Govt searching easier financing for SMEs

Kathmandu, Dec. 6

The Ministry of Industry (MoI) has begun consultations with the central bank of the country, Nepal Rastra Bank (NRB), banks and financial institutions (BFIs) in a bid to develop the small and medium enterprises sector with more and easier options of financing.

Although the SME sector is the largest employer, with more than 2.2 million employed, and an effective tool for poverty alleviation, small and medium enterprises (SMEs) have not been able to find funds to upgrade and expand their businesses.

"Due to the high interest rates charged by the cooperatives and local lenders, their profit margin has been low. Therefore, the BFIs should extend their reach to the entrepreneurs and enterprises in the rural areas," said Minister for Industry Nabindra Raj Joshi at a meeting with the deputy governor of the NRB, Shiva Raj Shrestha, and representatives of the BFIs Tuesday.

The meeting was the first of its kind as the bankers had never been consulted by the ministry en masse in the past.

The minister urged the BFIs for project-based financing instead of collateral-based financing, which, according to him, would motivate the youth from modest families to take up entrepreneurial ventures.

He sought methods of financing the SMEs jointly through government funds like the Women Entrepreneurship Fund and bank loans.

Deputy governor Shrestha said that through its monetary policies, the NRB had made provisions for project-based financing of up to Rs. 1 million.

"The banks and financial institutions have mobilised loans of about Rs. 36.24 billion in the SMEs sector," he said.

In response, the bankers said that many a times, small and medium entrepreneurs lacked money to make even a 30 per cent equity investment.

According to president of the Development Bankers Association of Nepal Krishna Raj Lamichhane, the banks finance only 70 per cent of the total project cost.

"Banks themselves are trying to enhance their investment portfolio and motivating the entrepreneurs to come to the banks for financing their projects. The government should work to create entrepreneurs in the rural areas, too," he said.

He urged the government to provide subsidy on the interest of agricultural loans.

Immediate past president of the Nepal Bankers Association (NBA) Upendra Poudel said that the banks were ready to adopt project-based financing but maintained that there should be a clear policy provision for recovering the money should such projects fail.

"If the government wants to promote entrepreneurship at the small and medium level, it should work to make the entire value chain system more effective. Many micro-enterprises want to upgrade to small enterprises, so there should be unified effort from the government and BFIs to meeting their requirements," he said.

He remarked that the BFIs were unable to serve the 'missing middle' class people.

Chief executive officer of Janata Bank Kumar Lamsal stated that the banks were ready to invest in the SMEs if there were reasonable risks against reasonable return.

"SME financing is a sector with a huge potential. But only the banks can't do much. The government should put its efforts to create entrepreneurs and develop enterprises," he said.

The meeting has decided to form a mechanism with representatives from the MoI, NRB and BFIs to sort out the misunderstandings among them and find out ways to facilitate the SMEs.

Minister Joshi asked the BFIs to send reports of success and failure in project-based financing in the SME sector.