PA00ZW82

NEPAL DIGITAL SERVICES SECTOR
MARKET SYSTEMS ASSESSMENT

USAID TRADE AND COMPETIVENESS ACTIVITY
DELOITTE CONSULTING LLP
JULY 2022
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TABLE OF CONTENTS
OVERVIEW 1
ECONOMY OF NEPAL 1
USAID IN NEPAL 1
TRADE AND COMPETITIVENESS ACTIVITY 1
ASSESSMENT OBJECTIVES AND CONSTRAINTS 2
DIGITAL SERVICE SECTOR 3
OVERVIEW 3
CONSUMER SERVICES 3
BUSINESS SERVICES 3
INVESTMENT FINANCING 5
EMPLOYMENT 6
DOMESTIC CONNECTIVITY 6
DIGITAL LITERACY 7
GOVERNMENT ENVIRONMENT 7
COVID-19 IMPACT 10
DIGITAL SERVICES ENVIRONMENT 11
SUPPORTED INDUSTRY TRENDS 11
SWOT ANALYSIS 15
STAKEHOLDER ANALYSIS 18
KEY STAKEHOLDERS 18
STAKEHOLDER MAPPING 19
SUMMARY OF CONSTRAINTS 20
SECTOR-LEVEL ORGANIZATION 20
HUMAN CAPITAL 20
GOVERNMENT ENGAGEMENT 20
FINANCING 21
CYBERSECURITY 21
INTERNET CONNECTIVITY 21
DIGITAL LITERACY 21
RECOMMENDATIONS 22
IMMEDIATE ACTIONS 22
ACTIONS TO EFFECT CHANGE 23
ANNEXES 28
RESOURCES REVIEWED 28
KEY INFORMANTS 33
ENDNOTES 35
OVERVIEW
ECONOMY OF NEPAL
After three years of strong economic growth in Nepal, the impacts of the COVID-19 pandemic have
dramatically restricted economic progress, reversing recent gains for Nepalis and illuminating the fragile
foundation supporting Nepal’s growth. The Nepalese economy shrank by almost 2% in 2020i, with 61% of
firms shutting down and another 35% operating partiallyii. Women and Dalit communities were the hardest
hit. The large influx of returning migrants reduced future remittances—a financial lifeline for the most
vulnerable—and pressured a labor market that already struggles to accommodate low and semi-skilled
workers.
As the economic landscape in Nepal continues to evolve for longer-term economic recovery, there is an
opportunity to promote more sustainable, resilient, and inclusive export-driven growth to mitigate the
effects of the COVID-19 pandemic. One factor critical to Nepal’s economic progress will be the ability to
harness the potential of large firms with a new generation of leaders, alongside innovative small-to-
medium-sized enterprises, and entrepreneurs, to invest in and diversify higher-value markets and value-
added products and services.iii
USAID IN NEPAL
Nepal is an important long-term partner for the United States and critical to regional stability and
connectivity. Though Nepal has one of the slowest growing economies in Asia, the country continues to
make steady progress in overcoming its development challenges.
USAID’s work in Nepal centers around three central themes critical for its development: supporting
federalism; promoting inclusion; and strengthening institutions and resilience.iv To support these themes,
USAID partners with the Government of Nepal (GoN) and local organizations to improve food security,
expand and broaden economic growth, manage natural resources, improve quality health care and
education systems, bolster democratic governance, and strengthen its capacity to mitigate and respond to
natural disasters.
TRADE AND COMPETITIVENESS ACTIVITY

USAID Trade and Competitiveness Activity (TCA) is a five-year project to increase Nepali private sector
participation in targeted global value chains by making them competitive, resilient, and sustainable. The
Activity will support a new growth path for private companies to capitalize on global opportunities by
targeting quality and high value exports (of products and services). It aims to foster sustainable growth by
incentivizing actors (both private and public) through investments, innovations, employment, and the
business enabling environment to expand their integration into the global market in select value chains.
The Activity will work to achieve the goal based on the following objectives:
• To increase access to market-based financial and non-financial services.

• To increase productivity in sectors with high growth and employment potential.
• To improve the investment climate and business enabling environment for targeted sectors.
1 | NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT

ASSESSMENT OBJECTIVES AND CONSTRAINTS
OBJECTIVES
This assessment seeks to identify potential high growth employment areas for the digital services industry
and where it can accelerate both growth and employment in the agriculture, tourism, health, education,
and financial service industries in Nepal. In addition, the assessment evaluates constraints that prevent
these subsectors in meeting requirements of the markets, such as access to finance and non-financial
services, the business enabling environment, and policy issues. The assessment uses sub-sectors’
stakeholder analysis (practical Political Economy Analysis) to identify dominant players, change leaders,
positive influencers and strong vested interest that could be detrimental to advancement of the sub-
sectors.
The assessment made recommendations for strategies to accelerate growth of the priority subsectors,
including priority policy reforms and business enabling environment improvements. The defined
recommendations show how to optimize interventions that will increase revenue, generate employment,
and expand participation of women, youth, and other disadvantaged groups.
METHODS
To make recommendations to the Activity and USAID, three methods were used to identify markets,
subsectors, and key stakeholders.
First, a desk review of relevant publications, research, and press informed the basis of the assessment and
indicated starting points for stakeholder interviews. The desk review included reviewing multiple reports
from the World Bank, International Telecommunications Union, International Finance Corporation, and
the GoN itself. The documents reviewed are listed in the attached Annex.
Second, key private sector stakeholders across were interviewed to discuss strengths, weaknesses,
opportunities, and threats to high digital services growth and expanded employment in the digital services,
agriculture, tourism, health, education, and financial service industries.
Third, the assessment activity and findings were shared with TCA and USAID staff for input and feedback
to confirm and validate assessment insights.
CONSTRAINTS
The assessment was limited in scope and timeline. It was undertaken in June-July 2022 through a remote
engagement with US-based Deloitte staff with a focus on specific aspects of the digital services sector and
relevant subsectors. It should not be considered exhaustive research into all digital service markets or the
overarching Nepal economy.
NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT | 2

DIGITAL SERVICE SECTOR
OVERVIEW
This report makes a distinction between “ICT companies” and “digital services companies” due to unique
local definitions in Nepal. The term “ICT companies” refers to retail stores that sell mobile phones,
computers, and periphery hardware, often directly to individual consumers through kiosks or stores on
main retail avenues. “Digital services companies” or “digital solution providers” refers to companies that
sell software development, software-as-a-service, cloud hosting, cybersecurity, and other enterprise
services to business and government customers. This report excludes retail hardware stores from its
analysis and focuses exclusively on digital services and solution providers offering software services.
CONSUMER SERVICES
The consumer digital economy in Nepal has come a long way since the 1990s. Presently, mobile
penetration is approximately 130% of the total population (Nepalis have multiple SIM cards) and 37% of
Nepalis have access to mobile Internet services. Over 44% of the Nepali population uses social media.v
Two major internet service providers control the market, with Nepal Telecom, a government owned
service provider, having 55% market share and Ncell, a privately owned service provider, having 40%
market share. All other providers make up the remaining 5%.vi
However, a lack of digital infrastructure has led to expensive Internet, as 80% of the Nepali population is
rural and has yet to receive digital services. Relative to income, Nepal has the most expensive Internet
services in Asia, with users paying 2% of their monthly income for 5GB of fixed broadband and 4.91% for
5G of mobile broadband.vii
As a result, most digital services companies do not offer services directly to consumers. Instead, they
focus on domestic and international business clients. The digital businesses that do focus on consumers,
such as e-commerce and on-demand transport, almost exclusively target higher socioeconomic groups in
Kathmandu and other major cities.
BUSINESS SERVICES
Nepal’s commercial digital economy services are nascent and centered in Kathmandu, accounting for only
3.7% of Nepal’s GDP.viii Most digital services firms are small and operate informally as singular consultants
or informal teams. Interviewees explained that informal arrangements allowed these small groups to avoid
government regulation, taxation, and foreign exchange controls. This informal structure results in limited,
official information on their expertise, strengths, and revenue.
Most formal firms offer outsourced software, web, and mobile application development services to
international clients, such as software programming, software testing, software maintenance, data analytics,
document transcription and digitization services, and digitally enabled business process outsourcing (BPO)
such as insurance claim processing, medical billing, accounting, and call centers.ix Some digital services
firms also provide product-based solutions in financial technology, digital marketing, and specialized
software.x

