Kathmandu, October 1

Business Oxygen (BO2), the country’s first private equity fund, which was lying defunct for over two-and-a-half years, has finally received a new lease of life with the appointment of a new fund manager.

International Finance Corporation (IFC), private sector lending arm of the World Bank Group, which is supporting the private equity fund, today formally appointed White Lotus Centre as the fund manager for BO2.

“White Lotus will make equity investments in Nepal’s high-growth small and medium enterprises (SMEs), helping them achieve their potential and create more jobs,” the IFC said in a statement.

BO2, a $14 million private equity fund, was formally launched on January 15, 2013, with the aim of providing collateral-free loans and consultancy service to budding SMEs facing difficulty in obtaining bank finance. The fund was also established with the aim of helping SMEs develop fundamental financial systems, quality-assurance standards and corporate governance frameworks.

The fund, established with a financial support of $7 million from the IFC, was initially managed by a joint venture between Bank of Kathmandu, a class ‘A’ financial institution, and Beed, a think tank.

Although the fund manager was supposed to raise another $7 million on its own as per the agreement, it could not do so due to internal dispute in Beed. Since then, the country’s first private equity fund has been lying dormant.

Siddhant Raj Pandey, chairman of White Lotus, said: “Despite the challenges posed by this year’s earthquake, there is significant potential for SMEs in Nepal. White Lotus will develop a robust portfolio of investee firms that will become a strong contributor to Nepal’s commercial growth.”

SMEs are a vital component of Nepal’s economy. They employ 1.75 million people and account for

22 per cent of the country’s GDP.

There are an estimated 111,442 operational SMEs, out of which 63 per cent were registered over the last decade.

For these SMEs, improved access to finance is essential for growth. Only 39 per cent of firms in the micro, small, and medium enterprise segment have adequate access to finance, compared to 78 per cent of large enterprises. “BO2 is designed to address this challenge,” the IFC statement says.

“Business Oxygen Fund’s ability to provide risk capital to SMEs in Nepal provides a vital solution for firms too small or too new for traditional commercial bank financing,” said Wendy Jo Werner, IFC’s Country Manager for Bangladesh, Nepal, and Bhutan. “The fund is unique because it provides equity and also advisory to catalyse the growth of small businesses.”

Tracy Washington, SME Ventures’ programme manager, said, “White Lotus will play an important role in developing the private equity sector in Nepal.

We look forward to supporting the team as it demonstrates that new funds, even in challenging markets, can achieve promising results.”