Nepal, Jan. 16 -- Banks are liquid, interest rates are low, and yet credit uptake remains weak. Policymakers are searching for ways to increase lending. From the local tea shops to the boardrooms of banks, the question is the same: Why aren't people borrowing? The conventional answer is 'economic distress'. But as economists, we must ask a more uncomfortable question: What if low credit uptake is not a failure but a correction? What if this slump is signalling something deeper about the structure of Nepal's economy?

What policy has already done

Over the last year, the central bank, Nepal Rastra Bank (NRB), has adopted a more expansionary stance. It has reduced key interest rates, earlier in mid-2025 and more recently in December 2025, m...