What Is SME?
SME stands for Small and Medium Enterprises – businesses that play an important role in driving economic growth, creating jobs, and fostering innovation.
There are over 90% of enterprises in Nepal classified as SMEs, yet SME financing in Nepal 2025 remains a major challenge for new entrepreneurs.
They make up 22% of Nepal’s GDP and provide jobs for 1.8 million people, especially helping women. Whether you want to open a small handicraft shop in Bhaktapur, start a farm business in the Terai, or launch a tech startup in Kathmandu, learning about SMEs is the first step to success.
If you're thinking about starting a business in Nepal or want to understand how small businesses contribute to our economy, this guide will give you everything you need to know.
Global Definition of SME
Around the world, SMEs are typically classified based on three main criteria: number of employees, annual revenue, and total assets. However, these thresholds vary significantly from country to country.
European Union Definition:
- Micro enterprises: Fewer than 10 employees, €2 million turnover
- Small enterprises: Fewer than 50 employees, €10 million turnover
- Medium enterprises: Fewer than 250 employees, €50 million turnover
World Bank Classification:
- Small enterprises: 5-19 employees
- Medium enterprises: 20-99 employees
Indian Standards (for comparison):
- Micro: Investment up to ₹1 crore, turnover up to ₹5 crore
- Small: Investment up to ₹10 crore, turnover up to ₹50 crore
- Medium: Investment up to ₹50 crore, turnover up to ₹250 crore
Knowing these worldwide standards makes it easier for Nepali business owners to assess how their companies stack up internationally, particularly when thinking about exporting or attracting foreign investment.
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Legal Definition of SME in Nepal
Industrial Enterprise Act 2020 thresholds
Foreign direct investment (FDI) is encouraged, industrial licensing is streamlined, investor-friendly conditions are introduced, and small and medium-sized businesses (SMEs) are strengthened by the Industrial Enterprises Act, 2020 (2076). Nepal categorizes businesses in accordance with this Act as follows:
Micro Enterprises:
Fixed assets: Up to Rs. 5 lakh
Annual turnover: Up to Rs. 5 lakh
Small Enterprises:
Fixed assets: Rs. 5 lakh to Rs. 2 crore
Annual turnover: Rs. 5 lakh to Rs. 3 crore
Medium Enterprises:
Fixed assets: Rs. 2 crore to Rs. 15 crore
Annual turnover: Rs. 3 crore to Rs. 20 crore
SME vs MSME Nepal (comparison table)
| Category | SME Classification | MSME Classification |
|---|---|---|
| Micro | Up to Rs. 5 lakh assets | Same as SME |
| Small | Rs. 5 lakh - 2 crore | Rs. 5 lakh - 2 crore |
| Medium | Rs. 2 - 15 crore | Rs. 2 - 15 crore |
| Key Difference | Excludes large enterprises | Includes all three sizes |
| Focus | Industrial enterprises | Broader business scope |
Note:
Many people ask what is the difference between MSME vs SME law in Nepal. The Industrial Enterprises Act 2020 classifies SMEs differently from MSMEs, which include micro enterprises.
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Step-by-step guide to SME registration in Nepal
- Pick your business type: sole owner, partners, or private company.
- Reserve your company name at the Office of Company Registrar by applying and paying Rs. 500.
- Get your documents ready: ID cards, partnership deed (if any), company rules, and feasibility report.
- Register your business with the Department of Industry, submit environmental clearance if needed, and pay the fee.
- Get licenses: local business registration, tax IDs (PAN/VAT), and any special permits for your sector.
- Open a business bank account by showing your industrial registration certificate.
Right business consultant will guide you every step properly which will make it simple and easy for you.
Types of SMEs
Micro Enterprises
Micro enterprises are the backbone of Nepal’s business, especially in rural places. They need little money to start and often run from home or small shops.
Common types include:
- Handicrafts like pottery, weaving, and wood carving
- Small farming like organic veggies and honey
- Local services like tailoring and repair shops
- Street food stalls and small restaurants
Small Enterprises
Small enterprises are a step up, usually with 5–20 workers and serving larger areas beyond their neighborhood.
