As a stewardship for watershed services, an incentivizing mechanism of payment for ecosystem services (PES) has been increasingly discussed in global policy arena. In this context, various models of incentivizing mechanisms have been implemented as a pilot program. This study assesses the existing financing mechanisms for watershed services at the national level and examines the pilot PES programs that have been implemented in four different sites of Nepal. Using various participatory and qualitative research methods; this study analyses institutional arrangement, operational procedures and implementation practices from the study sites. Our findings reveal that the pilot PES programs have shown fairly satisfactory outcomes in watershed management. Based on our findings, we argue that the PES mechanism can be a promising approach in financing sustainable watershed management in Nepal. Nevertheless, PES mechanism should be flexible and contextual in terms of institutional arrangement and needs to be strengthened with a strong linkage between service providers and service users, through a regulatory mechanism. An intermediary role of the local government is found to be utmost important to institutionalize the PES mechanism as a sustainable financing mechanism for ensuring watershed services in Nepal.
