Working procedure for startup funding out after an eight-year delay

With the objective to encourage innovative ideas and promote startups, the Nepal government has finally introduced ‘Startup Enterprise Loan Fund Procedure 2079’ last March end week. 

With the long-awaited working procedure in place now, startups can expect to obtain collateral-free loans of up to Rs 2.5 million at a three percent interest rate for a maximum period of seven years, a substantial amount to support their business ideas. 

Reportedly, the government has allocated NRs 250 million for this purpose in the budget speech this fiscal year, which means at least 100 startups may get the funds if effectively implemented.

Criteria for eligibility
To qualify for the loans, businesses must not have exceeded seven years of establishment or operation, with paid-up capital not exceeding Rs five million and annual total income not exceeding Rs five million.

The fixed capital, excluding the value of land and house, should not exceed Rs 20 million, and the number of full-time workers in the enterprise should not be more than 10.

Additionally, the business must be creative and solve a particular problem, with at least 5% of annual expenditure dedicated to product development, market investigation, and development. 

The possession of a patent, design, or software is a prerequisite to qualify for the funding, emphasising the importance of technology and intellectual property.

The procedure has specified businesses related to 14 sectors for funding — agriculture and animal husbandry; forest resource based including medical plants; tourism and entertainment; science, communication and IT; healthcare; education; transport; infrastructure; automobile; indigenous technology; mining and its research and development; household and essential goods and services; food production and waste management.

A startup enterprise implementation committee will be formed to manage the startup enterprise program systematically, inviting project proposals from new entrepreneurs who meet the criteria for lending to enterprises, selecting and evaluating proposed projects, and requesting loans for startup enterprises. 

How will the evaluation process work?
Under the procedure, the Startup Enterprise Implementation Committee, led by the Director General of the MoICS, will invite proposals from interested entrepreneurs and prepare details of the proposed projects for loans.

The interested startup will have to forward their complete project plan to receive the seed capital from the government. The evaluation and selection of feasible startup projects will be done within 30 days from the date of application

The committee will include representation from the Company Registrar’s Office, Nepal Rastra Bank, and the private sector. Startup entrepreneurs who meet the criteria set by the Startup Enterprise can submit project proposals for the convenient loans.

The department has released a notice stating that startup entrepreneurs must submit their proposals to the department within 21 days of publication of the information to be included in the schedule.

The committee will evaluate the business projects and recommend them to the central bank for lending. NRB will authorise certain banks to disburse the loans to startup entrepreneurs.

Loans will be provided in two instalments based on the committee's recommendation, with entrepreneurs receiving 50% of the loan amount in the first instalment. The Ministry of Industry provides loans and seed capital to startups at subsidised interest rates by providing project collateral.

Designated banks have to sign an agreement with startup entrepreneurs within three days of the NRB recommendation, and the entrepreneur will receive the first instalment of the loan within three working days of signing the agreement.

The big question: will it be implemented this time?

Whether the startup funding finally comes into implementation is still uncertain given the track record of the government’s earlier pledges to support startups.  

It was almost eight years ago that the government pledged to provide funding to startups — with the government announcing a 500 million startup fund in the fiscal year 2015/16 budget. Almost nothing concrete happened for the next four years.

In May 2019/20, the National Planning Commission which was appointed as the implementing agency of the startup fund back then reached as far as to developing a working procedure, inviting proposals through a public notice from the startups for a grant of up to Rs five million and developing an application portal. The nature of the capital was later converted into subsidised loan from grant due to the economic effects of the pandemic. Reportedly, around 700 entrepreneurs had submitted applications then but the program failed to advance after that — reasons unclear.

During the fiscal year 2020/21 budget, the government made a commitment of a Rs 500 million startup project loan fund — this time at two percent interest rate, but this plan also stalled.

Then in the fiscal year 2021/22 budget, the government announced to create a challenge fund of Rs one billion and provide seed capital of up to Rs. 2.50 million at an interest rate of one percent in the form of project loan.

The same year, the government even announced to provide a concessional loan of up to Rs 2.5 million at up to five percent interest rate to youths having a graduate degree keeping their educational certificates as collateral.

This fiscal year 2022/23, the government has allocated Rs 260 million to provide concessional credit to young entrepreneurs and returnee migrant workers by establishing a Challenge Fund and to establish a business incubation centre in Hetauda Industrial Area and other provinces to expand knowledge-based economy, and the recently introduced working procedure is in relation to this same commitment. 

It’s almost been three weeks since the working procedure was introduced, and the Department of Industry has already issued a notice for submission of applications. The effort however seems half-hearted.

The time window for submission of application is limited raising doubts if it would reach the intended target audience. There's no dedicated website for the purpose akin to Startup India Seed Fund Scheme — a financial assistance scheme for startups run by the Indian government although much larger in scale and scope. Also, the working procedure hasn’t specified the total amount allocated for the fund although this year's budget had allocated a total of Rs 260 million fund for credit and infrastructure as business incubators.

On the other hand, sceptics worry that the program may once again take a back seat considering the present fiscal challenges and persistent focus on managing coalition politics over economic matters.