Common types include:
- Local factories like food processing and garment making
- Service businesses like travel agencies and consulting
- Retail shops and distribution centers
- Tourism businesses like guesthouses and trekking gear stores
Medium Enterprises
Medium enterprises are stronger businesses that may compete with big companies and sell products nationally or internationally.
Common examples:
- Factories making textiles or electronics
- IT and software companies
- Export businesses like carpets, pashmina, and tea
- Hotel chains and big tourism companies
Examples of women-led SMEs in each type
According to recent data, women-led SMEs statistics in Nepal show that around 29–33% of SMEs are owned or co-owned by women, mostly in handicrafts, agro-processing, and services.
Micro Level:
- Women's cooperatives producing traditional crafts in rural areas
- Home-based food processing businesses run by women entrepreneurs
Small Level:
- Women-owned boutiques and fashion stores
- Female-led organic farming and marketing ventures
Medium Level:
- Women-managed textile export companies
- Female entrepreneurs running hospitality chains
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SME Landscape in Nepal
Contribution to GDP and Employment
SME contribution by sector in Nepal is highest in agriculture and agro-processing (over 40%), followed by services, tourism, and manufacturing. SMEs are the backbone of Nepal’s economy, making up 22% of GDP and providing jobs to 1.8 million people, especially women.
Nearly one in every four rupees in Nepal comes from these small and medium businesses, supporting millions of lives from local shops to exporters.
Major SME Sectors
Nepal’s biggest SME sectors are farming and agro-processing, employing many rural people. Handicrafts and textiles are key exports, especially for women.
Tourism is recovering, with homestays and trekking agencies growing. IT is a fast-growing city sector attracting young workers. Services like retail, transport, and finance are also growing fast in cities and provide many jobs.
Rural vs Urban SMEs
Rural SMEs focus on farming and small businesses, using local skills but facing finance and infrastructure problems. Urban SMEs use technology, have better finance access, follow formal methods, face more competition, and have more growth chances.
Case study: SMEs in Terai vs Kathmandu
Terai Region SMEs:
- Focus on agriculture and agro-processing
- Access to raw materials and transportation links to India
- Challenges include seasonal business patterns and flooding
- Opportunities in cross-border trade
Kathmandu Valley SMEs:
- Concentration of service and technology businesses
- Better infrastructure and market access
- Higher competition and operating costs
- Access to skilled workforce and financial services
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Financing & Support Options for SMEs
Nepal Rastra Bank (NRB) has programs to help SMEs get loans. Banks must lend a certain amount to SMEs, offer lower interest rates for some sectors, and use easier loan processes.
NRB also gives funds to banks at low rates so they can lend to SMEs more cheaply, focusing on important sectors and places with fewer services.
The government and NGOs have programs to support SMEs too. The Ministry of Industry offers grants, helps with new technology, and supports exports.
The Micro Enterprise Development Programme (MEDPA) trains women entrepreneurs and provides microfinance in both rural and urban areas. International groups like IFC, UNDP, and other donors also run SME support projects.
Private banks provide loans for working capital, equipment, and export needs.
Some offer loans without needing collateral. As of 2024/25, SME loan interest rates in Nepal range from 10–14%, with concessional loans for womenoffer and agro-based SMEs available at 5–7% under NRB guidelines.
Besides banks, microfinance institutions, development banks, peer-to-peer lending, and cooperatives give alternative financing options for SMEs.
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Digital Adoption & Technology for SMEs
The digital revolution is changing how Nepali SMEs do business and reach customers. Popular platforms like Daraz Nepal for retail, Foodmandu for restaurants, and social media sites like Facebook and Instagram help businesses sell products and services online, often with their own websites.
This lets SMEs reach customers beyond their local area, reduce marketing costs, operate 24/7, and make smarter decisions using data.
Digital payments through apps like eSewa and Khalti, QR code payments in shops, mobile banking, and online payment gateways make transactions easy for customers and businesses.
SMEs also use apps for managing inventory, accounting, customer relationships, and social media posts. A 2023 NRB survey found that less than 30% of SMEs in Nepal use digital payment systems, showing a low digital adoption rate compared to regional peers.
