As intangible assets increasingly define business value, Nepal’s financial sector must reckon with a critical gap – the underutilization of intellectual property as a vehicle for secured financing. Intellectual property (IP) refers to creations of the mind that have commercial value – the kind of assets you can own, protect, and in many cases, license or sell.
Understanding the Asset Class
Intellectual Property (IP)- patents, copyrights, trademarks, trade secrets, designs, and industrial secrets have become one of the most strategically significant categories of business assets in the modern economy. These are not peripheral considerations. In technology, media, and creative sectors, intangible assets often constitute the primary source of enterprise value. IP can be defined as a category of intangible rights protecting commercially valuable products of human intellect. As such, they represent real economic value, value that, in principle, should be capable of being mobilised as collateral in the same way as land, gold, or physical plant and equipment can be.
The Legal Position in Nepal
Nepal's existing legal framework does not leave this question unresolved. Article 25 of the Constitution of Nepal explicitly includes intellectual property within the scope of property rights. Section 254 of the Muluki Civil Code 2074 affirms that IP carries monetary value and qualifies as a form of property recognised in law. In principle, therefore, any asset with recognised monetary value can serve as collateral for securing finance, and IP is no exception. The trajectory of legislative reform reinforces this position. Nepal adopted its first National IP Policy in March 2017, signalling a government commitment to developing the IP ecosystem. The current governing statute, the Patent, Design and Trademark Act 2022, provides the framework for registration and protection of keyIP categories, giving registered IP the formal legal standing that any financing conversation with a lender would require. Looking ahead, the draft Industrial Property Bill 2082 is currently being finalised as a replacement for the 2022 Act. This represents Nepal's most significant IP legislative reform in recent years and may introduce provisions directly relevant to IP financing. Our firm is monitoring its progress closely.
Key Legal Instruments At A Glance
Constitution of Nepal, Article 25: Recognises IP as a constitutional property right, providing the foundational legal basis for treating IP on equal footing with tangible assets.
Muluki Civil Code 2074, Section 254: Confirms that IP holds monetary value and qualifies as property under civil law, the key statutory provision underpinning any IP-as-collateral argument.
Patent, Design and Trademark Act 2022: The current governing statute for registration and protection of patents, designs, and trademarks is a prerequisite for establishing enforceable IP rights that could be offered as collateral.
National IP Policy 2017: Nepal's first national IP policy establishes a government commitment to strengthening the IP ecosystem and setting the direction for subsequent legislative development.
Industrial Property Bill 2082 (draft)A forthcoming reform bill to replace the 2022 Act is currently under finalisation. It may introduce provisions with direct implications for IP-backed financing structures.
What is IP Financing?
IP Financing refers to the use of intellectual property assets to obtain funding for business operations or growth. It is the mechanism by which a business converts the value embedded in its intangible assets into working capital without necessarily parting with ownership of those assets. In practice, IP financing can take several forms depending on the nature of the asset and the structure of the transaction. The most direct approach involves pledging IP assets as collateral to secure a loan facility, much in the same way a borrower might offer land or equipment. Where a business generates recurring income from its IP, through licensing agreements or royalty streams, it may instead assign rights to those cash flows to a lender as the basis for repayment. In other cases, IP does not serve as direct security but rather as a demonstration of enterprise value, strengthening a borrower's overall credit profile and supporting financing decisions made on broader commercial grounds. Globally, IP financing has become an indispensable tool, particularly for startups and innovation-driven enterprises that hold significant intellectual capital but lack the conventional tangible assets that traditional lenders typically require. For such businesses, their patents, trademarks, and proprietary technologies are not peripheral; they are the business. IP financing gives those assets the financial utility they deserve.
The Barriers: Why Banks Remain Reluctant
Despite a sound legal foundation, financial institutions in Nepal have been broadly unwilling to accept IP as collateral. From our firm's experience advising both lenders and borrowers, the hesitation stems from four interconnected problems:
Risky collateral: Unlike land or gold, IP is vulnerable to technological obsolescence, reputational change, and legal challenge. Lenders accustomed to tangible collateral view these risks as poorly understood and difficult to price.
Valuation difficulties: No standardised methodology for valuing patents, trademarks, or copyrights exists in Nepal. Determining the financial worth of such assets remains complex and largely subjective, creating uncertainty in lending decisions
Institutional knowledge gap: Many lenders lack the technical expertise to evaluate IP assets. This gap discourages institutions from offering IP-backed facilities, even where borrowers hold strong portfolios.
Regulatory vacuum: No specific legal or regulatory framework governs IP financing in Nepal. The absence of clear procedures for registration, enforcement, and critical liquidation of IP-based collateral leaves lenders without a clear recovery pathway in default scenarios.
