SEBON Invites Non Resident Nepalis (NRNs) to Invest in Nepal’s Stock Market: Real Progress or Just an Empty Gesture?

The treatment that Non Resident Nepalis (NRNs) get in Nepal is an interesting aspect. While NRNs have been fighting for treatment similar to Nepali citizens (the demand itself feels far-fetched), the Nepal Government has become more accommodating to offering special treatment to NRNs. Most laws still treat them as foreigners and rightly so because they are the ones who have chosen a foreign passport over Nepali one. And still they seem more concerned about Nepal than the Nepali citizens. However, their concern is genuine if we look at their contribution to Nepal and Nepal’s economy especially in terms of remittance they send to Nepal year after year. As we all know, remittance has been a sort of life blood for Nepal’s slowing economy. So, if they can send their money to their family back home to spend, then why can’t they invest in this country? That’s been a question that has been raised which needs to be legally addressed. Some parts of this concern have been addressed whereby the NRNs are now entitled to a distinct type of citizenship which also provides certain property rights to NRNs in Nepal.

Now, the Securities Board of Nepal (SEBON), the stock market regulator of the country, has finally decided to open up the financial market to NRNs. But this does come with certain terms and conditions. They can’t offer the same privilege available to the Nepali citizens, can they? But, this is indeed an interesting development when it comes to extension of more privileges to people of Nepali origin currently holding foreign passports.?

So, is this a groundbreaking move or just another “meh” moment dressed as progress? Let’s dig deeper, connect the dots, and see what this really means for Nepal—and for NRNs itching to grow their wealth back home.

What’s Happening?

SEBON recently amended its?Securities Issuance and Distribution Directive 2024?to allow NRNs to invest in Nepal’s stock market. But there are strict conditions such as:

1. Joint Investment Companies Only: NRNs can’t invest as individuals. Instead, they need to create joint investment companies.
2. Ownership Limits: These companies can only allocate 10% to 49% of their shares to NRNs.
3. Limited Trading Freedom: NRNs can’t sell or trade their shares for at least one year, and even then, they can only trade them among fellow NRNs.

Essentially, while the rules technically allow NRNs to invest, the process is far from straightforward.

Why This Matters

Nepalese living abroad are a lifeline for the country. Last year alone, they sent home a jaw-dropping Rs. 14.45 Kharba in remittances, which made up a whopping 26.6% of Nepal’s GDP. That money keeps families running, builds homes, and keeps the economy afloat. Pretty incredible, right?

But here’s the kicker: while NRNs can send money?to Nepal, they haven’t had much of a chance to actually?invest it here. Their options? Buying land or parking their money in a savings account. Neither is exactly thrilling or lucrative and productive. Meanwhile, the stock market—where money can grow and help fuel the economy—has been off-limits.

Now, flip to the other side of the story: Nepal’s stock market is starving for fresh investment. Out of a population of over 30.9 million, only about 2.2 million people have active Demat accounts. That’s less than 10% of the population! Bringing in NRNs with their disposable income could be a total game-changer, adding much-needed liquidity and life to the market.

And this isn’t just about playing the stock market. NRNs have big dreams of supporting Nepal’s growth. Take the Non-Resident Nepali Association (NRNA), for example—they’ve pledged a massive Rs. 10 billion fund for infrastructure projects like hydropower plants, roads, and schools. By letting NRNs invest in the stock market, SEBON is basically giving them a chance to supercharge Nepal’s progress.

This move isn’t just about profits—it’s about building a stronger connection between NRNs and Nepal’s future. And if SEBON plays it right, everyone—NRNs, the stock market, and the country—stands to win.

The Roadblocks

While SEBON’s move is promising, it’s also riddled with challenges that might discourage potential investors:

1. Complicated Process The idea of setting up a joint investment company is intimidating. It requires time, resources, and expertise and starting a company in Nepal doesn’t come without its own set of challenges as well. For most NRNs, especially individuals, this might feel like too much of a hassle.
2. Restricted Freedom Imagine buying a car but being told you can’t drive it for a year—and even then, only on certain roads. That’s what these restrictions feel like. NRNs can’t trade their shares freely, which might make the investment less attractive.
3. Limited Scope The rules apply only to IPOs (shares issued when a company goes public) and rights shares. NRNs still can’t directly buy shares from the secondary market, which is where most of the action happens.

Why is Nepal Still Tip Toeing on Eggshells?

When other countries, including our neighbor India, have opened up their financial market to non-resident citizens, why is Nepal scared to hop in on the ride? Well there are a set of challenges that come with opening stock trading to NRNs.?

1. Market Volatility: Nepal’s stock market is small and easily shaken. A sudden flood of NRN money could skyrocket prices one day, and crash them the next. SEBON fears instability could hurt local investors.
2. Limited Resources: SEBON lacks advanced tools and manpower to keep tabs on a sudden influx of non-resident investors. Think of it like trying to manage a high-speed train with a bicycle toolkit—that’s the challenge SEBON faces.
3. Protecting Local Investors: Opening the market fully could create tough competition for domestic investors, who have limited resources. Imagine trying to compete with NRNs with considerably low Nepali income.
4. Compliance Nightmares: Legal complications like how the NRNs’ profits will be taxed, what mechanisms will ensure that NRNs are not exploiting loopholes to evade taxes or engage in illicit activities might be holding off a free market for NRNs.
5. Strategic Sectors: People might raise concerns about NRNs gaining control over critical industries like hydropower and banking, which could clash with national interests.

In short, SEBON is trying to keep the market stable while opening it up—but their baby steps feel more like tip toeing on eggshells. Instead of hiding behind ‘technical’ and ‘legal implication’ excuses, they need to work on a phased plan with smarter regulations and stronger systems.

Wrapping It Up

SEBON’s recent amendment is a step in the right direction—no doubt about that. By allowing NRNs to invest, Nepal is finally cracking open the door to untapped potential. But let’s be real: the door isn’t wide open yet. It’s more like a polite nudge, and to truly reap the benefits, the process needs to be a whole lot simpler and more inclusive.

Right now, it’s like inviting NRNs to a feast but handing them toothpicks instead of forks. Sure, the intent is there, but the execution? Not quite on point. If SEBON can tackle these hurdles, we could see a flood of fresh investments pouring into the Nepali stock market. And with that, Nepal’s economy might finally get the boost it’s been waiting for.

The ball’s in SEBON’s court now. Are they going to go big and bold, or stick to baby steps?Let’s hope for the former!