Some success stories include traditional carpet makers who sell globally online and have increased revenue by 300-400%. Online booking platforms that display real-time availability, costs, and customer evaluations are used by local trekking firms to enhance customer service and expand their clientele.
Benefits of SMEs in Nepal
Employment Generation
SMEs provide work for people with various skill levels nationwide. They play a key role in creating local jobs and building skills. They offer many young people their first jobs and help them develop new skills, reducing the need to work abroad.
In rural areas, farming and small businesses keep people employed and prevent migration to cities. Examples include agro-businesses in the Terai, handicraft shops in Kathmandu and Bhaktapur, and tourism SMEs hiring guides and hotel staff.
Economic Growth & Local Development
SMEs contribute 22% directly to Nepal’s GDP, supporting economic stability and growth.
They strengthen other businesses by being part of supply chains. They distribute economic activities across regions, reducing concentration in big cities and boosting local services.
They help reduce poverty by providing income in remote areas and empower marginalized groups and women by involving them in business activities.
Flexibility & Adaptability
SMEs has quick ability to adapt to change. They make fast decisions and customize products to meet local customer needs.
During the COVID-19 pandemic, many SMEs shifted to online sales, delivery, and new products. Tourism businesses adjust their services by season, farming businesses follow crop cycles, and festival businesses plan activities around celebrations.
Inclusive Growth
SMEs are important for fair and inclusive economic growth. Many SMEs are owned by women, offering flexible work that helps balance family and gives financial independence.
They also create chances for marginalized groups, with lower entry barriers than big companies, often as community businesses. Programs like MEDPA support women entrepreneurs, and special loans and training help marginalized people succeed.
Role of SMEs in Innovation and Entrepreneurship in Nepal
Driving Innovation
SMEs in Nepal create new products like unique organic teas, modern handicrafts, and fusion foods for city customers. Services also innovate as many businesses improve how they work by using digital marketing and technology, better supply chains in farming, and eco-friendly ways in manufacturing.
Encouraging Entrepreneurship
Entrepreneurs learn from each other and see what’s possible locally. Experienced SME owners mentor newcomers, and supply chains and shared resources support new businesses. Government and NGOs also help through programs by FNCCI, city incubation centers, and training in business skills and management.
Nurturing Startups and Technology Adoption
Through SMEs, new concepts also introduce innovation to more established industries. SMEs use social media marketing, smartphone payments, and basic e-commerce more quickly than large corporations. Numerous rural SMEs employ eco-friendly packaging and waste management techniques, solar energy, and sustainable farming. Through SMEs, new concepts also introduce innovation to more established industries.
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Examples of SMEs in Nepal
Handicraft Enterprises
- The Pashmina industry includes small family businesses like Chyangra Pashmina that now export worldwide, and medium companies like Everest Cashmere that employ many people.
- Thangka painting, a traditional Buddhist art, is made in small shops in Kathmandu and Pokhra, with artists working alone or in small groups. The market for real Thangka art is growing internationally.
- Wooden crafts, like carved window frames, come mostly from Bhaktapur, made by individual artisans or medium workshops, and are exported to India, Europe, and North America.
Agro-Based Enterprises
- The tea industry like Himalayan Java Coffee, started small but now well-known, and organic tea gardens in Ilam supported by cooperatives.
- Coffee production groups like Nepal Coffee Collective helps small farmers with Arabica coffee for local and export markets.
- Dairy businesses work with DDC supplier networks, produce cheese in mountain areas, and run organic farms for city markets.
- Organic farming grows vegetables for urban buyers, with certification and direct sales from farmers to consumers.
Tourism & Hospitality SMEs
- Homestays are family-run and community-based, offering authentic experiences in rural areas and growing across the country.
- Small trekking agencies focus on specific routes, with local guides running their own businesses. Eco-tourism and adventure tourism are also popular.
- Restaurants range from traditional dal bhat spots to international cuisine, as well as specialty coffee shops and bakeries for tourists.