The Core Problem: Not Legality, But Practicality
These four barriers share a common root, and understanding that root is essential to addressing them. It would be a mistake to frame Nepal's IP financing challenge as a question of legal permissibility. The law is clear: intellectual property is property, it carries monetary value, and it can, in principle, serve as collateral. The real obstacle lies elsewhere: in valuation and enforcement, the two pillars that any functional secured lending system must stand on. When a bank accepts land as collateral, it operates within a well-understood system. Land can be inspected, registered, and independently valued against an established market. In a default scenario, the recovery pathway is clear. IP offers none of these certainties. Unlike land or gold, the value of an intellectual property asset is not static or self-evident; it is inherently forward-looking and context-dependent. A patent’s worth is tied to its commercial viability and the likelihood of future licensing revenue. A trademark's value rises or falls with brand perception and market position. A copyright generates returns only so long as the underlying work retains commercialrelevance. These are not assets that yield to a simple appraisal; they require specialised judgment, sector knowledge, and an honest assessment of future income streams.
Nepal currently has no standardised methodology for IP valuation. The NRB's Capital Adequacy Framework 2015, which governs how commercial banks assess and manage credit risk, defines "eligible financial collateral" narrowly as instruments such as own-bank fixed deposits, physical gold, government securities, and rated institutional guarantees. Intellectual property does not appear in this list. The same framework expressly requires that goodwill and all other intangible assets be deducted from a bank's Common Equity Tier 1 capital rather than counted as a recoverable asset. Where land is assessed against recorded market transactions and regulatory benchmarks, IP exists in a regulatory vacuum. There is no official guidance, no approved framework, and no established body of institutional practice for lenders to rely on. The three principal value drivers — future income potential through royalties and licensing, brand equity in the case of trademarks, and commercial viability in the case of patents are each difficult to quantify independently, and the interplay between them adds further complexity. Without a structured approach to capturing that complexity, every IP valuation exercise becomes a bespoke, time-consuming, and ultimately subjective undertaking. Banks, understandably, treat this uncertainty as risk and price it accordingly, or decline to engage altogether. Enforcement compounds the problem further. Even if a lender accepts IP as collateral and the borrower subsequently defaults, the practical question remains unanswered: what happens next? There is no established procedure for IP repossession in Nepal, no liquid secondary market in which to sell a distressed patent portfolio or trademark licence, and no regulatory framework governing the process. This is not a hypothetical concern. It is the first question any credit committee will ask, and currently, there is no satisfactory answer.
Global Precedents
The international landscape makes clear that IP financing is not merely theoretical. Jurisdictions with mature IP ecosystems have developed both the legal infrastructure and institutional capacity to support it at scale. Singapore operates the IP Financing Scheme (IPFS) and the Singapore IP Strategy 2030 (SIPS 2030), specifically designed to enable businesses to leverage IP as collateral. The United Kingdom encourages IP-backed financing through initiatives such as the Patent Box scheme and government-commissioned research into IP valuation methodologies. Corporate transactions demonstrate the scale of value involved. American Airlines secured a USD 10 billion loan in 2021 backed by the IP and cash flows of its Advantage loyalty program. Kodak averted collapse in 2012 by leveraging a portfolio of 1,100 digital imaging patents to secure USD 525 million from a consortium including Google and Apple. In South Asia, Kingfisher Airlines pledged its brand name as collateral to 14 lenders for a restructuring deal worth approximately INR 65 billion. These are not isolated cases. They reflect a global shift in how enterprise value is understood and mobilised, a shift Nepal must begin to reckon with.
The Way Forward for Nepal
To unlock the full potential of intellectual property as collateral, Nepal must take proactive steps,including:
Developing a clear legal framework governing IP financing
Establishing standardised valuation mechanisms
Enhancing institutional capacity and expertise in IP assessment
Encouraging collaboration between legal, financial, and technical experts
Raising awareness among businesses and financial institutions about the value of IP
Closing perspective
Intellectual property represents a powerful yet underutilised asset class in Nepal. The law already acknowledges its status as property with monetary value through the Constitution, the Civil Code, and the existing IP statutes. The debate over whether IP can serve as collateral in Nepal is, in a meaningful sense, already settled. The Constitution says it can. The Civil Code says it can. The IP statutes provide the registration and protection framework that any lender would require. The legal foundation exists. What does not yet exist is the institutional architecture needed to give that legal foundation practical force. Nepal has no standardised method for valuing IP assets, no regulatory guidance on how lenders should approach IP-backed lending, and no tested procedure for realising value from IP collateral in a default scenario. These are not minor gaps. They are the reason banks hesitate, and they will continue to be the reason banks hesitate until they are addressed directly. The conversation, then, must shift. It is no longer enough to assert that IP has value and that the law recognises it. The urgent work is to build the framework, valuation methodologies, enforcement procedures, and regulatory standards that translate legal possibility into commercial reality. That requires legislators willing to legislate, regulators willing to issue guidance, and financial institutions willing to invest in the expertise that IP assessment demands. Nepal’s IP financing gap is not a legal problem waiting for a legal solution. It is an institutional problem waiting for institutional will. The businesses that stand to benefit most startups, creative enterprises, and technology companies are precisely the ones Nepal needs to grow its economy. They hold real value in their IP. They deserve a financialsystem capable of recognising that value and putting it to work. Closing the gap between what the law permits and what lenders can practically deliver is not simply a legal advancement. It is a strategic economic priority, and one Nepal cannot afford to defer.