US$ 1.8 million ‘COVID-19 MSME Fund’ announced to support enterprises in Nepal

By Laxman Datt Pant

US$ 1.8 million ‘COVID-19 MSME Fund’ announced to support enterprises in Nepal

The majority of Micro, Small and Medium Enterprises (MSMEs) in Nepal are often not sufficiently aware of available loans and their refinancing has therefore not been effective. However, a US$1.8 million ‘COVID-19 MSME Fund’ has now been announced to support up to 100 MSMEs that are struggling to cope with the challenges presented by COVID-19. The fund aims to help to retain up to 1000 jobs in Nepal.

The fund, announced on October 21, plans to pay interest on collateral-free loans for a period of up to 18 months. Furthermore, a subset of these firms will also be provided with business development support targeted to meet the needs of the recipient enterprises.

With backing from the Swiss Agency for Development Cooperation (SDC), One to Watch in partnership with NMB Bank and the Laxmi Bank, the fund will provide support to MSMEs struggling hard to cope with the challenges brought about by the current state of the COVID-19 pandemic. They will be provided with bridge financing to meet their working capital needs in order to retain employees, preserve business continuity, and build resilience.

  • According to the International Finance Corporation (IFC), MSMEs employ an estimated 1.75 million people accounting for 22% of Gross Domestic Product in Nepal
  • The Nepal Rastra Bank (NRB, 2015) stated that MSMEs represent only 2.6% of total commercial lending
  • Only half of the SMEs in Nepal have used loans from banks and financial institutions and 85% of these loans are from commercial banks (NRB, 2019)
  • The Nepal Business Pulse Survey (2020) carried out by the IFC and World Bank reveals that over half of Nepal’s MSMEs face the risk of permanently closing their operations due to the impact of the current COVID-19 situation

Stating that MSMEs are the backbone of Nepal’s economy where they employ a large share of the workforce and are the drivers of innovation and new job creation, Elisabeth von Capeller, Ambassador of Switzerland to Nepal, said that, as a long-standing development partner of Nepal, SDC is proud to be able to support this initiative together with private sector partners. The rebound by MSMEs will set the foundation for overall economic recovery, she added.

Anticipating that this initiative will be a pilot that can be scaled up with participation from more banking partners, Suman Joshi, Managing Partner of One to Watch, said, “In unprecedented times like these, the fund will leverage One to Watch’s investment and business development expertise to identify and support high impact MSMEs.”

Summarizing that MSMEs need special attention and support at this point of time, Ajaya Bikram Shah, Chief Executive Officer of Laxmi Bank, stated, “This initiative will directly benefit credit worthy small entrepreneurs who require access to bank loans in order to sustain their businesses and livelihood during an economy in stress.”

Sunil KC, Chief Executive Officer of the NMB Bank, said that MSMEs are the key drivers of the sustainable growth of the economy. He added that at a time when businesses across a range of economic sectors are facing losses, the bank was open to such alliances to support initiatives to revive their plans.

It is worth noting that lengthy application processes, high-interest rates, and the lack of collateral are considered to present major barriers for businesses seeking to secure loans from banks in Nepal.