Nepal has set aside Rs730 million for startup loans with a concessional 3 percent interest rate, reinforcing subsidised credit as the government’s focus in the budget for fiscal year 2025-26. This scheme provides collateral-free loans ranging from Rs200,000 to Rs2 million, focusing on facilitating skill development and business growth, particularly for Gen Z entrepreneurs. This marks a notable departure in the policy as the startup loan initiative now operates more formally. It offers concessional loans and standardised disbursement processes, an improvement from previous years, where delays and bureaucratic inefficiencies had usually plagued such funding.

Unlike previous approaches, the present budget relies on loans and tax reliefs rather than on direct grants. Among other notable points is the inclusion of provisions to establish incubation centres to foster entrepreneurship and innovation. These incubators will be established through collaborative efforts by the government, the private sector and academia. They will serve as focal nodes in the ecosystem that support entrepreneurial skills and early-stage businesses.

Despite the efforts since 2014-15, a study by the Policy Research Institute (PRI) suggests that Nepal still faces structural challenges in effectively channelling resources into startups. Ambiguities in the definition, classification and policy guidelines of Micro, Small and Medium Enterprises (MSMEs) and start-ups have been obstructive to these programmes. This is particularly relevant as MSMEs account for 90 percent of enterprises in developing countries, contributing 22 percent to Nepal’s GDP, and employ around 1.7 million individuals. Startups that are capable of driving innovation and economic growth represent a critical mass of MSMEs and require focused attention.

Role of HEIs

HEIs are key players in developing entrepreneurial spirit. Incubation centres can’t be limited to business schools alone; they need to be incorporated across all academic departments. Kathmandu University (KU) offers a good example. Currently, 24 start-ups are being incubated through KU’s centralised incubation centre, which aims to assist students with business development, such as financial planning, marketing, branding, business model creation and continuity planning.

An interesting example is a KU alumnus who secured seed funding for a floriculture enterprise. With guidance and institutional assistance, he chose to remain in Nepal. His business is flourishing, and he plans to diversify with a restaurant alongside his nursery. This exemplifies how well-served and well-integrated startup ecosystems can retain youth and promote domestic entrepreneurship.

Lessons from India and the world

Nepal can draw lessons from India, which has the world’s third-largest startup ecosystem with an average growth rate of 12–15 percent annually. India had around 50,000 startups as of 2018, of which 8,900 to 9,300 were tech-related. In 2019 alone, the ecosystem established around 1,300 technology startups, averaging two to three per day. The overall growth rate of the industry was 15 percent year over year, fueled by an 11 percent increase in the number of accelerators and incubators.

However, the startup failure rates remain sobering worldwide. Up to 90 percent of startups ultimately fail, with about 10 percent failing in their first year and nearly 70 percent failing in their second to fifth years. These patterns have remained relatively consistent over the decades across industries. Nepal must devise a national policy directed not just at startup creation but also at commercialisation and ultimate sustainability. Without bridging these critical gaps in institutional infrastructure, policy stability and entrepreneurship education, the promising figures in budget allocation will not translate into a vibrant startup culture. Nepal must concentrate on more than quick fixes and invest time in building the foundation of the ecosystem, its people, partnerships and policies.

The government cannot single-handedly build a robust startup ecosystem; it lacks the required research depth and mentorship capability. In Nepal, the University Grants Commission (UGC) has stepped in to bridge this gap by giving seed funds to graduate students and early career faculty to create businesses. UGC regularly invites proposals from universities for entrepreneurship training and incubating startups. Its announcements show increased commitment towards innovation, with winning business plans given seed funds. But, UGC’s willingness to invest has to be matched with funds from the university and elsewhere, or broader ecosystem support.

Although Nepali Banks and Financial Institutions are now more into lending to startups, they lack robust recovery mechanisms. This raises the chances of non-performing loans and financial instability. The issue lies in the fact that there is no collateral and start-up credit history, along with banks’ limited ability to evaluate early-stage business risk. For instance, the government disbursed Rs190.40 million to 165 startups in FY 2024–25 under its startup loan programme. Taking these ideas to commercial viability requires constant support and monitoring.

Nepal can draw valuable lessons from India’s Manthan initiative, a grassroots-led inclusive innovation model. Launched in August 2022 by India’s Office of the Principal Scientific Adviser, Manthan is an online platform to engage industry, academia, startups and NGOs to collaborate on projects relevant to national priorities and the SDGs. The initiative has enabled over 359 partnerships and assisted 286 projects across sectors like health, agriculture, defense, AI and biotech and has nearly $97 million (INR800 crores) in grants mobilisation. By engaging colleges and local entrepreneurs, Manthan democratises innovation in community centres, moving outside elite institutions like IITs and IIMs. Its bottom-up approach established strong networks for mentoring, financing and market access which are key ingredients to improve startup long-term success and ensure sustainability through loan recovery.

Way forward

Building a robust ecosystem in Nepal requires strategic collaboration among universities, the government and private businesses. Entrepreneurship education must extend beyond traditional lectures to include workshop-based learning, guest lecturers and experiential learning from incubator experiences. Startup challenges must be more than competitions; they must be organised platforms where novice entrepreneurs develop, test and market ideas with institutional support.

Universities need to design co-working spaces and utilise incubators as not only a place to learn but also as sustainable, revenue-generating hubs. There needs to be clear exit options for mature ventures ready to move out, including frameworks for Intellectual Property (IP) and patent ownership. Government support cannot be limited to initiating incubators; it has to facilitate the private sector taking the lead in innovation.

Mechanisms must be devised to track incubator performance, and success indicators must be set, both within and outside university settings. Infusing capital alone is not adequate. An entrepreneurship, mentoring and risk-taking culture must be promoted. Universities must also update curricula to encourage independent thinking and applied innovation.

In a country where MSMEs define the economic landscape and employ millions, creating sustainable entrepreneurial initiatives is crucial. Startups require reliable cash flows and insulation from operational and supply chain shocks, particularly as they lack insurance and formal protection. Thus, strengthening mentorship, setting up local innovation hubs and embracing inclusive entrepreneurship are not just policy suggestions but also strategic imperatives to build a robust, scalable startup ecosystem capable of driving Nepal’s economic transformation.