Shabda Gyawali's Blog

The Ministry of Industry (MoI) will initiate homework on the Women Entrepreneurship Development Fund (WEDF) by the end of this week. This year’s budget has allocated Rs 100 million for the setting up of the fund. MoI had formed a seven member working committee to prepare the draft of the fund’s working guidelines. The draft guidelines have proposed providing collateral-free loans up to Rs 300,000 to women seeking to start their own business. Source: Kathmandu Post

There is a growing consensus between politicians, policymakers, development professionals and private sector representatives that a thriving private sector is the silver bullet for Nepal’s economic development. In a country like Nepal, the contribution of small and medium enterprises (SMEs) plays an instrumental role in the overall advancement of the private sector. SMEs are a major source of employment generation. These enterprises also spur innovation, productively and invigorate the local economy. A recent study shows that in a developing country, every dollar of investment in an SME has a multiplier effect, generating additional 12 dollar in the local economy. According to some estimates, as of 2010, SMEs (excluding microenterprises) in Nepal employ approximately 57 percent of total work force. Despite SMEs being the major driver of economic growth and poverty alleviation, the contribution and challenges faced by SMEs have long been overlooked by both the government and leading pr...

The Youth and Small Entrepreneurs Self-Employment Fund (YSESEF) is all set to release funding to central cooperative associations along with commercial banks to implement the highly prioritised Youth Self-Employment Fund (YSEF). The YSESEF has planned to call central cooperative associations to submit their proposals by mid-July with a clear roadmap stating the types of businesses the cooperatives under them could do in the areas of production, service and small industry, their financial capacity and adequate basis for loan recovery. The government has decided to move the programme ahead on a massive scale through government-owned banks and other banks with large government investments as private sector banks have been reluctant to participate in it. “The plan to go through central cooperative associations is intended to reach out to as many needy people as possible as government-owned banks are not present as extensively as would be desired,” said Binod Kumar Guragain, execut...

So today, I read a new that due to restriction by Rastra Bank to issue new licenses to open Class A,B and C  financial institution,more and more promoters are interested in opening  Class D (Microfinance) institution. The article say-So far the central Bank has received 45 applications.Currently,there are 23 MFIs operating in the country. This makes me wonder whether restriction on setting up large scale banks are a good startergy to increase financial inclusion?

  Central Bank has asked Banks to  make it easier for Farmers to coordinate the timing between  interest payment schedule and crop harvesting - Micro insurance - crop,livestock could be beneficial for both the farmer and the lender.(SKS model?)  Central Bank will count  -Collateral free  affordable housing loans up to  Rs 100,000 to low caste communities as deprived sector lending- Can some thing like" non-mortgage back securities " be foster affordable housing? Financial NGOs registered with  Central Bank can own upto 25% of a MFIs- INGO  involved in Impact investing could  use this Medium to invest in micro-finance  Commercial banks have to invest at least 3.5 percent of their total loan portfolio to the deprived sector, while development banks should lend 3.0 percent and finance companies 2.5 percent. Things in Italics my...

Nepal Rastra Bank has allowed banks and financial institutions to categorize share investments made in various microfinance institutions (MFIs) as loans issued to the deprived sector. Currently, only institutional share investments made by commercial banks and financial institutions in category ´D´ financial institutions can be labeled as deprived sector loans. The latest amendment, made through a directive issued on Sunday, has provided one more avenue for banks and financial institutions to flow their credit. As per the Nepal Rastra Bank´s provision, commercial banks have to channel at least three percent of total loans to the deprived sector. The proportion stands at 2.5 percent and 2 percent for development banks and finance companies, respectively. The central bank has categorized credit of up to Rs 60,000 extended to low-income groups to set up micro enterprise as deprived sector loans. Loans of up to Rs 60,000 issued to install up to 50 MW of micro hydropower project,...

" Under the scheme, Britain will join the International Finance Corporation (IFC) – the arm of the World Bank that promotes private-sector investment – in creating a new package of support for banks in fragile and conflict-affected countries." Lars Thunnell, chief executive officer of the IFC, said: "Small and medium enterprises are a vital engine of job creation in developing countries. Yet they face a huge financing gap – especially in Africa, where SMEs need three times more funding than is currently available. This facility will help narrow the gap, creating opportunity for entrepreneurs who need it most." "The first 15 countries to benefit from the facility will be South Sudan, Malawi, Ghana, Sierra Leone, Liberia, Uganda, Democratic Republic of the Congo (DRC), Tanzania, Mozambique, Kenya, Nigeria, Bangladesh, India, Nepal and Pakistan."   Source

In a recent blog post  impact investing leaders shared  their experience on how to build a robust pipe line  of  impact companies in emerging markets. I don't have much deal sourcing experiences in other emerging/frontier markets but this is what I am experience in Nepal. Challenges I am facing  when trying to source deal from   ....... - Multi lateral and Bilateral organization Even though some  donor organization have private sector development mandate majority of  the organization are involved in micro enterprise sector.For impact investors economics does not work to invest in a micro scale enterprise.These enterprises are often seeking capital in the range of USD 1000- USD 5000. Overall strategy/mission of a donor organization is made in their HQ somewhere abroad.On the ground staff have very little authority to introduce new strategy  that might ...