While some of the formal firms specialize in certain sectors (e.g., Cotiviti focuses on international
healthcare solutions) there is not a specific sector focus for Nepali firms overall. Each sector is
characterized by opportunistic sales versus a strategic focus across the sector. Interviewees mentioned
both Vietnam and Indonesia as direct competitors to Nepal on the international market but noted that
India is too advanced and expensive to be a major competitor, although it can be an employer of Nepali
firms to satisfy other international clients.
There are 15-20 large digital solution providers with 100+ employees formally operating. All are based in
Kathmandu and have a direct business connection to internationally registered firms that share branding,
leadership, and activities with the Nepali firm. The firms listed below are primarily Nepali firms, where
most staff and software development are in the country.
COMPANY KEY SERVICES RELEVANT SIZE
Braindigit IT Managing custom software application development for 150 employees

enterprise customers
CloudFactory Training artificial intelligence algorithms by human-powered 4,000 employees

data tagging
Cotiviti Designing healthcare informatics, decision analytics, and risk 300 employees
assessment solutions
Deerwalk Creating healthcare data management, analytics, and business 300 employees
intelligence software
F1Soft International Deploying enterprise products for digital financial services 900 employees
and economic inclusion
Javra Software Delivers full cycle custom software development and cloud 150 employees
application management services
LIS Nepal Develops retail industry business intelligence, data 200 employees
warehousing, and data analytics solutions
Sastodeal Largest e-commerce service in Nepal with online shopping 150 employees
and delivery domestically and from India
Vairav Technology Produces cybersecurity software and data protection systems 120 employees
for enterprise clients
Wordlink Communications Largest ISP in Nepal, providing high speed fixed wireless 3,000 employees
broadband service
The remaining digital service firms in Nepal are branches of larger international firms that conduct their
primary business elsewhere. For example, Pathao, a Bangladesh-based ridesharing firm, is the largest on-
demand service provider in Nepal. It has drivers in Nepal but does not have a large staff presence or
software development activity in the country. The same is true for Daraz, a Pakistani e-commerce firm

owned by Alibaba. Daraz sells many items in Nepal, and employs local delivery drivers, but most of its
staff and software development are outside of the country.
There are almost no data centers in Nepal, as the international market for this commodity service is now
hyper-competitive. Most cloud hosting providers offer managed services and network support on data
center servers located in other countries. The GoN is a notable exception, as it has its own data center
in Kathmandu - the Government Integrated Data Center (GIDC) - to store data from different public
entities inside national borders. xi Interviewees mentioned this data center is slow, unreliable, and
unacceptable for high-uptime commercial services.
INVESTMENT FINANCING
The investment climate in Nepal is challenging as Nepalese commercial banks do not lend on a cash flow
basis. The banks require collateral, an obstacle for technology companies that may not have assets beyond
the skills of their staff or their industry connections. Therefore, internal financing, venture capital, and
foreign direct investment (FDI) are the main financing options for digital services firms.
INTERNAL FINANCING
Internal financing, or reinvesting profits into the company to fund growth, is the primary way interviewees
funded their digital services companies. This financing is usually done with domestic profits, as most
companies have an international partner that accrues the majority of the international revenue and profits.
Further details on internal financing are provided in the government policy and regulation section.
VENTURE CAPITAL (VC)
VC firms in Nepal have over $50 million in assets under management, funded mostly by developmental
finance institutions such as the International Finance Corporation. VC firms usually acquire an equity
minority stake between 20-49% and play a proactive role in company management. The main VC firms in
Nepal are generalists, investing in agriculture, education, healthcare, renewable energy, and tourism, in
addition to technology innovations, so the total VC funds available to digital services firms are much lower
than $50 million.xii
FOREIGN DIRECT INVESTMENT (FDI)
China has remained the largest source of FDI in Nepal for the past six consecutive years, totaling over
$188 million in funds in 2021.xiii These funds include digital services, which are open to FDI. Within
telecommunications businesses, up to an 80% equity is allowed and digitally enabled services allow for up
to 100% FDI. The GoN has given special priority to IT and BPO services due to their high export
potential,xiv yet they require FDI contributions to be at least $160,000 (as of July 2022) and undergo an
investment approval process that can take eight months to a year.
FDI can present challenges to Nepali digital services companies who cannot compete with the larger
financial strength of foreign challengers. For example, Alibaba, the Chinese e-commerce giant, bought
Daraz, a Pakistani e-commerce company in the Nepal market that competes directly with Sastodeal, a
Nepali firm. One interviewee noted that without concessional capital to support local firms, companies
like Sastodeal would go bankrupt, allowing foreign-owned firms like Daraz to create a monopoly.

EMPLOYMENT
Nepal is not unique in facing a human capital challenge with retaining technology staff. People with medium
to advanced digital skills in most emerging economies can sell their services on a global market either as
a resident in their home country working for an international company (e.g., Google) or physically
emigrating to another country to work there. One interviewee cited pay disparity as a core reason for
the current brain drain in Nepal. His Nepali company only offered a monthly salary of $1,500 for software
developers who can make up to $6,000 a month working for foreign companies in Nepal.
SUPPLY CHALLENGE
Nepal is experiencing an additional brain drain with Nepalese universities only graduating 3,000-5,000
software engineers per year. Multiple interviewees mentioned that the number of software engineer
graduates was not enough in quantity or quality to meet the current demand. Interviewees noted
inadequate training of those who do graduate and the need for Nepali digital service companies to create
training and mentoring programs to equip staff with essential business and technology skills. To counteract
this problem, one company even bought a training college to ensure a supply of trained staff.
New software engineers need to be trained in the full gamut of hard and soft business and technology
skills. Staff need to have the ability to learn new languages, understand the newest software languages that
universities understandably have trouble following, and build business skills in marketing and management.
However, once staff have stronger digital skills they are often poached by foreign companies.
One interviewee quipped that, “No one works in Nepal, they intern here and then leave.”
GENDER CHALLENGE
Data from around the world suggests there may be a gender challenge with Nepali digital solutions
providers employment practices that stem from wider gender disparities. Globally, women make up just
27% of employment in the digital services industry and account for fewer than 20% of leadership roles. xv
In South Asia, only 38% of women use mobile Internetxvi and twice as many boys as girls have Internet
access in Nepal.xvii Organisation for Economic Co-operation and Development (OECD) analysis has found
that countries with high shares of women working from home also have the highest digital services
employment rates for women, and that greater work flexibility creates higher employment rates among
mothers.xviii
DOMESTIC CONNECTIVITY
Nepali Internet is characterized by uneven coverage and poor data consumption despite impressive mobile
Internet subscription numbers. For example, the COVID-19 pandemic increased Internet usage by 35%
and the Nepal Telecommunications Authority (NTA) estimates that 90% of the population has access to
the Internet, primarily via 3G and 4G services from mobile network service providers, in July 2021.
However, greater usage during the pandemic was constrained by unreliable networks and periodic
network outages exacerbated by Internet providers that did not increase the supply of domestic Internet
bandwidth. xix Locations with favorable terrain, high population densities, and high incomes have better
connectivity and online activity levels usually correspond with these factors. Ownership of digital
technologies and their use exhibit clear regional unevenness and a large urban-rural inequality.xx

