World Bank data reveal that the female labour force participation rate in Nepal has exceeded 82 percent, as of 2018.i From agriculture to finance, health to education, there is a paradigm shift going on as more Nepalese women enter the workforce. However, there is another side to this story: there are sectors where there is a great need for women but their participation rate is quite low. One such sector comprises micro, small and medium enterprises (MSMEs).

MSMEs are defined as follows:

1. Micro: Enterprises with fixed assets up to Nr500,000 (US$4,384), turnover of Nr2,000,000 (US$17,535) and fewer than 10 employees.
2. Small: Enterprises with fixed assets of more than Nr500,000 (US$4,384) but less than Nr100,000,000 (US$876,768).
3. Medium: Enterprises with fixed assets of more than Nr100,000,000 (US$876,768) but less than Nr250,000,000 (US$2,191,921).

There are some 183,000 MSMEs registered in Nepal, and a million more MSMEs operate in the informal sector.iv The sector contributes approximately 38 percent of the country’s GDP and employs more than 2.5 million people.v However, when looking at the gender gap in the MSME sector, the numbers are stark. Women only own about 14,300 MSMEs, employing an estimated 200,000 workers, which equates to less than 1.2 percent female ownership/participation! While there are many barriers that female-led MSMEs face to sustain or scale up their businesses, the lack of access to affordable credit is particularly inhibiting. Roughly 90 percent of Nepalese MSME lending is “through the informal sector where interest rates are at least twice as high as the formal market.”

On 20 February 2019, the UN Capital Development Fund (UNCDF) hosted a ‘Digital Chhalfal’ session on the topic of women and MSMEs. The session brought together female-led MSMEs, banks and financial institutions, women entrepreneurship associations, fintechs and donor groups. The main objective was to gain insights from industry experts regarding the barriers MSMEs face in accessing formal financial services.

Anjana Tamrakar, Vice-President of the Federation of Nepal Cottage and Small Industries, shared the following: “MSMEs shy away from formal financial services because often the formal credit services don’t suit their requirements, and lengthy documentation procedures for availing the simplest of services are time-consuming. Ease and efficiency are two crucial elements that make moneylenders and small cooperatives the first choice for MSMEs when it comes to financial solutions.”

Suman Gelal, the Head of Cards and Digital Channel Operations at Laxmi Bank, responded to Mrs. Tamrakar’s remarks, mentioning initiatives by financial institutions (e.g., branchless banking and digital banking) that cater specifically to people with limited means. He also stressed the downsides of relying on informal financial channels and suggested collaborating with women entrepreneurship associations to jointly develop financial solutions that meet the needs of MSMEs.

During the Chhalfal session, participants also raised issues of the scalability of current digital financial solutions offered to MSMEs and the need for financial literacy. To the latter point, business accelerator programmes, such as Next Venture Corp and Idea Studio, shared an observation from their interactions with start-up companies and MSMEs: they noted a lack of financial discipline among entrepreneurs, which they saw as a vital inhibitor and underlined that access to financial information and technical know-how are key enablers of financial inclusion. By the end of the session, the drive and energy of each representing institution towards strengthening the MSME ecosystem were palpable.

The Digital Chhalfal series is part of an ongoing effort by UNCDF in Nepal to engage the development community, private sector, non-governmental organizations and regulators in a collaborative learning experience. With many more such gatherings planned on issues pivotal to the mandate of UNCDF, the programme intends to share its expertise and to learn from partners regarding the use of digital innovations for inclusive finance.

References:

[1] World Bank, ‘Labor force participation rate, female (% of female population ages 15+) (modeled ILO estimate),’ 2017 data. Available from https://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS?locations=NP

Nepal, Industrial Enterprises Act, Law No. 2073 of 22 November 2016.

Currency conversion rate: US$1 = Nr114.0552. Source: https://treasury.un.org/operationalrates/OperationalRates.php, 1 February 2019.

Sujeev Shakya and others, Nepal Detailed Country Report: 2016 (n.p., Making Access Possible Nepal, 2017).

Ibid.

Bandana Das and Hui XiaoFeng, 'Financing source for women owned SMEs: An evidence from Nepal,' 3rd International Conference on Information Management, Chengdu, 2017.

Percentage was calculated during internal research conducted by the UNNATI-Inclusive Growth Programme in Nepal.

https://www.business-standard.com/article/economy-policy/msme-digital-lending-may-rise-up-to-15-fold-hit-rs-7-trn-by-2023-reports-118121101451_1.html Business Standard, ‘MSME digital lending may rise up to 15-fold, hit Rs 7 trn by 2023: Reports,’ 11 December 2018. Available from [1]