Start-up entrepreneurs will receive Rs2.5 million in seed capital at 1 percent interest once the Business Credit Flow Work Procedure 2021, which is in the process of being approved, goes into effect.

Mahesh Acharya, spokesperson for the Ministry of Finance, said the work procedure would be implemented from the upcoming fiscal year 2021-22 starting July 16.

“We have reached the final phase of preparing the draft, and are in the process of granting approval,” Acharya said. The work procedure addresses the reason behind the non-implementation of the subsidised credit facility, he said.

Acharya admitted that a provision for providing credit at subsidised interest had been included in the previous year's budget statement, but it did not happen for certain reasons.

“We have changed the modality of providing credit facility to startup businesses, and this time it will be implemented. Stakeholders can still offer suggestions and feedback if there is anything that needs to be corrected or added," he said.

Presenting the budget for the fiscal year 2021-22, Finance Minister Bishnu Prasad Poudel said arrangements would be made to issue Rs2.5 million in seed capital at 1 percent interest against the project as collateral to encourage youth entrepreneurs to engage in startup businesses.

Even though the government announced providing grants and subsidised loans, startup entrepreneurs have complained that they have not been able to get the facilities mentioned in the budget statement.

Kavi Raj Joshi, founder and managing director of Next Venture Corp, said that with work procedures coming in a clear form this year, and the government working at this pace, many startups might apply for the seed money which is an opportunity for entrepreneurs who are looking for capital in a pandemic shattered economy.

“The seed capital amount of Rs2.5 million at 1 percent interest announced by the government is adequate as per current startup market trends,” Joshi said, adding that startups commonly launched with a capital of Rs500,000 to Rs5 million.

Startup entrepreneurs said that despite submitting the complete paperwork last year, banks refused to provide the subsided loans under different pretexts.

The work procedure nearing completion contains arrangements to file complaints against banks that do not provide loans, and makes them responsible as they play a major role in providing the service to end users, Joshi said.

As per the work procedure, the government has prepared the document with the aim of making subsidised credit flow simple, clear, organised and effective in a bid to encourage youth entrepreneurs with new knowledge, thinking, skill and capacity to engage in innovative businesses.

To get the subsidised loan, startup entrepreneurs should have innovative knowledge, thinking, skill or technology in manufacturing or services. The business should have potential for fast growth in a short time. The firm is required to spend 10 percent of the total expenditure of the previous fiscal year on research, marketisation or development of goods and services.

The startup business applying for a subsidised loan should have a paid-up capital equivalent to at least 10 percent of the requested loan amount. The number of full time workers should not be more than 20.

According to the work procedure, firms that have not been registered according to the existing laws of Nepal, operate as an agency for the sale and purchase of goods and services, or have business transactions of more than Rs10 million in the last fiscal year will not get subsidised loans.

Interested entrepreneurs seeking to obtain a loan under the work procedure should submit a project proposal within 21 days of the publication of the public notice by the working committee. Entrepreneurs can submit their proposals through an electronic platform and one applicant can submit one proposal only.

Banks should provide the subsidised loan in two instalments recommended by the working committee.

The project will be kept as collateral for the loan, and the government will secure the loan as per prevalent laws.

The selected startup needs to repay the loan and interest in seven years. If the entrepreneurs do not pay the instalment within three years, the bank should inform the working committee.

The sectors eligible for the subsidised loan as determined by the work procedure are businesses based on agriculture and livestock, forest (herbs), tourism promotion, entertainment and guest welcoming, alternative energy production and distribution, science, information and technology and communication.

Startups engaged in health service, education and teaching (excluding consultation, tuition centre, coaching class, language centre), or businesses that will simplify, ease and provide safety to homes and daily livelihoods will also get the loan.

Enterprises involved in environment conservation and commercial management of waste, easy and safe transportation and transit service, minimising and managing disaster risk, construction work, automobiles (excluding repair work), improvement of traditional technology and production processes, and other enterprises determined by the director can get the subsidised loans.

The working committee that will evaluate the project proposals for subsidised loans will have a nine-member committee with the joint secretary of the National Planning Commission as executive director.

The working committee will prepare details of the proposed projects and make a recommendation to banks with credit flow limitation by identifying, analysing and selecting the project.

The names of the selected and recommended projects will be sent to the directing committee formed under the coordination of the vice-president of the National Planning Commission and Nepal Rastra Bank.

The working committee and the bank will make an inspection of the startup business to check if it is running as stated in the proposal. A report needs to be prepared within 15 days of the inspection.

Joshi said that this would make entrepreneurs more accountable and responsible towards the business and work according to it.

The startup enterprise needs to submit half-yearly progress reports to the working committee and the bank that provides the loan.

Entrepreneurs can make written or verbal complaints to the working committee if any recommended business does not get the subsidised loan from the bank.