IT & Startup SMEs
- IT SMEs create custom software for local businesses, develop mobile apps, and run web development and digital marketing agencies.
- Local online marketplaces, specialty product sites, and service booking platforms are part of e-commerce.
- Fintech startups offer digital payment solutions, microfinance tech, and work to improve financial inclusion.
Challenges Faced by SMEs in Nepal
Access to finance – gap, % lending
Getting finance is still the biggest problem for SMEs in Nepal. Banks lends to big companies because they have lower risk. Many SMEs don’t have enough collateral for loans, interest rates are high, and loan processes are long and complex. The SME finance gap in Nepal is estimated to be billions of rupees, as only about 25% of SMEs have access to formal banking, while the rest depend on informal lending.
Only about 25% of SMEs can access formal banking, and their loan rates are 2-4% higher than for big firms. Most SMEs depend on informal loans, which limits their ability to grow, invest in equipment, or expand to new markets.
Infrastructure & policy barriers
Poor infrastructure and unclear policies make running SMEs in Nepal difficult. Unstable electricity slows production, bad roads raise transport costs, and limited internet stops digital growth. There are not enough industrial parks or facilities.
Frequent tax changes cause confusion, licensing rules are complex, government agencies don’t work well together, and business registration takes a long time. These problems cause manufacturing delays and hard for rural SMEs to reach markets, and stop service businesses from using digital tools fully.
Market competition & imports
SMEs face strong competition from big local companies and imported goods. Cheaper imports often replace local products, and people sometimes trust foreign quality more. SMEs have smaller marketing budgets and face unfair competition from importers who avoid taxes.
Large companies can sell at lower prices, have better distribution and marketing, and stronger brands. SMEs also struggle to enter modern stores, lack export knowledge, and often don’t meet quality standards.
Crisis resilience: COVID-19 & political instability
During COVID-19 many SMEs had to close during lockdowns, suffering big revenue losses, particularly in hospitality and retail. Supply chains were disrupted, and keeping employees was difficult. SME survival rate in Nepal dropped sharply during COVID-19, with studies showing over 10% permanently closed.
Political instability caused uncertainty in planning, interrupted business during strikes, reduced investor confidence, and currency changes hurt import-dependent SMEs. Recovery is hard because many SMEs have limited savings, face trouble getting emergency funds, need to adapt quickly, and business owners endure mental stress. These problems highlight the need for strong support to help SMEs survive and grow.
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SMEs vs Large Enterprises in Nepal
Scale & Resource Availability
In Nepal, SMEs and large enterprises differ greatly in resources and scale. Large enterprises have easier access to bank loans and capital markets, while SMEs largely rely on personal savings and informal loans.
Investment capacity is much higher in large firms.
For example, a large textile company may use automated production lines, whereas SME textile producers depend on manual work.
SMEs often face difficulties adopting modern technology due to limited funds, while large companies can afford advanced equipment and facilities. This gap affects efficiency, growth, and competitiveness between SMEs and large enterprises in Nepal.
Employment & Community Impact
SMEs in Nepal provide flexible work arrangements to family members and members of the local community in rural and isolated locations. On the other hand, large corporations mostly function in metropolitan regions, providing structured career paths, formal jobs with standard benefits, and higher incomes, but with fewer jobs overall.
SMEs are deeply connected to local communities, supporting local supply chains and cultural activities, while large companies have wider but less close community ties. Data shows SMEs account for about two-thirds of manufacturing employment and provide nearly 95% of industrial jobs, making them vital for mass employment growth in Nepal.
Resilience During Economic Crises
SMEs have quick decision-making that helps them adapt fast to changes, lower fixed costs for more flexibility, and strong local relationships that provide support during tough times.
During COVID-19, many SMEs quickly shifted to making sanitizers and masks, and restaurants moved to delivery and takeout services. Still, some SMEs struggled due to lack of digital tools, while larger enterprises had better crisis management resources but were slower to adapt.
Future of SMEs in Nepal
Digital Transformation & E-Commerce
The future of SMEs in Nepal is strongly digital, with many quickly adopting new technologies. Key trends include:
- Increasing use of social media marketing and easier access to e-commerce platforms.
