section 4(2) also links financing to projects with national-priority characteristics:

• Projects included in the National Project Bank
• Projects proposed under the Government's annual programme
• PPP projects recommended by the Investment Board of Nepal for implementation through the Fund
• Projects studied by the Fund itself and considered suitable for investment
• Certain PPP projects prepared by government-backed infrastructure financing institutions

The message is clear. This is not a general-purpose development subsidy programme.

4. Projects the Fund Cannot Finance

Section 5 sets firm limits. The Fund cannot invest in:

• A project with an estimated cost below NPR 1 billion
• A project expected to produce inadequate financial returns
• A project that cannot provide security for the Fund's loan or guarantee
• A project implemented by a natural person

The Act also restricts projects implemented by entities with which serving directors or the Chief Executive Officer had specified relationships in the three years before their appointment. Taken together, the model targets large, financially viable, institutionally structured projects that can go through appraisal and provide adequate security.

5. Fund Capital and Ownership

The Fund has authorised capital of NPR 100 billion and paid-up capital of NPR 25 billion under Section 8. The initial shareholding is as follows.

Shares can also be sold to provincial governments, local governments, other government funds and international governmental or intergovernmental financial institutions, subject to the prescribed approval mechanism. The Government's holding may fall in that case, but not below 26%.

6. What the Fund Can Do

Section 9 gives the Fund broad powers. It can invest in infrastructure, issue bonds and other instruments, raise debt or equity at home and abroad, list instruments on domestic or foreign capital markets, and set up project-specific funds. It can also:

• Establish subsidiaries
• Co-invest with government-owned banks, infrastructure development banks and financial institutions
• Manage alternative development finance funds
• Provide project-development advisory services to public bodies
• Act as a financial intermediary for institutions or projects that need help raising capital

With approval from Nepal Rastra Bank (NRB), the Fund can issue securities for listing on foreign capital markets and borrow from international financial institutions for specific projects, including hedging that borrowing where necessary.

7. How the Fund Appraises and Invests

Section 24 allows investment through equity, debt, a combination of the two, specified guarantees and other prescribed instruments. NRB monitors the Fund's debt investments under Section 24(3).

Before investing, Section 25 requires the Fund to examine the project's economic and financial strength, potential for high returns, ability to mobilise private investment, contribution to sustainable development, job creation and use of advanced technology. A separate risk assessment is also required. For debt, the Fund must take appropriate security, and where ordinary security falls short, Section 25(4) contemplates taking the project as a whole as security.

Section 26 adds project-level commitments on environmental standards, corporate governance, risk analysis, market and cost-benefit assessment, and mechanisms to monitor project returns.

8. Guarantees and Bankability

Section 27 creates a guarantee mechanism. If a project's financing depends on a guarantee from the Fund, the Government of Nepal or an international financial institution, the project entity can apply to the Fund. The Fund may then give a guarantee itself, or recommend that the Government or an international financial institution give a full or partial guarantee.

Eligibility includes assessment of project returns and risk, a recommendation from the relevant sector ministry, inclusion in the National Project Bank and, for qualifying PPP projects, a recommendation from the Investment Board of Nepal.

For projects that are economically viable but hard to finance on purely commercial terms, a workable guarantee regime could affect bankability, credit enhancement and risk allocation. But the Act creates a mechanism, not an automatic entitlement.

9. Default, Recovery and Project Control

Section 28 gives the Fund strong remedies. It can demand repayment or suspend undisbursed investment if a project:

• Breaches financing conditions
• Diverts funds
• Obtains financing through false information
• Fails without reasonable cause to implement the agreed schedule
• Defaults on amounts due on another project financed by the Fund

On recall, principal, interest and applicable service charges become repayable.

Under Section 28(3), if repayment is not made, the Fund can, after completing the prescribed procedure, take control of the project, recover its outstanding exposure and transfer implementation to another organised entity. Sponsors and lenders need to factor this into financing terms, direct agreements and intercreditor arrangements from the start.

10. Security Priority and Consortium Financing

This is probably the most commercially significant part of the Act.

