SMEs play a crucial role in Nepal’s economy, employing 1.7 million people, contributing around 22% to the national GDP, and bringing services closer to the people. However, SMEs in Nepal have only witnessed modest growth year-on-year. Firstly, SMEs suffer from a low capital base, poor access to technology, and inadequate knowledge regarding business opportunities and marketing. Secondly, they face limited access to new financing. This does not only result in a low value addition in the overall economy, but also curtails SMEs’ potential in mobilising innovation and new products, creating jobs, rendering the economy more flexible, and paying taxes to authorities.

With the promulgation of the Constitution of Nepal 2015, Nepal has transitioned to a federal state. Governments at all the three spheres (i.e., federal, provincial, and local) have recognised the pivotal role of SMEs in contributing to the achievement of locally, provincially, and nationally set development goals. Federalism has created new opportunities, particularly at the provincial level, to bridge SMEs’ knowledge and financing gaps. Province 1 is the strategic focus area of the Swiss Cooperation Programme in Nepal. It is therefore a promising entry point for supporting the growth of SMEs, since the SDC can build upon a continued engagement with the Province 1 leadership in pushing for reforms at the provincial level.

Direct target group: Established SMEs that have high growth and innovation potential, but are underfunded – including SMEs owned and managed by women and members of discriminated groups.

Indirect target group: Women and men in Province 1 who rely on private sector development to move out of poverty and improve well-being as owners, employees as well as clients of SMEs.

Outcome 1: SMEs grow and are able to innovate as they have access to business development services, capital, and information on public initiatives and incentives.

Outcome 2: Banking and financial institutions increase the lending to SMEs, including to SMEs that use business development services.

Outcome 3: Government of Province 1 enhances the framework conditions for the growth of SMEs.

Principaux résultats attendus:  

Output 1.1: SMEs have access to quality business development services.

Output 1.2: SMEs have access to information on public initiatives and incentives relevant to them.

Output 2.1: Partnering banking and financial institutions have a pipeline of investment-ready SMEs.

Output 2.2: Providers of pre-loan business development services earn success-linked payments as an incentive.

Output 3.1: The Government of Province 1 implements a Technical Assistance Facility (TAF) that is geared towards supporting private actors in improving their services for SMEs.

Output 3.2: The Government of Province 1 leverages a blended finance mechanism to improve SMEs’ access to capital.

Output 3.3: The Government of Province 1 receives assistance for the creation of a digital information portal to address information gaps faced by SMEs to access public services and benefits.

Principaux résultats antérieurs:   Constraints to SMEs’ growth in Nepal lie at two levels. On the one hand, the current regulatory framework limits their productive potential. On the other hand, constraints exist at the enterprise level, such as limited access to business development services and growth capital. The MSMEs financing gap in Nepal is estimated at USD 3.6 billion. Since Q3-2020, the SDC has supported the COVID-19 Micro Small and Medium Enterprise (MSME) Fund Nepal, which helped 100 MSMEs retain more than 1,000 jobs, and create more than 350 additional new jobs during the COVID-19 pandemic. These results indicate that bringing easier access to finance and business development services together can help enterprises move to a higher growth equilibrium and build foundations for sustained future growth. While the COVID-19 MSME Fund Nepal is slightly different in nature, these findings have been important to the Udaya design process.