KATHMANDU, AUGUST 21

As the small and medium enterprises and start-ups in the country struggle to secure financing, the Securities Board of Nepal continues to dilly-dally in granting approval to the private equity funds to operate venture capital businesses.

"The regulator's decision to allow private equity funds to manage specialised funds is a welcome step for the market, but the delay in granting the licences is defeating the purpose," Bishnu Prasad Basyal, a capital market expert told The Himalayan Times.

"Although there is no special shareholding pattern to generate equity, it is a concept that helps in crowdfunding for new projects with growth potential. It is a form of private equity or financing that investors normally provide to start-up companies and businesses," Basyal explained.

The decision to grant licences to private equity funds is to help startups and growing SMEs - that would otherwise struggle to secure funding through banks and financial institutions - meet their funding needs, explained Rupesh KC, spokesperson for SEBON. "This will help in mobilising the capital of the private sector, directly or indirectly making an impact on the economy."

Among the applicants seeking approval from SEBON is NIBL Ace Capital. "We are currently at the final stage of receiving approval from SEBON," shared Mekh Thapa, deputy chief executive officer of NIBL Ace Capital.

According to Thapa, the company had assumed it would have already received the licence by now. "However, we are facing delays after the board requested additional documents from merchant banks that are also awaiting approval."

While SEBON Spokesperson KC said he could not comment on the case of any specific company, he said the approval process for the licence is currently under way and will be completed soon.

KC also said that the board had sought some additional time to request a letter of intent from eight banks and to inspect the required infrastructure, adding that one of the nine companies who applied for the licence has been granted approval to operate venture capital businesses.

"This is a new concept in the Nepali market and the board is following the necessary protocols as per the regulations. The regulators are obviously a bit cautious during introduction and development of a new market," KC explained. He said that the work related to necessary procedures will become efficient along with the development of the market after the eligible private companies are approved by the board gradually but surely.

But Basyal pointed at the dire need to amend SEBON's approval mechanism.

"Companies have been waiting for years to receive the licence despite the policies and regulations already in place," he said, adding the holdups faced by companies that have submitted all the necessary documents and met all the set criteria has created a sense of mistrust over the board's principles."

Recently the regulator permitted Global Equity Fund, a private equity company, to operate a venture capital business after it fulfilled all the criteria set by the SEBON. Along with NIBL Ace Capital, NMB Capital, Nabil Investment Banking, Adhyanta Fund Ltd, Avasar Equity Ltd, NIC Asia Capital, Prabhu Capital, and Laxmi Capital Market are in the final process of receiving approval from the board. Similarly, seven other firms have also applied for the licence, according to SEBON.

SEBON had issued the Specialised Investment Fund Regulation in 2019, paving the way for operation of funds -- private equity fund, venture capital fund, and hedge fund, among other specialised types of investment funds -- in the securities market.

Nirdesh Dwa, executive member of Nepal Young Entrepreneurs Forum, is aware of the delay as a result of SEBON's due diligence to avoid any sort of mishaps in the market. "But it's about time SEBON started efficiently distributing the licence to eligible companies for the market's rapid development."

We are at the final stage of receiving approval from SEBON. We are facing delays after the board requested more documents from merchant banks that are also awaiting approval - Mekh Thapa, deputy chief executive officer of NIBL Ace Capital

A version of this article appears in the print on August 22, 2022 of The Himalayan Times.