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How Government Policies Have Enabled MSMEs In Nepal And The Impact COVID Has Had On Them

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As Micro Enterprises play an important role in the development of countries, especially in smaller South Asian countries, it is important to focus on efforts for their growth and expansion.

Keeping in mind the same, South Asian Studies Center (SASC), IMPRI Impact and Policy Research Institute, Counterview and Centre for Development Communication & Studies (CDECS), Jaipur, organised an online discussion on Enabling Micro Enterprises for Economic Growth: Entrepreneurship Development with Government Policy Interventions in Nepal, on 29 April 2021.

Prof Utpal K De, Professor, North-Eastern Hill University, Shillong, started the discussion by introducing the speaker and then revealing that as employment opportunities were already low in rural areas, the ongoing pandemic seemed to have made the situation only worse, compelling a lot of people to engage in entrepreneurship by building their own micro-enterprises.

It is, thus, crucial for the government to support and regulate these enterprises to function ecologically and sustainably to ensure the growth of the people, their micro-businesses and the growth of the overall economy.

image 173
Dr Ramji Neupane.

Dr Ramji Prasad Neupane, National Project Manager of MEDPA-TA Ministry of Industry, Commerce, and Supplies, Government of Nepal, then started with his presentation on implementing the Micro Enterprises Development for Poverty Alleviation (MEDPA) program in Nepal.

According to the Industrial Enterprise Act, 2076, of Nepal, a Micro-Enterprise can be defined as any business entity with fixed capital not exceeding NPR (Nepalese Rupee) 2 million, excluding house and land; where the entrepreneur is themselves involved in the operation and management of the enterprise; consists of no more than 9 workers; includes an annual transaction of fewer than NPR 10 million; and the capacity of electric energy, fuel, equipment or machine, if any, used is 20 KW or less.

The various efforts by the Nepal Government to support Micro Enterprises include Micro-Enterprise Policy, 2007; Industrial enterprise Act, 2020, providing tax exemption to micro-entrepreneurs; Financial Act, 2020/21; Provincial Industrial Enterprise Act; National periodic plans, currently ongoing 15th periodic plan from 2019/20 to 2023/24; and MEDPA Operational Guidelines.

The different issues that the country has to confront in promoting entrepreneurship among the poor include deciding the implementation mechanism to make the programs reach select target groups, discussing whether the poor people can become successful entrepreneurs, whether women can participate as much as men, whether the informally operating micro-enterprises will contribute to the national economy and how the progress can be sustained once the program is phased out.

The program aims at helping people develop entrepreneurship skills and knowledge in order to encourage more people to indulge in micro-businesses. Dr Neupane revealed that the MEDEP program has been through 4 phases, after which, in 2018, it was internalised as MEDPA.

The program had expanded from 10 districts in 1998 to 77 districts in 2018. The MEDPA program activities have been expanded in 753 local governments — the municipalities.

The Micro-Enterprise Development (MED) model provides:

  1. Intervention for micro-entrepreneurs in enhancing local, national and international market demands.
  2. Selection of target groups and their needs and demands identification.
  3. Training people to increase their enterprise development potential.

Training is provided to micro-entrepreneurs in various components such as technical skills development, marketing and business counselling, providing access to microcredit, social mobilisation for enterprise development and access to appropriate technology.

The Micro-Enterprise Development consists of five stages:

  1. The first stage is “pre-startup”, which is focused on group formation, saving and credit operation and group management for the enterprise.
  2. The second stage of “startup” involves credit accessibility training, CFC marketing linkages and counselling.
  3. The third stage, scaled up and “graduated”, includes branding and packaging, exposure visits, and SIYB, TOEE and TOGE training.
  4. Product development and diversification, quality control, cost-sharing and product association are part of the fourth stage of enterprise becoming “resilient”.
  5. The final stage is the growth and graduation of small enterprises.

The key features of the MED model include its focus on target groups’ interest, market potential and availability of local resources, providing an integrated service package, encouraging job creation rather than job-seeking, development of a Common Facility Centre for the hardcore poor and promotion of socio-economic empowerment.

Over 20 years, MEDEP/MEDPA has enabled the creation of 1,72,514 Micro-Entrepreneurs and 3,44,939 employment creation, with approximately 44% Micro-Entrepreneurs moving out of poverty, along with the creation of 452 common facility centres.

The MED target groups are based on people living below the poverty line, hardcore poor, youth living below the poverty line, women, Dalits and indigenous nationalities.

As MED involves the three levels of government, the different ways through which it aims to empower people are through:

  1. Policy formulation.
  2. Enhancing provision of financial resources.
  3. Human resources management.
  4. Development of MED-related institutions.
  5. Capacity building.

