The government of Nepal has introduced the first amendment to the Industrial Enterprise Regulation, aiming to promote startups by defining their status and providing legal recognition. The amended regulations, published in the Nepal Gazette on Monday, introduce several provisions to support the startup ecosystem.

How does the government define startups?

Under the new amendment, businesses registered for over 10 years will no longer be classified as startups. A startup loses its status if its annual transactions surpass Rs150 million. The industry ministry is empowered to implement policies, plans, and programmes to foster startup growth. An Industry Protection Centre will be established to support and coordinate the startup ecosystem under the Industrial Enterprise Act 2020. The Startup Protection Centre will receive government facilitation for capacity enhancement, with inspections conducted by government bodies. Provisions are included for conducting studies, research, and surveys on startups.

What is the process for registering a startup?

To register as a startup, businesses must submit the required documents and provide an audit report from the previous fiscal year if operational or financial details if non-operational. They must also self-declare the use of innovative ideas and technology. They receive a Startup Business Certificate upon approval and must commence operations within a year, notifying the relevant authority.

The startup policy aims to retain youths in the country by helping them fund their business ideas, which, in the future, can scale up businesses and provide jobs to others.

According to Kavi Raj Joshi, founder and managing director of Udhyami Innovations, the number of young and educated youths, particularly in urban areas, has declined as they look for their future abroad. This has resulted in a drop in startups as well.

He emphasised Nepal's political instability and lack of clear vision, which have created an extremely volatile business environment, making startups and investors hesitant to take risks.

What challenges are startups in Nepal currently facing?

Despite recent efforts, startups in Nepal face numerous challenges. The startup ecosystem grew from 2016 to 2019. Still, it was hindered by a lack of policy, government neglect, and natural and economic disasters such as the 2015 earthquake, India’s trade embargo, and the Covid-19 pandemic. Post-Covid, youth migration has increased, with both male and female youths leaving the country in large numbers, affecting startup vibrancy.

The government statistics show that post-Covid, the migration pattern has changed with a massive exodus of male and female youth abroad. The student migration has also been immense, crossing six-digit figures annually. Limited funding sources exist for startups. While private equity investments are growing, they primarily target established businesses.

Joshi highlighted the need for an angel investor network to support startup funding. An angel investor is an individual who provides capital to a business or businesses, including startups.

He also pointed out that with consistent government support, India's Startup India Policy played a significant role in the rise and growth of startups there—something Nepal still lacks.

What steps is the government taking to support startups financially?

The government has initiated several financial support programmes. The National Startup Enterprise Policy 2024 was approved to attract foreign direct investment and non-resident Nepali investors.

A Nepal Startup Fund is envisioned to provide financial support to startups.

For this fiscal year, Rs1 billion has been allocated under the Startup Enterprise Credit Operation Work Procedure 2024, offering loans up to Rs2.5 million at a 3 percent annual interest rate. Under this programme, loans range from Rs500,000 to Rs2.5 million, with a repayment period of up to five years.

Loan repayment begins one year after receiving the first instalment. The programme was implemented under the Startup Enterprise Loan Operating Guidelines, 2024.

The government signed agreements with Rastriya Banijya Bank for loan disbursement and the Deposit and Credit Guarantee Fund for loan security. In the last fiscal year, 165 startups received Rs190.40 million, primarily supporting agro-business startups.

Nepal also has a Startup Council that promotes and develops startups by addressing operational challenges, establishing the concept of startups as new entrepreneurs, and facilitating necessary coordination among ministries and the private sector.

The council includes representatives from the Ministry of Industry, Commerce and Supplies, the National Planning Commission, Nepal Rastra Bank, the finance ministry, and the agriculture ministry.

What were the previous promises?

The government made several promises to support startups in the past, but many fell short. In 2015-16, the government pledged a Rs500 million fund for startups, which did not materialise.

In 2019-20, a cash subsidy of up to Rs5 million was announced but never implemented.

In 2020-21, a startup fund of Rs500 million was introduced, offering loans at 2 percent interest, but again, startups were disappointed.

The Industrial Enterprise Development Institute (IEDI), the agency overseeing the startup promotion scheme, invited proposals from startups in August last year and received 5,158 applications through online and offline mediums.

IEDI recommended 183 startup enterprises for subsidised loans in the previous fiscal year. However, 165 received a loan of Rs190.40 million.

Despite the new policies, entrepreneurs remain cautious, citing the government's poor track record in supporting startups and its inconsistent policy implementation.

The amended Industrial Enterprise Regulation offers a framework to boost startups in Nepal. Still, insiders say its success will depend on effective implementation and the government’s ability to build trust with entrepreneurs.