The International Finance Corporation, the private sector arm of the World Bank Group, has announced investing $45 million in small businesses and people in Nepal to provide them with better access to financing.

The investment is a part of IFC’s broader strategy for small and medium enterprises (SMEs) aiming to reach over 30,000 SMEs by 2023 while helping to improve the inclusiveness, competitiveness, and sustainability of the financial sector in the country.

The investment aims to help spur a greater range of financial products and services such as psychometric scoring solutions and payment systems reforms, IFC said in a statement.

At the same time, IFC is also extending a trade finance facility as part of the Global Trade Finance Program (GTFP), which includes a special provision for green trade financing. This is the first Green GTFP for IFC globally.

“The Covid-19 pandemic has had a massive impact on Nepal’s small and medium-sized enterprises, a key pillar of the country’s economy. As these businesses need urgent attention, IFC’s investments will help show that SME lending is both viable and sustainable,” said Allen Forlemu, IFC’s Regional Industry Director for Financial Institutions Group.

“We are optimistic it will lead to an increase in overall banking credit for these businesses, allowing SMEs to grow and accelerate recovery in Nepal.”

SMEs are the growth engine of Nepal’s economy, employing 1.8 million people and contributing around 22 percent of the gross domestic product (GDP).

Yet, access to finance is a major constraint for 44 percent of SMEs, especially small and women-owned firms in remote areas, with the finance gap estimated to be at $2.9 billion, the statement reads.

With limited financing facilities, small business owners in Nepal are forced to operate on a cash basis. As a result, they struggle to grow given the massive gap between the financing they need and the funds they can currently access.

In response, in this fiscal year, IFC provided a $20 million loan to Sanima Bank and $25 million to NMB Bank Limited.

This is the third investment in NMB Bank in the last four years.

These investments will allow the banks to lend to hundreds of SMEs, expanding their outreach to businesses in rural areas, and creating thousands of jobs.

Developing economies like Nepal also face a shortage of trade finance, which is why IFC is providing support to Global IME Bank Limited—the second largest commercial bank in Nepal by total assets—under the GTFP.

“The current financing model of banks for SMEs still relies on lengthy credit processes and high collateral requirements. As a result, smaller businesses continue to be underserved, impacting their growth potential,” said Hector Gomez Ang, IFC’s Regional Director for South Asia.

“Given the scenario, IFC’s support to leading financial institutions in the country will contribute to strengthening the small business ecosystem, creating jobs and revving up the economy.”

IFC has been investing in Nepal since 1975. As of June 2022, IFC’s outstanding committed portfolio in Nepal is about $600 million.