Nepal, Bhutan and the New Himalayan Finance

By Jack Bellais | The Meridian Financial Review

Nepal and Bhutan are not large economies. Set against India or Bangladesh, their financial markets are small. But both have something that has become steadily more valuable across South Asia: hydropower.

Over the past few years more money has moved into Nepalese and Bhutanese energy projects, alongside newer instruments such as green bonds. At the same time SAARC, BIMSTEC and BBIN have been working on trade, energy links and financial cooperation across the region.

For both countries, it starts with water.

Nepal: green finance meets hydropower

Nepal has traditionally leaned on domestic banks and international development funding. There are now signs its financial sector is diversifying.

In April 2025, NMB Bank completed Nepal's first green bond, raising $60 million from the IFC as anchor investor, alongside British International Investment and MetLife. The proceeds are earmarked for renewable energy, electric vehicles, green buildings and lending to small and medium-sized businesses.

The significance is not the $60 million itself. Green bonds give companies another route to capital and give international investors a way into Nepal's economy through environmentally screened projects. Nepal Infrastructure Bank followed with a smaller issue of its own, which is the more telling signal: the first deal created a benchmark, and others priced off it.

Hydropower is the larger story.

Nepal holds some of the world's highest hydropower potential, most of it still undeveloped. Domestic banks have been lending into the sector heavily; by 2026 lending to hydropower had reached roughly NPR 500 billion, according to Nepal Rastra Bank.

Private capital is arriving too. NIBL Equity Partners committed NPR 150 million to the Upper Junbesi Khola project in 2026, and a consortium led by Global IME Bank arranged around NPR 19 billion for the 166 MW Super Tamor project.

What is changing is how these projects are understood. Hydropower is no longer just a government infrastructure question. It is becoming an asset class that banks, investment firms and foreign institutions can all underwrite.

Bhutan: a much larger bet

Bhutan's economy is tied to hydropower more tightly still. A small population, difficult terrain and limited domestic demand sit alongside rivers with enormous generating potential. For years Bhutan has used that advantage to sell power to India.

The next generation of projects could enlarge that relationship considerably.

The biggest is the 1,125 MW Dorjilung Hydroelectric Power Project on the Kurichhu River in eastern Bhutan, built through a special purpose vehicle owned 60% by Druk Green Power Corporation and 40% by India's Tata Power. In May 2026 the Royal Government of Bhutan and the World Bank signed financing agreements totalling $515 million: $300 million in concessional IDA financing including a $150 million grant, and $215 million from the IBRD, with up to a further $300 million from the IFC lending directly to the project company.

The total project cost is around $1.7 billion, and the structure is designed to pull in roughly $900 million more in private financing. Direct sovereign credit exposure for Bhutan is held to about $150 million.

That structure is the point. The government does not shoulder the whole cost: development institutions, an Indian corporate partner and private investors all finance the same asset. Once built, Dorjilung would account for roughly a third of Bhutan's total generation, with the bulk of output exported to India during the summer and monsoon months and domestic supply shored up in winter.

The project sits in Bhutan. Its economics do not stop at the border.

BBIN and the regional electricity market

This is where BBIN matters.

The Bangladesh-Bhutan-India-Nepal grouping puts together four countries with very different energy positions. Nepal and Bhutan have hydropower potential. India has an enormous electricity market and far greater financial capacity. Bangladesh is hunting for dependable supply.

That is an obvious case for cross-border power trading.

If transmission networks keep expanding, a plant in Nepal or Bhutan need not serve only its home market. It can sell across borders, which widens the pool of potential buyers.

In 2026 the European Union launched a €5 million energy-connectivity programme covering Bangladesh, Bhutan, India, Nepal and Sri Lanka, aimed partly at increasing cross-border electricity trade and integrating renewables.

For an investor this changes the underwriting. A plant with access to several national markets is a different proposition from one that can only sell at home.

SAARC's financial side

SAARC is usually discussed through the political frictions that have limited it. Its financial institutions get less attention.

One is the SAARC Development Fund, headquartered in Bhutan, with authorised capital of $1.5 billion and a mandate covering energy, transport, telecommunications, tourism and environmental projects.

South Asian central banks have also discussed cross-border payments, financial inclusion, climate finance and possible currency-swap arrangements.

These sound technical, but they matter commercially. Regional trade gets much easier when a company can move money between countries without navigating slow or unreliable payment systems. Integration is not always a landmark trade agreement. Sometimes it is just making it simpler for a business in Nepal to pay a supplier in India.

BIMSTEC looks further east

Nepal and Bhutan also sit in BIMSTEC, alongside Bangladesh, India, Myanmar, Sri Lanka and Thailand. That gives both another route into the wider region, linking South Asia to Southeast Asia across trade, investment, transport and energy.

Financial regulation has entered that conversation too. In 2026 BIMSTEC members worked on cooperation against illicit financial flows, money laundering and terrorist financing.

Less eye-catching than a new dam, but necessary if regional investment is going to scale. Banks need to exchange information. Investors need predictable rules. Governments need mechanisms for money moving illegally across borders. Without that groundwork, larger financial links are hard to sustain.

Is this a Himalayan financial bloc?

Calling it one would be premature. There is no shared currency, no common regulator, no unified investment market. The countries involved have divergent political and economic interests, and large cross-border infrastructure takes years to negotiate.

But the pattern is visible.

Nepal is pulling international capital into hydropower and green finance. Bhutan is building large projects on Indian and multilateral money. India supplies both investment and a vast market for electricity. Bangladesh offers another destination for regional exports. BBIN provides a connectivity framework, SAARC a regional financing institution, BIMSTEC a bridge eastward.

None of this is a bloc. It is closer to the early stages of a regional investment network.

For Nepal and Bhutan that could matter a great deal. Their mountains and rivers have long been treated as obstacles to economic integration. In the energy market, the same geography is becoming the asset.

The chain is simple enough: rivers produce electricity, electricity produces exports, exports produce investment. What happens next depends on how fast the infrastructure, the financing and the political cooperation to connect those markets can actually be built.