For example, several interviewees from agriculture mobile app development companies discussed how
their farmer customers had first generation smartphones with small screens or old navigation technology
(such as wheels or knobs) that were not compatible with modern apps. In addition to outdated technology,
the high cost of data prohibits rural residents from operating phone apps. An interviewee from an
agriculture innovation hub said a consistent user of mobile apps in a rural area could receive a phone bill
of 8,000 rupees a month. The average only rural Nepali earns about 14,000 rupees a month.
DIGITAL LITERACY
In addition to limited digital infrastructure in rural areas, people outside the major cities and the formal
education system lack needed digital literacy. While urban food vendors use QR codes for menus and
purchasing options, agricultural value chain companies have found that farmers do not have the digital
literacy to operate agritech mobile applications.
Proven by one agritech company’s training practices, the company experienced a 60% download rate for
their mobile platform by providing in-person training instead of telephone-based training, which historically
achieved only a 30% download rate. However, even with an increased download rate, neither process
created strong mobile app usage. More so than mobile apps or QR codes, farmers are using SMS text
messages to communicate with agritech company digital services.
In the financial services sector, financial literacy challenges are compounded by digital literacy weaknesses.
Urban or rural customers who are not confident with the financial literacy needed for traditional offline
banking transactions often find corollary digital services overwhelming. In tourism, the main tour operators
have high digital literacy, but tourism providers who work with homestays or other informal providers
report low digital literacy by rural partners.
GOVERNMENT ENVIRONMENT
The digital services sector operates within the Digital Nepal Framework formulated by the GoN, yet
government policy and regulatory issues remain within the larger business enabling environment that are
actively impacting digital services companies.
One experience illustrates government challenges with digital services. Interviewees mentioned that
multiple government officials stated the need for Nepali citizen data to stay in the boundaries of Nepal,
with the expectation that the data would be on the Government Integrated Data Center. However,
government officials made these arguments using Gmail as their official email accounts. Gmail is an
internationally hosted service owned by Google, and its use suggests that the government struggles to
enforce its own electronic data security and privacy rules and manage its own email server.
GOVERNMENT POLICY & REGULATION

There several government entities develop policy and issue regulations impacting the digital services
industry:

ENTITY ACRONYM REGULATED AREA
Ministry of Communications and MoCIT ICT policy formulation for the country
Information Technology
Ministry of Science, Technology and MoSTE Development of ICT infrastructure, e-governance and
Environment cybersecurity
Nepal Telecommunication Authority NTA Regulatory body for telecommunications services

licenses, fees, standards
Nepal Rastra Bank NRB Central bank, foreign exchange regulations, banking
regulations
The GoN previously adopted multiple governmental policies, including the Telecommunication Policy
2004, National Broadband Policy 2014, and National Information and Communication Technology Policy
2015. All of these policies were precursors to the Digital Nepal Framework (DNF) developed by the
MoCIT in 2019 as an ambitious approach to raise digital literacy and support digital services.
The DNF is a roadmap for digital efforts to support economic growth and address important societal
opportunities for Nepal to engage in the global economy. The DNF includes 80 activities divided into eight
categories – digital foundation, agriculture, health, education, energy, tourism, finance, and urban
infrastructure.
In 2022, the GoN announced that 22 billion rupees would be invested into the project, with the World
Bank contributing 17 billion rupees in grants and 5 billion rupees in business loans.xxi The MoCIT indicated
these funds would be used for Internet expansion in rural areas, weather-resistant high-speed broadband
connectivity across the country, and e-governance projects such as digital signatures, cybersecurity
regulatory frameworks, and data center capacities.
FINANCIAL REGULATION
Many interviewees expressed frustration with ambiguous, outdated, and harmful government financial
regulations for digital businesses. The GoN limits digital transactions to $200 per instance and $1,000 per
day to reduce money laundering. This limit has a direct impact on domestic e-commerce and its ability to
service large orders, in addition to its direct impact on international transactions.
Multiple interviewees also mentioned the difficulty to pay for international services, such as online ads,
cloud hosting, software, or digital training using their rupee bank accounts. To bypass this restriction,
many companies end up registering abroad. By registering abroad, companies accrue international revenue
for the international entity and do not onshore profits to Nepal, paying for international services without
restriction. One interviewee mentioned that just two of his companies could increase Nepal’s official
digital exports by $55 million per year if they could onshore profits without restrictions.
There is a strong perception that Nepali businesses are unable to receive abroad payments in the form of
credit card transactions or Internet-based payment systems like PayPal or Venmo and that only bank

transfers are possible. The lack of an easily accessible international credit card payment gateway may not
have a major impact on business-to-business transactions by digital service firms, but it does greatly impact
the tourism industry.
One interviewee said that for his tourism business, which relies on individuals purchasing goods and
services in advance from outside the country, using bank transfers in lieu of credit cards or online payments
is a major barrier to growth for tourism companies like his and for digital services firms supporting tourism
firms online.
REGULATION SANDBOXES
A lack of regulatory sandboxes where financial technology companies can conduct live experiments in a
controlled, time-bound environment under a regulator’s supervisionxxii presents a specific challenge to the
financial services industry.
Since the regulation sandbox practice started in 2015,xxiii there are now over 70 regulatory sandboxes for
financial innovation across 57 countries. For example, the Reserve Bank of India has five sandbox cohorts
already, each helping the government create and amend regulations that have tested and approved over
25 new digital financial services.xxiv Starting in 2016, the Bank of Thailand set up regulatory sandboxes to
test all new innovative financial products and services, graduating 36 firms from the sandbox to offer
standardized QR code payments, biometrics, blockchain, and P2P lending platforms to the public.xxv
Without the innovation that regulation sandboxes provide, startups in Nepal are challenged by existing
regulations that are designed for traditional banking solutions.
DIGITAL SERVICES TAXATION

Like any other business, the GoN applies corporate taxes on digital services firms. However, the
government recently enacted a special non-resident digital service tax of 2% to international providers
such as Google, Facebook, Twitter, and Netflix that offer services to Nepali citizens.xxvi Over 20 countries
have similar digital services taxes on social media, search engine, and entertainment firms generally located
in the United States but who do not pay taxes in countries like Nepal, where they offer services but do
not have major business operations.xxvii
Nepal’s tax may have a negative impact on digital service firms in three ways.
1. Domestic firms will need to pay taxes on any services they receive from their international partner
companies,
2. Domestic firms who buy services from international service providers like Amazon Web Services,
will be expected to pay taxes, even if the digital service firm’s international partner pays for the
service, and
3. The international partner of a domestic digital service provider will need to pay taxes on any
services supplied to Nepali citizens.
In addition, the government expects the Nepali resident to pay the tax amount based on the purchases
they make versus taxing the corporate entity that receives payment. The corporate entities are often
beyond the reach of Nepal’s tax authority, meaning the tax burden will be on the Nepali person or entity.

