Nepal Rastra Bank (NRB) Birgunj Office, in its report on entitled "Status of MSMEs in Chitwan and Makwanpur", provides a comprehensive look at the current state of Micro, Small, and Medium Enterprises (MSMEs) in the Chitwan and Makwanpur districts. In this blog, my provide synopsis of the same report.
Context: The Backbone of Nepal's Economy
MSMEs are the primary engine of economic prosperity and social well-being in Nepal. Nationally, they account for 99.8% of all industrial establishments (totaling 923,356) and employ 84.7% of the workforce.
This specific study focused on:
Target Region: Chitwan and Makwanpur districts, which together host 4.9% of the nation’s establishments and provide 4.7% of national employment.
Data Source: A primary survey of 321 MSMEs conducted between March and April 2025.
Profile: The majority of respondents are managed by men (85%) and are relatively young businesses, with 50% having been operational for only 1–5 years.
Major problems
The core of the issue is that MSMEs are operating at approximately half of their potential capacity, largely due to external stressors rather than internal location factors.
1. Stagnating Business Performance
Declining Trends: 52.7% of surveyed enterprises reported deteriorating performance, with 29.0% describing it as a "sharp decline".
Low-Capacity Utilization: Firms are operating at only 50.7% capacity on average.
Efficiency Paradox: While efficiency ratios increase with enterprise size, the average return on investment (11.7%) actually decreases as firms grow, suggesting they struggle with economies of scale.
2. Structural and Administrative Bottlenecks
Administrative Frustration: Over 32% of owners rated the administrative environment as "bad" to "very bad," specifically criticizing procedural complexities and dispute settlement.
Labor Market Rigidity: 55.5% of enterprises rated the labor environment poorly, citing a lack of high-skilled workers and complex legal processes for labor issues.
Taxation and Markets: 43.1% expressed dissatisfaction with the tax system, while 61.8% reported that reaching foreign markets was nearly impossible due to export barriers.
3. Financial and Technological Gaps
Credit Dissatisfaction: 44.6% of MSMEs rated credit finance poorly, with high interest rates (43.3%) being the primary grievance.
Self-Funding Dependency: Personal savings remains the highest source of funds (60.4% at startup), highlighting a lack of formal financial penetration.
Technological Lag: Only 17.8% of firms view their technology adoption positively; most usage is limited to payments rather than production or marketing.
4. The "Stability Deficit"
Macro Environment: Political and economic instability are the strongest negative drivers of performance, severely hampering business confidence.
Support Program Failure: A massive 82.1% of enterprises rated government and central bank support programs as inadequate, reflecting a major disconnect between policy and the needs of owners.
Strategic Recommendations
The report emphasizes that for MSMEs to transition from "survival" to "sustainable competitiveness," a strategic pivot toward technology and stability is required.
1. Regulatory and Administrative Reform
Digitization of Services: Move registration, tax administration, property transfers, and licensing to digital platforms to minimize human interface and delays.
Simplified Dispute Handling: Establish more efficient legal frameworks to decrease the tenure of legal proceedings, which currently diverts business focus.
2. Financial Infrastructure Innovation
Modern Credit Assessment: Redesign the financial system to use unconventional methods for determining creditworthiness, such as alternative data and modern information systems, rather than strictly traditional collateral.
Digital Delivery: Expand access to finance through innovative product designs that utilize digital delivery channels to reach rural and micro-enterprises.
3. Technological and Human Capital Investment
Targeted Assistance: Provide technical assistance and grants specifically for technology adoption to improve production efficiency and market reach.
Skills Development: Prioritize training for micro and small businesses where skill gaps are highest (only 14.4% of micro-enterprise staff are currently skilled).
Female Empowerment: Increase support for female managers, as statistical analysis indicates they contribute more significantly to firm performance than their male counterparts.
4. Policy Coordination and Awareness
Awareness Campaigns: Utilize social media, video content, and influencers to inform MSMEs about existing support policies, as many firms are currently unaware of available programs.
Inter-Agency Synergy: Improve coordination between various government bodies to eliminate the duplication of efforts and maximize positive "spillovers" from different programs.
Supply Chain Support: Establish regional distribution networks for raw materials to help MSMEs overcome local production bottlenecks.
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