Plan to provide subsidised seed capital for startups delayedThe change in the government has put the Business Credit Flow Work Procedure in limbo.
Although the government had announced its plan to implement the Business Credit Flow Work Procedure 2021 from mid-July that aims to encourage startups, its draft is lingering at the Finance Ministry, according to sources privy to the matter.
They said that more than a month has already passed but there is no sign of a policy being implemented. The policy aims to provide seed capital of Rs2.5 million at 1 percent interest to groom start-up entrepreneurs.
Mahesh Acharya, spokesperson for the Ministry of Finance, said that the delay in implementing the policy was due to the change in the government and was further hindered by the ongoing talks to amend the budget for the current fiscal year, which was brought through an ordinance by the erstwhile KP Sharma Oli led government.
“It might take a month for the work procedure to be implemented,” Acharya said. The work procedure is under consultation in the ministry to make it more effective, he said. The prepared draft will be approved by the Finance Minister before it is implemented.
The proposed provisions in the work procedure are good but as the draft is under consultation, it is unknown how they may be passed, he said.
A working committee has been proposed in the draft, consisting of a joint-secretary from the National Planning Commission who will be executive director of the committee along with under-secretaries from the Finance Ministry and Ministry of Industry, Commerce and Supply as members.
The committee will also include a representative from the Federation of Nepalese Chambers of Commerce and Industry, Confederation of Nepalese Industry, Nepal Chamber of Commerce, Federation of Nepalese Cottage and Small Scale Industries, and Nepal Bankers Association.
The committee will be responsible for evaluating the project proposals for subsidised loans and make a recommendation to banks with credit flow limitation by identifying, analysing and selecting the project.
Presenting the budget brought through ordinance for the fiscal year 2021-22, the then 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.
This is not the first time the government has addressed the start-up scene. Provisions for providing credit at a subsidised interest rate had been included in the previous year's budget statement, but they did not materialise for certain reasons.
A few years back, the 2015-16 budget had directed the establishment of a fund worth Rs500 million for start-up entrepreneurs and to prepare initial capital fund directives, which did not come to fruition.
Even the budget for the fiscal year 2019-20 had announced a work procedure for new innovators initial capital subsidy, standards for initial capital subsidy and a call for a proposal to provide cash subsidy up to Rs5 million.
Similarly, the budget for the fiscal year 2020-21 has announced to provide loans with only 2 percent interest.
Pavitra Bahadur Gautam, learning co-chair of National Governing Council at Nepalese Young Entrepreneurs’ Forum said that it takes time to build policies and when there are frequent changes in the government, chances of the policies reaching people on time are very low.
The provision made by the government to provide seed capital at a lower interest rate creates a risk-taking environment, encouraging entrepreneurs to invest in them but it is possible only when it gets implemented, said Gautam who is also CEO of Karkhana.
“It has been almost one and a half year, the pandemic has impacted entrepreneurship. The pandemic along with political changes has caused entrepreneurs not to take risks,” he said, adding, as the changes in the government will have an impact in the implementation of the provision.
Gautam said the delay in the implementation of policy will not create an environment to take risk and less investment in entrepreneurship will have a domino effect, from less startups to less new jobs being created.
“The government’s lack of ability to implement policy will also decrease the trust in the government system,” he said. The government has to show commitment to implementing policies, else entrepreneurs will start leaving the country, he added.
According to him, it is estimated that youth entrepreneurs operating businesses have cut employment by 20-40 percent after the pandemic began which shows that entrepreneurs are not taking risks. Most of the start-ups are operating just to survive in the current situation.