Over 135 countries and jurisdictions have joined a new two-pillar plan from the OECD to reform
international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they
operate.xxviii Nepal could join this cohort to harmonize its taxation program with international leading
practices.
CYBERSECURITY REGULATION
Interviewees discussed a lack of cybersecurity laws and a dearth of support for data security in general. In
a study by the International Telecommunication Union (ITU), Nepal ranked 94th of 182 countries in the
Global Cybersecurity Index 2020.xxix An improvement from 106th place in the 2018 index, Nepal still
placed 17th among the 18 countries in the Asia-Pacific region.
As Nepal became more digitized, it suffered from a spate of cyberattacks ranging from hacking of the
SWIFT system, coordinated ATM cash-out attacks of the Nepal Electronic Payment Systems, and data
breaches of Nepali companies.xxx One interviewee, a head of a cybersecurity startup, attributed the recent
spate of cybersecurity attacks to absent cybersecurity legislation, as the law is still in its third year of
drafting.
As a result of these data breaches, investors worry that a lack of cybersecurity laws will allow further
attacks by hackers and leave their data vulnerable. To the average Nepali user, the persistent fear of data
leakages and loss of money in digital payment apps add to their mistrust of the digital financial services
system.
POLITICAL INSTABILITY
Political instability serves as a barrier to Nepali economic success. With 28 governments in the past 31
years, the country continues to remain hostage to petty party politics, which has prevented significant
developmental progress. xxxi In addition, the upcoming elections in November 2022 and the recent
resignation of Nepal’s finance minister, Janardan Sharma, can distract government staff.
COVID-19 IMPACT
The pandemic restrictions turbocharged the shift to digital services. Overnight, the government and
private sector had to move staff work and customer interactions online. This move had a direct impact
on e-commerce. Nepal’s largest online supermarket saw sales surge by more than 200% from 2019 to
2020, with three-digit increases in 2021 as well. xxxii In agriculture, usage of digital financial services
increased by 600% during the COVID-19 lockdown period. xxxiii
Nepal’s economy is now in the recovery phase from the COVID-19 pandemic shock. Economic activities
are expanding due to the easing of pandemic restrictions and the increased availability of vaccines. Nepal's
economy is expected to expand by 4-6% this year, depending on how the surge in food and energy prices
drives annual retail inflation. Inflation accelerated to a five-year high of 7% in Nepal, amid the risk of social
unrest as imports of goods like fuel, coal and edible oil become costlier.
The longer-term impacts of COVID-19 are presently manifesting in the Nepali workforce. 80% of students
were not able to attend primary school virtually between March 2020 and July 2021 due to a lack of
Internet access or ability to use digital tools.xxxiv One interviewee noted how the pandemic created a

notably smaller pool of graduating software engineers and made recruitment an even more difficult task.
Only Nepalis with better means were able to continue their studies and graduate from universities. By
contrast, poorer Nepalis had to drop out of school and focus on day-to-day jobs to provide for their
families.
DIGITAL SERVICES ENVIRONMENT

The supporting functions that help digital solution providers can be mapped with industry rules and
regulations to create a visual representation of the digital services environment in Nepal.
The visualization shows that staff training (both pre-service and in-service) and entrepreneurship is
important to develop innovative solutions and new companies. In addition, company financing, Internet
access, and stable electricity supplies are important to the digital services environment.
The government brings formal policy and regulation to the market, as do industry associations and
international software development standards. Informal community standards have their own impact on
digital solution providers.
SUPPORTED INDUSTRY TRENDS

Nepal’s digital services sector is both an industry itself and a supporting subsector to other industries,
including the agriculture, tourism, health, education, and financial services sectors. Market trends in each
of these industries impact digital services companies, as do wider business enabling environment issues

like investment financing, domestic human capital, Internet infrastructure, and government regulation.
Investments in digital solution providers can have a multiplier effect on the other industries. For example,
when a provider develops a new tourism solution it can improve growth and employment as the solution
is adopted by multiple tourism providers.
AGRICULTURE INDUSTRY
Agriculture engages around 66% of the total population in Nepal and contributes to one-third of the
nation’s GDP.xxxv More than half the country’s farms are small, less than 0.5 hectare with average holdings
of 0.7 hectare, and fragmented. Far more women work in agriculture than men, yet women face
discrimination in access to agricultural extension, financial services, and technology solutions to reduce
existing market inefficiencies.xxxvi
Irrespective of gender, many farmers lack the equipment needed to access digital services. One
interviewee noted that most farmers had older smartphones from the early 2010s that could not
download modern mobile apps. Digital agriculture firms generally reach farmers through cooperatives or
wholesalers who have the digital capacity and are trusted by farmers. Nepali digital agriculture firms are
protected from international competition due to domestic logistics challenges, although the low margins
on farm products make it difficult for digital agriculture firms to be profitable.
TOURISM INDUSTRY
Tourism was crushed by the COVID-19 pandemic in 2020. The GoN planned to welcome 2 million
tourists, but the pandemic reduced tourism to just 200,000 foreign tourists. Limited tourist rebound has
occurred in 2021 and 2022.xxxvii The first quarter of 2022 has seen foreign arrivals more than double to
almost 79,000, but tourism numbers remain less than pre-pandemic levels. xxxviii According to one
interviewee, the industry has only recovered to about 65% of pre-COVID levels.
Tourism companies report strong digital skills (e.g., website skills and content creation), developed in
conjunction with digital services companies, in marketing their services internationally. International
tourists respond with high degrees of trust in Nepali websites. However, the lack of international payment
gateways and low cybersecurity levels inhibit online sales, such as prepayment for services via credit cards.
HEALTH INDUSTRY
The health system in Nepal is characterized by a wide network of health facilities, community workers,
and volunteers that are dependent on foreign aid for 50% of the national heath budget.xxxix In 2019, Nepal’s
Universal Health Coverage service coverage index was 53%, which was below India at 61% but above
Pakistan at 45%. Lower socioeconomic groups are often unable to obtain basic healthcare services due to
burdens such as out-of-pocket payments, rural locations, limited local medical support, and the
opportunity cost to seek medical care elsewhere.xl Only 62% of the Nepalese households can access health
facilities in less than 30 minutes from their home.
The COVID-19 pandemic exacerbated existing inequalities and stressed the Nepali health system. Over
108,000 deaths have been directly attributed to COVID-19xli and it caused significant disruptions to the
prevention, diagnosis, treatment, and management of multiple infectious diseases.

The GoN is exploring multiple digital health opportunities. There is a significant opportunity for health
system digitization to overcome healthcare fragmentation. The health ministry lacks a comprehensive
database of hospitals and medical institutes and there is not a national electronic patient medical records
system. In response, the DNF 2019 aims to introduce the National Digital Healthcare Program for public
healthcare services and facilities, including e-Maternal Care and Mobile Health Units. Other digitization
plans include a Centralized Telemedicine Center, drones for transporting emergency medical facilities,
and establishing the E-Health Record System 2.0.xlii
Nepal is already the first country to use open-source software (OpenIMIS) to manage national social health
protection programs and the GoN invested in DHIS2 for electronic reporting of health data.xliii There is
also a significant opportunity with telehealth or electronic consultations that allow patients and health
experts to communicate online for contact-free consultations.
EDUCATION INDUSTRY
Under the federal system, the 753 local and provincial governments and 260,000 teachers are responsible
for basic education provision. At the federal level, the Ministry of Education, Science and Technology
(MOEST) is the lead entity, with impressive gains in improving access and equity in education in recent
years. Nepal has reached gender parity in basic and secondary education and increased the number of
Dalit students in schools.xliv
During the COVID-19 pandemic and resulting lockdowns, the education system went online, using FM
radios, televisions, internet, and other internet-based technologies to engage students. The MOEST even
launched Sikai Chautari, an online learning site for e-learning.xlv However, according to Nepal’s Education
Department, only 48% of public schools are online. Many students were excluded from online learning
due to their inability to access online learning materials and the Internetxlvi and 64% of Nepali children
reported they did not find virtual learning effective.
The MOEST is launching a 10-year Education Sector Plan in 2022 that builds on the DNF to incorporate
digital technologies into classrooms to assist teachers, enrich the learning experience, and improve
educational outcomes. Investment in public classroom technology can complement the many existing
consumer online learning courses and private school education management information systems favored
by higher socioeconomic groups.
FINANCIAL SERVICES INDUSTRY

