Instead of increasing the number of lending institutions, the government will do good if it creates more favourable climate for SMEs to flourish

When we talk of economy, big businesses and industries usually steal the limelight. But for a country like Nepal, small and medium enterprises (SMEs), which stand at the other end of the spectrum, can be the backbone of our economy. Currently, SMEs employ around 1.75 million people and account for 22 per cent of the nation’s gross domestic product. With the country attaining political stability, our economy is expected to see a steady growth. The Central Bureau of Statistics (CBS)’s forecast unveiled in April has put economic growth for the current fiscal at 5.89 per cent. Nepal’s economy grew by over two-decade high of 7.4 per cent (at basic prices) in the last fiscal. In the light of an average annual growth of 4 per cent in the last one-and-a-half decades, these figures are encouraging. SMEs in Nepal hence are keen to ride on this economic recovery to expand and diversify their businesses. But there

is a catch.

SMEs are facing a tough time because of high lending rates of banks and financial institutions (BFIs). Though the Nepal Rastra Bank, the regulatory body, has fixed the spread rate at 5 per cent, BFIs’ lending rates have been as high as 18 per cent – a threshold set by the central bank for microfinance institutions (MFIs) which can lend up to Rs one million to a single borrower. Amid this, the Ministry of Finance is planning to create separate institutions to provide credit to SMEs. The announcement to this effect is likely through the new budget. Minister of Finance Yubaraj Khatiwada, who is also a former governor, has often mentioned that “most of the loans provided by banks are going towards a handful of businesspeople” and that a large number of potential entrepreneurs have been deprived of lending facility. Hence, he seems to be in a bid to set up “dedicated” institutions to provide credit to SMEs. This, however, raises a question whether adding more financial institutions is the only way to help SMEs.

In the past also, some specialised financial institutions – for example Agricultural Development Bank and NIDC – were formed with an objective to provide microcredit. But their contribution in the promotion of SMEs has not been that promising. SMEs in Nepal are troubled not because of lack of lending institutions but because of procedural hassles. One of the key challenges potential entrepreneurs face is difficulty in floating a loan. Even well-performing businesses face a lot of trouble when it comes to getting loans from banks. The biggest challenge, however, is lack of transitional provision for SMEs when it comes to expanding or diversifying their businesses. For example, an SME that started a business with credit from an MFI is left with no other option than to approach BFIs again to float a loan when it wants to expand business. The likelihood of that enterprise falling into the same vicious cycle of procedural hassle while is high, it has to deal with the backbreaking lending rates. So instead of creating new institutions or opening licenses for new players dedicated to provide credits to SMEs, the government will do good if it focuses on creating favourbale environment for them to flourish.

Rheumatic cure

Bir Hospital, the oldest hospital in the country, has started providing treatment services for rheumatic diseases beginning Nepali New Year. Dr Bhupendra Basnet, director at the hospital, said they felt the need to provide the services after a number of patients suffering from rheumatic diseases increased recently. He, however, admitted that the hospital lacked sufficient specialist doctors.

The hospital has been providing treatment services up to 20 patients a day. Doctors say most of the cases the hospital receives are referral cases. Rheumatic diseases are characterised by inflammation that affects connecting parts of the body, most commonly the joints, but also the tendons, ligaments, bones and muscles. Doctors say rheumatic diseases can be cured if the symptoms are detected earlier. But most people tend to ignore the early stage symptoms due to lack of awareness. Experts believe that rheumatic diseases are caused by a combination of genes and environmental factors. The initiative taken by the National Academy of Health Sciences is a welcome move. The hospital must be able to provide quality services at affordable prices to all the needy patients.