This study reviews the development of the banking and insurance sectors in Nepal and the effect of reforms and commitments linked to these sectors since the 1980s, when financial sector liberalization in Nepal began with deregulation of the interest rate structure and opening of the banking sector to foreign investors. Now, three fourth of foreign equity participation is permissible in the banking sector. The insurance sector is almost fully liberalized with 100 per cent foreign equity participation on a case by case basis. The liberalization of banking and insurance has helped to diversify the banking sector resulting in financial deepening. The contribution of finance and real estate sector to employment reached 11.46 per cent of total employment in 2005, from 9.29 per cent in 1990. A rapid increase in total financial assets of the financial institutions also took place during the period 1990 to 2005.