Financial services are in the recovery phase after the COVID-19 pandemic. The profitability of the banking
sector rose by 21% in the fiscal year ending in mid-July 2021, with all commercial banks posting profits.
Bank deposits swelled by 20% and credit to the private sector surged by 28%, resulting in the expansion
of the greater money supply.xlvii Specific to digital services, there are an estimated 4 million digital wallet
users in Nepal, with usage doubling each quarter.xlviii In addition, the GoN is adopting digital payments for
both payout and revenue collection, including NEPALPAY QR codes for making government payments.xlix
Interviewees reported very close associations between the financial services industry and digital services
firms. Financial companies were early adopters of online transactions and recognized the need to either
have long-term partnerships with digital services firms or bring technology skills in-house for greater
control over solutions development. Due to the increase in mobile wallets during the pandemic, there is

an even greater connection between the two industries. However, cybersecurity is still a weak point for
financial services firms.
INTERNATIONAL MARKETS
The international market for Nepali digital service providers is growing quickly and has seemingly unlimited
room for expansion. The market can be divided into two categories:
• Software application services, including software development, testing, and support, software
consulting, and systems integration.
• IT-enabled services and business process outsourcing (ITeS-BPO), including call centers, medical
transcriptions, back-office operations, and content digitization and development
The global market for BPO is estimated at $165 billion in 2022, with the US market accounting for $69
billion, and growing by 5% per year.l The total revenues of registered ITeS-BPO service providers in
Nepal were $75 million in 2017.li Even as revenues increase by 20% percent annually, Nepali firms do not
need to take market share from other countries to grow significantly as the relative amount is so small.
They can continue to exploit Nepal’s wage advantage to drive the sector in the short to medium term,
although their wage advantage will likely diminish over time as the quality of Nepali developers improves
due to better training and competition increases from other low-wage countries like Vietnam and
Indonesia.
International firms consider several factors when choosing to hire or partner with a Nepali digital solutions
provider. While low prices may be initially attractive, international firms typically consider the following
aspects to be more important than total price:
• Recommendations and referrals from related firms or industry partners

• Clear communications and transparency on all aspects of the project
• Experienced staff who produce high-quality software code and services
Currently, there isn’t a clear market focus by Nepali firms, who have historically seemed to be more
opportunistic than strategic in their international partnering. There is opportunity for them increase their
profile within segments such as healthcare or insurance solutions in the international marketplace. Nepali
firms can also invest in improving their software development processes to increase the quality of work
they deliver. There isn’t a single international software development standard that is recognized as the
best, but there are several competing standards that can offer different types of assurances that a company
can deliver high quality services and solutions, including:
• ISO/IEC/IEEE 90003 for the acquisition, supply, development, operation and maintenance of
computer software and related support services.
• Capability Maturity Model Integration (CMMI) for software engineering and service development,
acquisition, and maintenance processes.
• Project Management Body of Knowledge (PMBOK) guide for software development projects that
use iterative agile approaches.

International firms may hinder Nepali company growth by keeping high-value work from the country and
using negative perceptions of Nepali skills quality to depress revenues, thereby keeping most profits from
Nepali firms.
SWOT ANALYSIS
The six SWOT analyses (Strengths, Weaknesses, Opportunities, and Threats) below are situational
assessments that identify the internal and external factors that are favorable and unfavorable to each
sector of the Nepali economy.
SWOT ANALYSIS COMPONENTS
Helpful Harmful
External Internal
Strengths Weaknesses
Opportunities Threats
DIGITAL SERVICES
This SWOT analysis looks at digital service firms as a sector of the Nepali economy.
Helpful Harmful
• Founder led and managed • High staff turnover
Internal
• Low human resources costs • Low capitalization

• Connected to international partners • Limited focus on cybersecurity
• Low-cost profile • Market distorting FDI

External
• Strong English language fluency • High cost of Internet bandwidth

• Wide open domestic markets • Low retail customer Internet adoption

AGRICULTURE
This SWOT analysis looks at the agriculture industry through the lens of digital service firms.
Helpful Harmful
• Recognition that Internet can help • Lack of connections to cooperatives
Internal
• Interest in online sales • Low margins reduce interest in sector

• High trust in cooperatives • No investments in cybersecurity
• Agriculture is 60% of Nepal’s GDP • Lack of rural internet coverage

External
• Farmer digital literacy is growing • High data usage cost

• No international competition • Low ownership of smartphones
TOURISM
This SWOT analysis looks at the tourism industry through the lens of digital service firms.
Helpful Harmful
• High awareness of Internet sales • Low use of advanced digital services
Internal
• High use of Internet marketing • Unreliable rural Internet connectivity

• High desire to expand digital activities • No investments in cybersecurity
• Tourists use the Internet to plan trips • No international payment gateways

External
• High trust in digital marketing & sales • Limited virtual reality investments
• Potential for agro-tourism • Potential COVID-19 disruptions
HEALTH
This SWOT analysis looks at the health industry through the lens of digital service firms.
Helpful Harmful
• High awareness of digital services • Low digital skills in rural areas
Internal
• Strong desire for digital solutions • Perception of cost & complexity

• Strong online skills at hospitals • Desire to see patients, not screens
• GoN investments in digital health • Low Internet access in rural areas

External
• Consumer demand for digital services • Limited digital literacy in rural areas
• Donor investments in digital health • High risk of hacking and data theft

EDUCATION
This SWOT analysis looks at the education industry through the lens of digital service firms.
Helpful Harmful
• High awareness of digital services • Low digital skills in rural areas
Internal
• Strong desire to experiment • Perception of cost & complexity

• Demand from students & parents • Desire to see students, not screens
• GoN investments in digital education • Limited funding for educational activities

External
• Consumer demand for digital services • Low Internet access in rural areas
• Donor investments in e-education • Limited digital literacy in rural areas
FINANCIAL SERVICES
This SWOT analysis looks at the financial services industry through the lens of digital service firms.
Helpful Harmful
• High awareness of Internet sales • Limited focus on cybersecurity
Internal
• High use of Internet marketing • Low staff digital services capacity

• High desire to expand digital activities • Unreliable rural Internet connectivity
• High use of QR code payments • Growing global cybercrime threats

External
• High use of mobile wallets • Outages affecting digital transactions

• Opportunity in domestic market • Low public trust in digital services
INTERNATIONAL MARKETS
This SWOT analysis looks at the financial services industry through the lens of digital service firms.
Helpful Harmful
• Strong demand for low-cost support • Perceptions of Nepali skills quality
Internal
• Keen understanding of needs • Desire to keep high-value work in-house

• Connections to international clients • Profit and connections hoarding
• Limitless international markets • Potential taxation of services to Nepal

