Start-up enterprises at receiving end for lack of clear definition

Kathmandu, July 21

Start-up enterprises in Nepal have long been deprived of the funding by the government as well as banks and financial institutions (BFIs), and many other facilities including tax discounts and waivers in absence of clear definition of 'start-up' business.

This lack of definition has emerged as the biggest challenge facing such enterprises as it has been creating obstructions in expanding government facilities and technology transfer as well. In the past many years, the government announced various programmes to support and develop start-up business and ecosystem in the country but none could take off.

The government had announced some facilitating policies for the small and medium industries (SMEs) while the BFIs also launched various initiatives to support such businesses but start-ups had to fulfill the criteria set for the traditionally run businesses.

"Start-up means a new idea, new method and new technology. It is an innovation which demands a lot of time, resource and efforts while many of them might not succeed to come into operation commercially," said Narottam Aryal, President of Kings College which has kept entrepreneurship at the core of its business and management studies.

While neighbouring countries have moved ahead with pragmatic policies to promote the development and growth of start-up businesses, Nepal is lagging in every aspect of it. For example, India had launched 'Start-Up India' campaign eight years ago in January 2016 to build eco-system for promoting and nurturing innovation and start-up business with an aim to give impetus to the economic growth and create jobs. Now, the country is competing with the developed countries as well as China.

Likewise, China has more than 75,000 startups in operation. "A clear definition and good policy is needed to facilitate the promotion of startups in Nepal. A policy with a clear strategy of development could be a milestone in the development of start-up," said Ranjit Acharya, former coordinator of the Start-Up Forum at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

According to him, although the government announced programmes like concessional loan and support in technology transfer are good, start-ups are not able to obtain them due to lack of their identity.

Lack of infrastructure

There are other challenges like lack of laboratory, technological infrastructure and workshops to work upon ideas and refine them.

According to Aryal, Kathmandu-centric activities in terms of start-up development and promotion has failed to motivate youths in the other parts of the country to design and develop programmes that fit to their areas or need of the business.

Of late, the country has been witnessing a massive brain drain as the youth have begun to feel that they wouldn't make much progress staying in Nepal due to poor policy, lengthy bureaucratic process and problem in arranging funds to run the startups.

"You can take an example of the new Start-up Policy 2023 which was almost in the final stage to be approved but with the change in the government and leadership at the ministry, the process has been delayed. Oftentimes, the new leadership doesn't take the ownership over the decisions of its predecessor even though the programme is a good one," said Acharya.

According to him, procedural hurdles have troubled many start-ups while the requirement to get registered for the Value Added Tax and the like has also been burdensome for the new enterprises that have just began to work on their innovative ideas. Instead of refining their ideas and exploring the market and potential of growth, young entrepreneurs have to spend a good amount of time in fulfilling the legal requirement of business registration and operation.

 

Funding the startups

Start-ups in the country don't have sources to obtain the funds to run the business. Banks don't mobilse loans on project basis; they ask collateral, primarily land or a house, to provide business loan.

The government has long been parroting 'project-based financing' while the private sector organisations have also been demanding for the same but that hasn't materialized yet.

"Brilliant ideas failed to be implemented in absence of funds. BFIs only invest in the business that has already been set up and has begun making profits," said Kreeti Khatiwada, a start-up expert.

According to her, the lack of definition of start-up has severely affected them in terms of financing since the banks don't have parameters to screen start-up business.

Meanwhile, there is no exit policy for the start-ups.

According to the Department of Industry, poor coordination among the line ministries like the MoICS and Ministry of Finance, National Planning Commission, Nepal Rastra Bank and provincial governments, had stalled the process of implementation of the startup programmes. 

Impressive potential

However, this lack of policy has not deterred young entrepreneurs from developing innovative business ideas and developing successful enterprises. They established themselves by following the rules and policies which were made for SMEs, not for them.

An estimate made by an international firm based in India had projected that by 2027, the start-up market in Nepal would hit US$ 500 million (Rs. 65 billion).

Therefore, the country should start to invest in start-ups and incubation centres at the universities and colleges, said Aryal. He said that interdisciplinary degree or collaborative programmes would help the students to have better ideas about the business operation and understand the socio-economic condition of their society and markets.

Likewise, Acharya said that Nepal should learn from India and can adopt the model the neighbour is implementing. It is said that India is making one unicorn (startup worth more than US$ 1 billion) in a month.

Startup policy

New Start-Up Policy 2023, which was recently sent to the MoF by the MoICS to make a review on some provisions, could address most of the problems, said Juna Mathema, Chairperson of the Startup and Innovation Forum at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

The FNCCI was the key institution that formulated the draft of the policy in cooperation with various stakeholders including the International Labour Organization (ILO).

It has defined the startup business, incubators, investment modalities. Some of the definition of the policy draft has already been used by the Department of Industry while it called applications from the startups to mobilise government financial support.

The policy has considered an enterprise run by a group of entrepreneurs and which hasn't crossed seven years from the start of its business operations.

Mathema is hopeful that the new policy would streamline the programmes and activities announced to support the young entrepreneurs and startups. 

Published in The Rising Nepal daily on 22 July 2023.