There is no integrated policy and programme for financing small and medium enterprises due to lack of coordination between the regulatory body and stakeholder organisations, the central bank report said.

Umesh Prasad Singh, acting president of the Federation of Nepal Cottage and Small Industries, said that very few financial literacy programmes were being run, especially in rural parts of the country.

According to the Financial Sector Development Strategy 2016-2020, small and medium enterprises contributed 22 percent of the gross domestic product and created 1.7 million jobs.

Operators of small and medium enterprises are facing different hurdles in addition to not having financial skills, like lack of collateral for loans, weak interest regulation, absence of an integrated and clear policy, and lack of motivation programmes for entrepreneurs.

Banks and financial institutions take a lot of time to process loan applications, and the complex procedures are a big hassle, Singh said. “As there is no commission while providing credit to small and medium enterprises, banks do not prioritise them,” he said.

Only people who know somebody in banks and financial institutions have easy access to loans, the report added.

According to a survey, 36 percent of the small and medium enterprises in the country are involved in the productive sector, 26 percent in tourism, 21 percent in service-oriented sectors, 12 percent in agriculture, 3 percent in construction and 2 percent in credit. The entire output of small and medium enterprises is consumed in the country.

Small and medium enterprises are financed by cooperatives, venture capital or private equity, capital market, national and international government organisations, and friends and relatives.

There are 240,000 small and medium enterprises operating in the country, and most of them are based on traditional methods of production, Singh said. According to the report, each enterprise employs around nine people.

Similarly, 33 percent sourced initial investment from patriarchal property, 26 percent from own income and savings, and 16 percent from banks and financial institutions. Other sources of funding are informal credit 8 percent, remittance income 7 percent, credit from cooperatives 6 percent and venture capital 0.5 percent.

The survey shows that around 50 percent of small and medium enterprises have taken loans from banks and financial institutions. Small enterprises have borrowed less than Rs5 million while medium enterprises have taken loans of more than Rs5 million. They pay 5 to 18 percent interest on their loans. Compared to medium scale industries, small industries pay less interest.

The report has suggested creating a stable interest rate, minimising service charge, maximising credit boundary, simplifying loan process, and establishing a long-term loan period for small and medium enterprises.

It has also recommended making it mandatory for banks and financial institutions to provide loans to small and medium enterprises besides setting up small and medium enterprises banks. There is no clear, brief and sector-wise definition of small and medium enterprises as per international practice.