External
• International brand awareness • Limits on cross-border transactions

• Strong perception of quality products • Competition from Vietnam and Indonesia

STAKEHOLDER ANALYSIS
For this Activity, stakeholders are defined as individuals, groups, or organizations that have an interest in
digital services and can mobilize resources to affect digital service company competitiveness. Different
stakeholders within larger groups can have multiple objectives and views, which may differ and conflict
with the norms of other stakeholders.
KEY STAKEHOLDERS
The following shows the dominant leaders, their influence area, and potential positive and negative
directions they can have on digital service firms in Nepal.
STAKEHOLDER INFLUENCE AREA POTENTIAL DIRECTIONS
Digital Services Directly provide digital services, economic Positive: digital services expansion
Businesses growth, and employment opportunities
Negative: constraining government
interventions
Digital Services Retail Choosing desired services and paying market Positive: better services at better prices
Customers prices, driving growth
Negative: perceived low value or overpriced
services
Ministry of Finance FDI, Forex, international transfers, digital Positive: increasing financial inclusion.
financial services
Negative: disruptive innovation or exclusionary
practices
Ministry of Internet access, connectivity, and competition Positive: expansion of Internet access and
Communications and usage, especially in rural or underserved areas
Information Technology e-Government
Negative: monopolies or limiting access
Agriculture Industry Purchases digital services or develops internal Positive: better services at better prices
digital capacity
Negative: perceived low value, overpriced, or
overly complicated services
Tourism Industry Purchases digital services or develops internal Positive: better services at better prices,
digital capacity specifically for international customers
services
Health Industry Purchases digital services or develops internal Positive: better services at better prices
digital capacity
services
Education Industry Purchases digital services or develops internal Positive: better services at better prices
digital capacity
services

Financial Services Purchases digital services or develops internal Positive: better services at better prices
Industry digital capacity
vulnerable services
International Markets Purchases digital services and staff capacity to Positive: better services at better prices
develop their solutions
vulnerable services
Other Donors Complimentary interventions and direct Positive: enhancing related investments and
government support increasing impact
Negative: working at cross-purposes or
duplicating activities
STAKEHOLDER MAPPING
The following visualizes the key stakeholders in reference to their level of influence on digital services
companies and the impact of their changes. Based on the mapping, financial services (banking) and
international clients have the greatest influence and impact on digital services firms in Nepal. In addition,
agriculture and tourism clients also have significant impact on digital services firms. To control their impact
and influence, digital services firms should communicate with government ministries, satisfy retail and
education customers, and monitor other donor programs.

SUMMARY OF CONSTRAINTS
Digital services firms face a series of constraints on their growth and employment opportunity. Firms in
the agriculture, tourism, and financial services industries face constraints to expand their online services
through internal solution development or purchasing services from dedicated digital firms.
SECTOR-LEVEL ORGANIZATION
There is currently no clear industry group that represents digital services firms at the national level.
Existing organizations, such as the Computer Association of Nepal, focus on retailers of personal
computing devices, resulting in limited, sporadic, and uncoordinated engagement with the government on
digital issues and a lack of clarity on applicable rules and regulations. New legislation ignores the needs of
digital services firms, with one interviewee wondering if the DNF implementation activities even included
any input from actual digital services firms.
DIGITAL SERVICE NEEDS
Agriculture, tourism, healthcare, education, and financial services firms struggle to understand where they
should invest their limited capital to have the greatest impact on their operations. There is widespread
agreement that the overall industry, and each individual firm, are underinvesting in technology; however,
multiple interviewees struggled to explain where and how much they should invest to increase their
competitiveness. This investment confusion restricts the ability of these sectors to purchase services from
digital companies.
HUMAN CAPITAL
Nepal universities graduate 3,000 students annually, with only 20% of them staying in Nepal to work.
Outdated university curricula means that digital services firms who do hire Nepali graduates typically must
provide extensive training and mentoring programs to prepare the new staff to work on client projects.
One interviewee mentioned that his company has a 6-month internship program for all new hires to train
(or re-train) to international skill levels. All interviewees said they could only keep staff for 2-3 years
before the skilled staff left for international companies or emigrated outside of Nepal.
GOVERNMENT ENGAGEMENT
Without centralized industry representation to engage the government in a systematic and strategic
process, digital services firms are left to informally engage with government actors. Companies attempting
to engage the government independently often struggle to understand which ministries or regulatory
bodies are responsible for specific business rules.
Government staff are also confused by new technological innovation ideas. One interviewee mentioned
that government staff often conflate blockchain solutions, a distributed ledger technology, with banned
cryptocurrencies like Bitcoin, resulting in multiple challenges to their company’s legal standing in the
country. Some of these challenges originated in regulatory bodies that don’t actively regulate their
company.

FINANCING
Nepali digital services firms are constrained in their ability to fund expansion via internal investments due
to government foreign currency purchase restrictions. Firms only use onshore funds for pressing costs,
as they cannot use onshore funds to purchase international goods and services. External investment, such
as seed funds and VC is rare due to the foreign currency restrictions and the $160,000 minimum FDI
requirement. The lack of sizeable, numerous venture capital firms to support start-up ecosystems and
supply financial mentorship results in a limited pipeline of new entrants into digital services.
CYBERSECURITY
Cyber-attacks are persistent and expanding across the Nepali economy. A cybersecurity leader in Nepal
noted that Russian cybercriminals now target trekking companies at the start of the tourist season and
farmer cooperatives at the end of the growing season due to significant deposits the companies have on
hand. In addition, financial services firms have remained under constant attack. All three respective
industries faced ransomware attacks that sought payments that unlock systems but do not expose sensitive
client data.
In addition, the GoN is also a target by nation-state actors that seek to destabilize the country instead of
profiting from the target.
Both commercial and government groups lack awareness of how dangerous the Internet is now, and
without government regulation requiring cybersecurity efforts, both groups may not implement protective
practices that reduce risk and protect data effectively.
INTERNET CONNECTIVITY
The high cost of Internet connectivity directly restricts the ability of Nepali digital services firms to be
cost-competitive in developing online solutions. The lack of Internet access outside of major cities
constrains agriculture, tourism, and financial services companies from investing in online services, reducing
revenue opportunities for digital services firms. It also reduces the ability for digital services firms to
source employees from outside major cities since remote staff need reliable Internet access.
DIGITAL LITERACY
Farmers are unable to understand modern mobile application interfaces. Tourism industry staff are unable
to create high quality websites. Banking staff are unable to manipulate and analyze data. New digital
company staff are unable to start work without months of postgraduate training. Each of these issues,
cited by interviewees, stems from a low level of digital literacy across the Nepali population. Digital
illiteracy further manifests itself in low uptake of everything from Internet access to social media
consumption and reduces the prestige of digital services companies and the services they offer.

RECOMMENDATIONS
Digital services firms can increase their competitiveness by becoming an export sector and supporting
domestic markets in the agriculture, tourism, and financial services industries. Impact should be seen within
6-12 months for immediate actions and within the next year or more for longer-term actions.
IMMEDIATE ACTIONS
The following immediate actions can improve engagement with digital services firms and support
leadership in their international and domestic competitiveness.
CONVENE A DIGITAL SERVICES ADVOCACY GROUP

Every report and interviewee reinforced the need for an industry-level advocacy group to serve as a
credible voice for the digital services industry. There is not a clear leader in the market now; however,
the recent Digital Nepal Conclave highlighted that Huawei – a Chinese telecommunications firm – wants
to serve as that leader.
TCA should take the leadership role by leveraging the USAID brand to consolidate desire and excitement
into an inclusive, unified digital services sector membership organization that includes the government,
private sector, and civil society actors. This effort can build on an existing organization or create a new
one.
The benefits of such an organization would immediately improve the business enabling environment due
to:
• Strategic engagement with the government and direct influence on current and future regulation.
• Educating other domestic sectors on digital technology needs and online service benefits.
• Upgrading training provider curriculum to provide current skills and competencies.
ORGANIZE DIGITAL TRAINING PROGRAMS

Time and again, company leaders complained that they cannot hire enough qualified technology staff,
leading them to create months-long training and mentoring programs to onboard entry-level software
developers, online marketers, and digital solution salespeople. Existing university programs and training
institutions did not supply enough graduates – in quality or quantity.
TCA should investigate organizing access to existing digital services training courses offered by the likes
of Google, Microsoft, Cisco, Amazon, and other US-based technology companies to increase the digital
capacity of Nepalis interested in a digital services career (preservice) or those already in the field that seek
to upgrade their skills (in-service).
Training programs can be organized as learning ladders, allowing learners to enter and exit at
predetermined points along a pathway that can lead from entry-level to CIO-level competencies. These
learning ladders can involve multiple training providers, learning modalities, and payment schemes,
resulting in certificates issued by the program or the digital services advocacy group.