Under Section 29, when the Fund provides a loan or guarantee, movable or immovable assets, or the project itself, must be taken as security. If the project later grants the same property as security to another lender, the Fund has the first right over that security. The later creditor cannot assert its claim until the Fund's exposure has been recovered.

Section 29(3) goes further. Any agreement, contract, commitment, arrangement or transaction that gives another person a competing first-ranking or equal-ranking (pari passu) claim is void.

There is one important exception. Where the Fund leads or participates in consortium financing, all lenders may rank equally in relation to project security.

10.1 Where this will bite

Expect the priority rules to affect:

• Intercreditor arrangements
• Shared security packages
• Refinancing transactions
• Consortium lending
• Security trustee arrangements
• Future additional indebtedness

10.2 Security created before Fund financing

Section 29 expressly deals with security created after Fund financing. How existing priority arrangements interact with a Fund financing structure should be assessed deal by deal, not assumed.

11. Capital-Market Instruments and Incentives

Section 30 gives preferential regulatory treatment to certain Fund securities. Debt securities issued by the Fund with a Government of Nepal guarantee are treated like Government development bonds, citizen savings bonds or NRB debt instruments. They can be listed and traded on the secondary market. Other Fund instruments can also be listed and traded.

For banks and financial institutions, investment in specified sectoral financial instruments issued by the Fund counts as investment in the relevant directed lending sector for banking-law purposes.

On incentives, Sections 31 and 32 give the Council of Ministers power to offer tax exemptions and other concessions to investors in Fund instruments, including instruments issued on foreign markets and for green-sector projects. Section 32 allows concessions on registration and related charges for security documents, contracts and security interests taken by the Fund. These are discretionary enabling powers. The Act does not grant the exemptions automatically.

12. Governance and Accountability

Governance sits mainly in Sections 10 to 23. The Board is chaired by the Secretary of the Ministry of Finance. It includes government representatives, institutional shareholder representatives and two independent experts, at least one of whom must be a woman.

The Act sets qualification standards, conflict-of-interest rules and disclosure obligations, and makes directors accountable for bad-faith or negligent conduct that causes loss to the Fund. The Council of Ministers appoints the Chief Executive Officer from candidates recommended by a committee made up of the Chairperson of the Public Service Commission, the Governor of NRB and the Chief Executive Officer of the Investment Board of Nepal. The CEO works under a performance contract with periodic evaluation.

Sections 33 to 41 add separate accounting for instruments and funds, reserve requirements, quarterly financial disclosures, consolidated reporting, internal control and a final audit by the Auditor General.

13. What This Means for You

14. What Is Still Missing

Several commercially important points depend on implementation:

• The Act leaves substantial detail to future Rules, procedures, directives and standards, covering eligibility, appraisal, guarantees, specialised funds and investment terms.
• The Section 29 priority regime needs careful coordination with existing secured-financing practice, especially for refinancing and shared security.
• The usefulness of guarantees under Section 27 will turn on pricing, counter-guarantees, exposure limits and claims procedures.
• Foreign borrowing, hedging and overseas issuance will need coordination between the Fund, NRB, securities regulators and other authorities.
• The fiscal incentives in Sections 31 and 32 only have value if the Government actually uses those powers.

At the time of writing, no separate implementing Rules had been issued under the Act.

15. What to Do Now

Treat the Act as a framework, not a finished financing regime. You should not build a live transaction on the assumption that Fund financing is available on set terms.

Here is a practical starting list:

1. Assess. Check sector eligibility, estimated project cost (is it NPR 1 billion or more?) and whether your project meets the national-priority criteria.
2. Structure. Think early about Fund equity, debt, blended finance, guarantees and project-specific instruments.
3. Review. Examine existing security, intercreditor terms and refinancing restrictions, and decide whether consortium financing makes sense.
4. Coordinate. Plan for NRB, securities, foreign exchange and sector-specific approvals if cross-border financing or foreign issuance is involved.
5. Monitor. Follow the Rules, Fund policies, guarantee procedures and any fiscal incentives before you rely on the framework.

This article is meant for informational purposes only and should not be considered a substitute for legal consultation. It is imperative to provide proper citation if any part of this document is used as an information source. This document is not intended for advertising or promotional use.