Kathmandu, September 26

The share of loans floated to small and medium enterprises (SMEs) in the overall credit portfolio of banks and financial institutions (BFIs) stood at a mere 3.26 per cent in the last fiscal year, indicating the low access to finance that these enterprises have in the country.

Though SMEs have a major contribution in the country’s gross domestic value and generation of employment opportunities, they find it difficult to avail banking loans while BFIs are also not interested in disbursing credit to the SME sector, as per the ‘SMEs Financing in Nepal’ report released by Nepal Rastra Bank (NRB) recently.

The report shows that class ‘A’ ‘B’ and ‘C’ financial institutions have disbursed only 3.26 per cent of their total credit basket in the SME sector in the last fiscal year. In the last three fiscal years, BFIs have disbursed a total of 11.5 per cent of their total loan portfolio to the SME sector.

In rising economies, SMEs have almost 60 per cent contribution in the GDP and 40 per cent contribution in employment generation. However, in case of Nepal, SMEs have 22 per cent contribution in the national GDP and have created almost 1.7 million job opportunities, as per the NRB report.

Among others, low access to finance has been identified as the major constraint for the growth of small and medium enterprises in the country. The report shows that only 50 per cent of SMEs in Nepal have taken loans from BFIs and of the total loan disbursed in SME sector, 85 per cent is from commercial banks.

Though SMEs demand medium and long-term loans from BFIs, a majority of the financial institutions issue short-term loans to SMEs, states the NRB report.

Meanwhile, even if BFIs issue loans to SMEs, the SMEs are obliged to undergo lengthy process and procedural hurdles in acquiring loans. “On an average, it takes 38 days for SMEs to get loans from BFIs,” reads the report.

Similarly, BFIs have been charging 12.51 per cent interest on loans to SMEs and one per cent service charge, thereby discouraging SMEs towards banking loans.

The NRB report also shows that 33 per cent of SME entrepreneurs start their business with the help of their parental property, while 26 per cent through individual deposits.

Similarly, eight per cent of SME entrepreneurs have been starting their businesses by taking unofficial loans, six per cent from cooperatives, 0.5 per cent from venture capital and seven per cent of them from remittance. As per the report, none of the SMEs have acquired funds from the capital market to start their business so far.

Despite the high interest rate, SMEs have been finding it easy to get loans from cooperatives compared to banks and other sources. The study also found that all the production from SMEs are consumed in the domestic market and one SME has been generating employment opportunity for 16 people on an average.