CONDUCT DIGITAL MATURITY ASSESSMENTS
Leaders in agriculture, tourism, and financial services companies often expressed frustration and confusion
on which digital services they need and the benefits that could accrue from investments into online
solutions. This was especially pronounced with cybersecurity, where several interviewees openly stated
they knew they could be targeted by cybercriminals but did not know how to protect themselves.
TCA should help these sectors understand their technology strengths, weaknesses, opportunities, and
threats (SWOT) using a tool like Deloitte’s unbiased and revealing Digital Readiness Maturity Model
assessment. This comprehensive assessment gives private sector companies insight into where they should
and should invest in digital services to improve their near-term competitiveness.
Deloitte can initiate digital maturity assessments with leading firms across the three sectors to use in the
context of Nepal and showcase the assessment’s value. It can then transition the assessment’s use to the
digital services advocacy group for long-term sustainability.
ACTIONS TO EFFECT CHANGE

TCA can implement these longer-term actions to effect change in the digital services sector, and the
agriculture, tourism, and financial services industries over the next year or more.
IMPROVE GOVERNMENT ENGAGEMENT

Government policy and regulations for digital services was described by interviewees as nonexistent,
overly ambiguous, or restrictive. At the same time, interviewees did not regularly engage with the
government, viewing policy interactions to be slow and confusing.
TCA should invest in developing ways for digital services companies and their clients to self-organize their
interests and needs into clear policy points and facilitate constructive delivery that can result in improved
government rules and regulations. This can be completed by the program directly or the digital services
advocacy group.
There is already a clear demand for improved foreign exchange regulations that allow export-oriented
companies to buy international services with minimal restrictions. In addition, there is demand for
international customers to buy goods and services online from Nepali companies using major credit cards
and electronic payment systems.
Other policy demands include electronic signatures, digital IDs, and clearer regulation of new digital
services company services. Better digital services regulation can be combined with private sector seed-
funding for innovative start-up companies and initiate easier access to foreign funds to increase
entrepreneurial opportunities in the sector.

INCREASE SKILLED DIGITAL STAFF
Increasing the digital skills of potential and existing staff isn’t just a near-term activity.
TCA should engage the private sector over the long term to continuously evaluate its needs for quality,
digitally skilled staff. In addition, TCA should work with universities and training institutions to improve
their curriculum to match current and future needs.
The program can work with digital services companies to assess gaps in existing software engineering
education programs and work with education stakeholders to develop targeted training activities that
match private sector needs. Once these actions are completed, the program can then advocate with the
government to support including these training activities in the degree processes.
The program can also work with digital services firms to design retention policies adn programs to keep
skilled staff working for the GoN or private sector companies. Some interviewees suggested improving
new office cultures, increasing incentive pay, or developing a 35-hour work week to retain employees.
PROMOTE CYBERSECURITY PRACTICES

There is no clear policy on cybersecurity for government or private sector entities. Cybersecurity
awareness across both groups is low, leaving the Nepali economy exposed to security threats. Shown by
recent attacks on US local governmentlii and the Costa Rican governmentliii, there is a distinct appetite for
cyberattack on government, with the possibility of disastrous risks.
TCA should help government and agriculture, tourism, and financial services companies quantify their
relevant cybersecurity risks and define the motivations of cybercriminals who attack each group. The
program can then assist the government and digital services firms to develop relevant policies and
commercial solutions to increase cyber resilience.
One obvious regulation would require organizations (government or private sector) to utilize advanced
security technologies and methodologies when engaging in financial transactions. Although most banks do
this already, there is not a strong legal requirement to do so. Another regulation could focus on the need
for secure storage of personally identifiable information (PII) and financial transaction data, including secure
backups of that data, to guard against ransomware.
CATALYZE AGRICULTURE SERVICES DIGITIZATION

Although it is the largest industry in Nepal, agriculture may also be the least digitized, as farmers often
lack digital literacy, engage in subsistence farming, and are risk adverse, .
TCA should support the digitization of agriculture supply chains by helping input sellers, cooperatives, and
wholesalers to increase their use of digital services and increase the digital literacy of Nepalese farmers.
This digitization can be in coordination with Feed the Future activities that target high value vegetables,
maize, rice, lentils, and goats.
With 40% of farmers listening to FM radio every day,liv the TCA could initiate an intervention to start
helping input sellers better target their goods and services to farmers. As farmers purchase inputs, they
could connect directly to extension workers who use text message services (e.g., WhatsApp) to stay in

contact during the growing season and share new approaches and leading practices. In addition, farmers
could also be offered affordable index insurance by innovative digital financial services companies that also
provide lending and other services.
When harvest time approaches, cooperatives and wholesalers could connect to farmers via online
marketplaces that aggregate demand, offer direct linkages to urban customers, showcase farm to fork
traceability, and pay farmers via digital payments.
UNLOCK TOURISM E-COMMERCE OPPORTUNITIES

Tourism is the second biggest industry of Nepal and tourism companies are skilled in using online tools
to market their services. However, several tourism experts bemoaned the lack of an international credit
card payment gateway to facilitate online payments and mentioned that virtual reality tourism is an
unexplored opportunity.
TCA should help the tourism industry secure an international credit card payment gateway to increase
online sales and meet demand for digital payment services as almost all international tourists expect to
pay for certain services using credit cards or payment systems like PayPal or Venmolv in advance of their
travel.
TCA can explore virtual reality (VR) tourism as a digital service sold to aspirational travelers – those who
will never visit Nepal but still want to experience its beauty – a target market potentially much larger than
tourists who physically visit the country.lvi VR is fully immersive with 3D images and surround sound, and
is more comprehensive than virtual tours, such as Google Street Views of Himalayan trekking routes.
INCREASE DIGITAL HEALTH INVESTMENTS

Nepal is lagging behind in key health indicators, which only got worse due to the COVID-19 pandemic.
The GoN needs catalytic investment into digital health to accelerate Universal Healthcare Coverage across
the country and in rural areas.
TCA should help the health industry improve health outcomes with targeted digital health interventions
from digital solution providers that focus on interacting directly with patients and result in demonstratable
improvements in the quality of care.
The GoN could institute a national healthcare hotline and a telehealth program (part of the national health
system) that will allow citizens to call into a call center for a health consultation and get direction to local
service providers for treatment and pharmaceutical drug prescriptions. As an example, the Babyl service
from Babylon Health Rwanda uses this model to provide hyper-local health services to Rwandans on a
nationwide scale for almost no cost to the patient.lvii
EXTEND DIGITAL EDUCATION SERVICES

The GoN has just released the 10-year Education Sector Plan in 2022 that will provide investments across
the education sector. This plan builds on the DNF by supporting the digitization of schools and improving
teacher and student usage of digital education services.

