Understanding Lenden Kanoon: Borrowing and Lending Laws in Nepal

Lenden means borrowing and lending, “give‑and‑take” of money, goods, or services to be repaid later. Under Nepal’s Muluki Civil Code 2074, such transactions—both formal and informal—must occur through a legally binding deed to ensure enforceability and transparency.

What Is a Deed and Why Does It Matter

A deed is a written document (including a cheque, bill, voucher, or receipt) that records the transaction. Conducting a Lenden without an executed deed is illegal, and courts will typically not enforce such agreements.

Essential Details in a Deed

Every legally valid deed must include:

Interest Rules, Clear Limits

The Code strictly governs interest:

• If a deed specifies interest, it must not exceed 10% per annum

• If a deed mentions interest but not the rate, 10% annual interest applies by default

• If no interest is specified, interest cannot be charged

• Compound interest is prohibited; any such excess must be refunded or adjusted

Repayment Procedures: Documentation Is Key

Upon repayment:

• The creditor must sign and return or cancel the deed, indicating repayment

• If the original deed is lost, a receipt of payment must be provided

• For partial repayment, annotate the deed with receipts and the borrower's acknowledgment

Validity Period of a Deed

Personal household deeds are valid up to 10 years. If payment or renewal occurs within that time, the term resets for another decade. Court judgments during this term can enforce judgment-phase interest.

Unenforceable Deals—Special Cases

Certain scenarios void enforceability:

• Transactions with minors or mentally incapable persons are not legally recognized

• If a deed lacks the family head’s signature, the creditor must first prove the debtor’s independent property rights before recovery

• However, courts may still enforce lending evidenced by bank statements, vouchers, or negotiable instruments

No Statute of Limitations for Serious Infractions

There is no time limit (statute of limitations) for cases involving:

• Attempts to exploit minors or incapacitated persons

• Charging compound interest

• Charging interest exceeding 10% per annum

What’s New in 2025

Recent legal guidance emphasizes:

• Strict penalty and refund for compound interest or excess interest

• Stronger court powers to enforce banking records and digital evidence for proving oral loan transactions

• Integration with consumer protection laws, ensuring fair lending practices and borrower rights

Why This Matters in Nepal Today

With digital lending (mobile wallets, microfinance, fintech) and informal village loans increasing, these rules:

• Protect borrowers from exploitative interest rates

• Encourage formal documentation for all loans

• Provide legal clarity on repayment and default procedures

• Deter fraudulent lending through strict enforcement

Building Trust Through Legal Clarity

Nepal’s Lenden Kanoon establishes a clear, fair, and enforceable framework for borrowing and lending. By mandating written deeds, capping interest, and outlining strict repayment protocols, the law balances borrower protection and creditor rights, promoting financial integrity across both formal and informal lending practices.