The model requires collaborations with universities, corporates, local and global markets, government institutions, etc.

According to Dr Neupane, the development of micro-enterprises is very important for the local economy of a country like Nepal, where industrial development is not very prevalent. In his experience, politicians and bureaucrats tend to notice growth only in terms of big industries, ignoring the efforts and growth of micro-enterprises.

After the presentation, Dr Arjun Kumar, Director, IMPRI, took over the discussion revealing that there were more than 7 million registered MSMEs in India. However, the coordination for effective implementation of schemes for MSMEs seems to be lacking in India.

He then proceeded to ask Dr Neupane about the different hindrances faced in the implementation of MEDPA in Nepal, the difference in urban and rural scenarios in his perspective, the occupation that micro-enterprises in South Asian countries can focus on.

In Nepal, 50-70% of Micro enterprises are agro-based, and hence, it is one of the major areas that can be targeted for small businesses.

Dr Neupane disclosed that as he has worked mostly with the rural population. He has found a lack of confidence among rural poor people in their entrepreneurial skills. Thus, it is important to train them to bring out their true potential.

In Dr Neupane’s experience, it is important to support emerging micro-entrepreneurs continuously for at least 3 years, or else they might relapse.

One of the biggest problems faced by micro-enterprises is the lack of willingness of banks to provide small credits to small entrepreneurs despite government provisions and instead of finding ways to divert that money to bigger industries.

Dr Neupane also mentioned that even though the micro-enterprises can survive in the villages, it is when it starts expanding and when its financial needs start increasing that it becomes more difficult for them to access credits, and there is, of course, the lack of collateral which poses a serious problem.

Another important issue faced in Nepal is about lack of technology and the lack of information about technology. This increases the burden for the supporters as well the ones in need of support.

image 174
Dr Arjun Kumar.

Dr Arjun Kumar posed another question about how the program measured whether or not an entrepreneur had moved out of the poverty line.

Dr Neupane responded that, like other countries, Nepal also had a nationally defined limit for classifying people in poverty. Before starting the intervention, the incomes of the individuals and their families are measured. If, after the intervention, in a year or two, the individual’s household income seems to have increased beyond the national limit of minimum income, the person is said to have graduated as a micro-entrepreneur.

When asked whether Nepal follows a model similar to China’s semi-urban mission or Indias’ model, Dr Neupane answered that Nepal is closer to using India’s approach as compared to the Chinese approach because it has technology development closer to that of India and because China seems to be much more technologically robust than the other two countries.

Dr Arjun then asked about the impact of COVID first and second waves on Microenterprises.

Dr Neupane revealed that even though the situation wasn’t very bad in the first wave due to timely interventions, the impact of the second wave has been much worse and the micro-entrepreneurs have been struggling a lot with the transportation of raw materials and sales. However, the government has come out with certain schemes to help them out.

image 175
Dr Simi Mehta.

Dr Simi Mehta took over to reveal that there are schools in Delhi trying to instil entrepreneurial skills in students at the school level itself and asked if similar efforts were being made for school students of Nepal as well.

She also asked if the government of Nepal was reaching out for international help from international organisations to bridge the technological gaps for the growth of micro-enterprises in the country and expand the program.

Another question asked by her was about the government’s efforts to commercialise the products to get a good market rate for the entrepreneurs.

Dr Neupane began by answering that there were no entrepreneurial skill development initiatives at the school level in Nepal. However, the conversations are going on to change the mindset of people towards favouring entrepreneurship at the school level itself by introducing such programs for students.

Even though they have introduced a 4 years bachelor’s in entrepreneurship development at the university level, there is still a long way to go in order to generalise the skills to a wider population.

Regarding reaching out to international organisations, Dr Neupane revealed that the World Bank had started investing in the country. However, in collaboration with the Ministry of Agriculture and not with the Ministry of Industry, and the investment might show effect in a few years.

In terms of commercialisation, Dr Neupane pointed out that there are a lot of micro-entrepreneurs that simply don’t want to grow. However, the government is trying to make efforts for the growth of micro-enterprises and turning them into more small enterprises by commercialising the micro-businesses.

According to him, in the COVID situation, as many migrant workers are returning to Nepal, the government needs to come up with measures to help them develop micro-enterprises.

The session was then concluded with Dr Arjun Kumar thanking Dr Neupane Neupane and Prof Utpal K De, and the audience. He also highlighted the need for the development of micro-enterprises in South Asian countries as they face a high number of migrations and increasing urbanism bringing a lot of challenges for the poor.

Acknowledgement: Mahi Dugar is a research intern at IMPRI.

IMPRI Team

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