TCA can provide the GoN education investments across the full landscape of information and
communication technology, including FM radios, televisions, and Internet-enabled solutions. These
investments can focus on traditional learning subjects, but use technology as a medium of learning to
increase digital literacy.
The program can work with schools and digital service providers to extend existing eLearning systems, of
which there are already many, and configure them for the best approach in Nepal. eLearning systems help
students, teachers, and caregivers of students understand student progress (or lack of it) in real time and
support student exploration and learning. eLearning systems built on the Moodle platform are even royalty
or license free.
EXPAND DIGITAL FINANCE SOLUTIONS

Digital services companies are already deeply engaged with financial services firms to support digital
financial services such as mobile wallets and QR code payment solutions that saw rapid adoption during
the COVID-19 pandemic. However, engagement with these services has mainly focused on higher
socioeconomic groups in major cities.
TCA should help increase digital financial inclusion with strategic private-sector partnerships that increase
access to online financial services for all Nepalis. The program can utilize the USAID FinTech Playbooklviii
which details five objectives and ten illustrative ways to expand financial access and increase household
financial resilience using digital technologies.
The program can increase knowledge of underserved market segments to help financial services and digital
services firms understand the financial markets. They can develop appropriate mobile applications for rural
and marginalized customers. The program can de-risk appropriate sources of capital to help extend the
reach of digital financial services to new customers. In addition, the program can also help build awareness
of formal financial services among rural and marginalized customers.
GROW INTERNATIONAL MARKETS

Nepali digital solution providers are deeply engaged with international software development companies
and business process outsourcing firms. However, these relationships primarily leverage Nepal’s lower
cost of staff and can be a hindrance to future growth when competition increases from other low-cost
countries.
TCA should help digital solution providers move up the value chain based on quality solutions developed
using international software development standards, with specialization into a specific software
development category.
The program can help firms obtain ISO or CMMi certification in software development processes and use
PMBOK standards for project management to immediately improve perceptions of quality. The program
can also work with firms to develop a Nepal market niche in areas like healthcare or insurance that can
brand the country as a leading developer of software for those subsectors. A defined brand conveys
expertise and quality and insulate Nepal against competition from Vietnam, Indonesia, and other low-cost
countries.

SUPPORT INTERNET ACCESS EXPANSION AND AFFORDABILITY
Nepal ranks at the lower end of Asian countries in many aspects of Internet access, affordability, and use
with prominent digital divides between urban/rural and male/female groups.lix
TCA should help the government and private sector promote relevant Internet infrastructure, awareness,
and services to these groups and bring them online. Affordable infrastructure can include lower mobile
data tariffs and fixed broadband services provisioned through a mix of government interventions and
private sector innovations. Awareness campaigns can be supported via private sector marketing of
agriculture, tourism, and financial services solutions that specifically target women, youth, and other
disadvantaged groups in urban and rural areas.
A focus on agriculture and tourism solutions could have a larger impact on the rural and gender digital
divides. Both industries have large populations of rural women leaders as many men work abroad to
generate remittance income for their households.

ANNEXES
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KEY INFORMANTS
NAME TITLE ORGANIZATION
Nischit Aryal Project Coordinator Nepal Warehousing
Tek Bahadur Limbu CEO Konnect Nepal Networks
Rajan Bajracharaya Managing Director Pathways Technologies
Sixit Bhatt Founder Tootie.today
Krishna Bhattarai Partnership and Activation Daraz

Manager
Manohar Bhattarai Former Vice ICT Chairman Digital Nepal Framework
Bikash Dangol Director of Technology Pathways Technologies
Ashraya Dixit Senior Fellow Nepal Economic forum
Manoj Ghimire Co-founder/CEO Rara Labs
Tim Gocher Founder/CEO Dolma Impact Fund
Supral Raj Joshi Public Relations Manager Huawei Nepal
Bikram KC CEO BMP Infology
Saugat KC Head of Investment F1Soft International
Utsaha Khakurel Assistant Lead-Buisness Upaya City Cargo

Development
Pralin Khanal Cloud Solution Architect Huawei Nepal
Naresh LamGade Founder BugV
Binod Maharjan Business Development Manager Huawei Nepal
Narendra Mainali Chief Information Security NIC Asia Bank

Officer
Ishwor Malla Co-Founder/Service Director ICT for Agri
Saroj Nepal National Programme UNCDF

Coordinator

Siddhant Pandey Chairman/CEO Business Oxygen
Shristi Piya Co-Founder AgriClear bu Rumsan Associates
Debesh Pradhan Director of Technology Kheti/DV Excellus
Siddhartha Raja Sr. Digital Development Specialist World Bank
Anil Regmi Founder SmartKrishi
Tapan Sarker Researcher Asia Development Bank
Bijay Limbu Senihang CEO Vairav Technologies
Binit Sharma Founder Asterdio
Deepak Sharma Investment and Finance Manager Business Oxygen
Bikram Shrestha Former President Internet Society Nepal
Moushumi Shrestha Founder Shrenagar Agro
Swastika Shrestha Executive Director/Co-Founder Teach for Nepal
Santosh Sigdel Chairperson Digital Rights Nepal
Bidhya Sigdel Managing Director Dolma Impact Fund
Suvash Thapa Head of Department for British Embassy Nepal

International Trade
Tiffany Tong Co-Founder Aeloi
Deepak Tuladhar Project Specialist Kheti/DV Excellus
Pawan Tuladhar Founder/Owner Dharma Adventures

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xxxv
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xxxvi
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xxxvii
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xxxviii
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NEPAL DIGITAL SERVICES SECTOR

MARKET SYSTEMS ASSESSMENT

TRADE AND COMPETITIVENESS ACTIVITY

• To increase access to market-based financial and non-financial services.

1 | NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT

NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT | 2

3 | NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT

COMPANY KEY SERVICES RELEVANT SIZE

Braindigit IT Managing custom software application development for 150 employees

CloudFactory Training artificial intelligence algorithms by human-powered 4,000 employees

NEPAL DIGITAL SERVICES SECTOR MARKET ASSESSMENT REPORT | 4

VENTURE CAPITAL (VC)

FOREIGN DIRECT INVESTMENT (FDI)

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GOVERNMENT POLICY & REGULATION

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Nepal Telecommunication Authority NTA Regulatory body for telecommunications services

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DIGITAL SERVICES TAXATION

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DIGITAL SERVICES ENVIRONMENT

SUPPORTED INDUSTRY TRENDS

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FINANCIAL SERVICES INDUSTRY

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• Recommendations and referrals from related firms or industry partners

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SWOT ANALYSIS COMPONENTS

• Low human resources costs • Low capitalization

• Low-cost profile • Market distorting FDI

• Strong English language fluency • High cost of Internet bandwidth

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• Interest in online sales • Low margins reduce interest in sector

• Agriculture is 60% of Nepal’s GDP • Lack of rural internet coverage

• Farmer digital literacy is growing • High data usage cost

• High use of Internet marketing • Unreliable rural Internet connectivity

• Tourists use the Internet to plan trips • No international payment gateways

• Strong desire for digital solutions • Perception of cost & complexity

• GoN investments in digital health • Low Internet access in rural areas

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• Strong desire to experiment • Perception of cost & complexity

• GoN investments in digital education • Limited funding for educational activities

• High use of Internet marketing • Low staff digital services capacity

• High use of QR code payments • Growing global cybercrime threats

• High use of mobile wallets • Outages affecting digital transactions

• Keen understanding of needs • Desire to keep high-value work in-house

• Limitless international markets • Potential taxation of services to Nepal

• International brand awareness • Limits on cross-border transactions

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STAKEHOLDER INFLUENCE AREA POTENTIAL DIRECTIONS

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DIGITAL SERVICE NEEDS

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CONVENE A DIGITAL SERVICES ADVOCACY GROUP

ORGANIZE DIGITAL TRAINING PROGRAMS

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ACTIONS TO EFFECT CHANGE

IMPROVE GOVERNMENT ENGAGEMENT

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