Source:The Asia Foundation,2010

Banks can often earn high returns in their core markets, giving them little reason to take on additional risk in the SME market. Banks in countries with immature financial systems often face little competition and a low threat of entry  and can therefore earn handsome returns by lending to large public and private players. Banks incur higher administrative costs by lending to SMEs. The costs of lending to SMEs are relatively high, as loan sizes are small, and the transaction costs per loan are relatively constant.This reduces incentives for regular banks to lend to them.  Banks have difficulty providing long-term capital. Banks in developing countries are often reliant on short-term liabilities (such as deposits). Banks have limited information, skills and regulatory support to engage in SME lending.The countries often have weak accounting standards, and the SMEs have little to no accurate financial statements on their revenues, p...

One more reason to advocate for Alternative Investment Act (Venture Capital Act) ? This Morning I read a news- "  Management of Hydroelectricity Investment and Development Company (HIDC) has bogged down in confusion as the government has not decided which of its agencies should oversee it—the Ministry of Energy or Nepal Rastra Bank (NRB.............The government established HIDC to fund large hydel projects and accelerate hydropower development in the country as lack of financial resources has been one of the major stumbling blocks. Though the HIDC has planned to get the go-ahead for its banking activity, its regulatory body has not been determined....................   The NRB legal department had advised against the central bank regulating HIDC. “As NRB’s regulatory job is to protect the interest of depositors, it is not necessary for it to regulate a company that does not collect public deposits,” This confusion could have been resolved...

Here are the  few recommend for the government by the representative of the  private sector waive VAT in civil construction of hydropower projects, establish integrated testing lab to issue quality certification and lower corporate tax to foster business environment in Nepal. special action plan to develop herbs and herbal sector.  women entrepreneurship development sought creation of Small and Medium Enterprise (SME) Fund to enhance access to finance and establishment of Women´s Craft Village in Kathmandu.  Reduction in the number of holidays and reform labor laws, working group on export promotion and trade facilitation pushed for the implementation of SMEs loan and export cash incentives SOurce: Republica,2012

Private investment in Education Sector ...... Should Nepal replicate the Indian model   In India- " The human resource development (HRD) ministry, which oversees education, has sought expressions of interest from companies in joining the public-private partnership (PPP) project to open 2,500 schools over the next five years. Private entities will procure the land, and design, develop, operate and manage the schools, the HRD ministry said in a document outlining the proposal. The government will offer a 25% infrastructure grant and the recurring cost of education for students sponsored by it."  Of the private school population, about 7.1 million students pay less than  R s.  40,000 in annual fees, the firm said in a recent report. (Souce:LiveMint)  Condition in Nepal -  Nepal has a poor record by international standards, but over the past decade significant progress has been made in terms of net primary school enrolment (81% [1] ), a...

Development Credit Authority is planning to introduce its program in Nepal.My suggestion would be -rather then working  with a particular bank,it should develop a model that will increase the  effectiveness of  "deprived sector lending". The main problem is not lack of credit in the market- the challenge is to  develop an ecosystem that will help entrepreneurs to flourish and well as make them ready for capital and the accountability that come with it risk capital. ..................Nepal is suffering from the mis-matching between the capital provider and the entrepreneur....

IFC’s annual assistance to Nepal could go up to $100 million -$200 million .click here to read   " The government and China´s Three Gorges Corporation (TGC) on Wednesday signed a Memorandum of Understanding (MoU) on construction of the 750-MW West Seti Hydro Electricity Project  The project will cost USD 1.6 billion. As per the MoU, the Chinese power company will have 75 percent of the total investment, while the Nepal Electricity Authority will bear the remaining 25 percent of the project cost.  The MoU also requires that the TGC should issue shares of one to five per cent of the its total investment to Nepali nationals."  click here to read more

Twenty year has passed since liberalization of the Nepali economy. Breaking barriers for private sector have supported thousands of household to graduate to the middle class, but at the same time socio-economic inequality have increased and millions of citizen fighting for day to day basic necessities of life has been  largely ignored. Judging by social and economic challenges faced by our country in the past twenty years, it is certain that the time has come for `the democratization of social entrepreneurship in Nepal. Social entrepreneurship is defined as- an innovative entrepreneurial approaches to tackle most pressing social and environmental challenges of the society. Rather than waiting for the government to meet its mandate and fix the problem. Social entrepreneur find out the unmet need, address the need by reinventing the existing system, scale the solution and help catalyze the solution in a different geographic settings. They generate social values as well as equita...

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In recent years board range of organisations has shown interest in adopting impact investing model to  investing in the low income countries . List includes but not limited to investment banks, sovereign wealth funds, and endowments, philanthropic foundations and, international development organization. Traditionally, inflow of foreign capital (not including remittances) in developing countries like Nepal  has taken   place in the form of investment designed to maximize financial returns, while no intentional consideration of social impacts or foreign aid structured to maximize social return, while no expectations for monetary returns. Impact investing provides a platform to blend capital from both foreign aid and foreign investments to support entrepreneurship culture in the developing world. Impact investor operates in the missing middle and fills the capital gap above micro-financing and below institutional financing. They structure there their investment ve...

Another type of foreign investment ………………….. Foreign Direct Investment (FDI) can bring great advantage to the host country. It fuels economic growth, help reduce poverty, create employment opportunities and assist building physical infrastructures. With the same intention, the Government has decided to observe 2012-2013 as Nepal Investment Year and has setup Nepal Investment Board to spur and facilitate foreign investments in the country. To attract foreign investments, NIB is launching promotional events like road shows in countries like India, UK and USA. NIB is targeting foreign firms that have the resources to investment in mega projects in sectors like energy, tourism, infrastructure development and commercial agriculture. Dr.BRB led cabinet has also passed Investment Board Act ,which ensures to facilitate investment above RS 25 billion through single window policy. A population of 28 million, rising per capita income (mainly due to remittances), demographic dividend, under...