- Widespread acceptance of digital payments through systems like eSewa and Khalti.
- Growing online business training opportunities.
Green & Sustainable SMEs
Nepali SMEs adopt more to environmental sustainable business practices. Organic farming, renewable energy like solar and micro-hydro, eco-friendly tourism, sustainable packaging, and waste management are focused.
Market demand is growing for organic and eco-friendly products both domestically and internationally. Tourism is increasingly focused on responsible travel, and many companies seek sustainable suppliers, creating more chances for green businesses to grow in Nepal.
Cross-Border Trade & Export Growth
With Nepal’s SME policy 2024/25 focusing on export promotion, there is strong government support for handicrafts, tea, coffee, and IT services. Nepal's location between India and China offers great chances for SMEs. Key export sectors ready to grow include unique handicrafts, organic agricultural products like tea and coffee, IT services, and Ayurvedic products.
The government supports SMEs with trade facilitation at borders, export promotion, quality certifications, and help for international market access.
Future opportunities are promising with projects like China’s Belt and Road Initiative, benefits from the South Asian Free Trade Area (SAFTA), and growing demand from Indian and Chinese markets. E-commerce also opens doors for direct international sales, helping SMEs expand beyond traditional trade routes.
Accounting & Legal Framework for SMEs in Nepal
Nepal Financial Reporting Standards (NFRS)
SMEs in Nepal must follow specific accounting rules called NFRS for SMEs, which is a simpler version of the full standards used by big companies. These rules require SMEs to prepare annual financial statements and, for medium businesses, cash flow statements.
They must also include notes explaining important financial items and, depending on size, have their accounts independently audited. Following these standards helps SMEs get bank loans, gain investor trust, sell their businesses more easily, and avoid legal problems.
Taxation & Compliance Rules
SMEs in Nepal pay 25% corporate tax, with lower 20% rates for hydropower and IT, and 30% for banks and telecoms. Small businesses with low income can choose presumptive tax, paying a fixed amount based on location and sales. If sales go over Rs. 2 million, they must also pay 13% VAT, but exports are usually exempt.
SMEs pay social security and local taxes too. Tax breaks exist for new industries, remote areas, and women entrepreneurs. Advance tax payments and monthly VAT returns are required. This system is designed to help SMEs grow without too much hassle.
Regulatory Institutions (MOI, NRB, FNCCI)
These institutions create a system that helps SMEs grow and innovate in Nepal.
- The Ministry of Industry (MOI) handles industrial policies, licensing, investment promotion, and SME development programs.
- Nepal Rastra Bank (NRB) manages SME financing rules, banking regulation, and promotes digital payments.
- The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) advocates for SMEs, organizes business training and networking, and works with the government on policies.
Final Thoughts
For new entrepreneurs, starting an SME is the easiest way to own a business and gain financial independence. Building an SME in Nepal has both challenges and opportunities. Problems like limited finance, poor infrastructure, and tough competition exist.
But the growing digital market, government support, and better global access offer great chances to grow.
Nepal’s SMEs need strong policy support, easier finance, and better infrastructure to grow. By starting your own SME, you’ll boost the economy and secure your financial future. Become an SME entrepreneur and help build Nepal’s progress and community opportunities.
If you’re planning to start your SME in Nepal, I can guide you with registration, business planning, and accessing loans. Reach out today for a free consultation.
FAQs
In Nepal, an SME (Small and Medium Enterprise) have investment up to NPR 10 million and medium enterprises up to NPR 50 million, with employee counts ranging from 10 to 100 depending on the sector.
SMEs contribute significantly to Nepal’s economy by generating employment for over 80% of the workforce and accounting for around 25-30% of the GDP. They play a crucial role in promoting industrialization and rural development.
The main challenges faced by SMEs in Nepal include limited access to finance, inadequate infrastructure, lack of skilled labor, bureaucratic hurdles, and limited market access. Additionally, many SMEs struggle with adopting modern technology and digital tools.
SME refers to Small and Medium Enterprises, while MSME stands for Micro, Small, and Medium Enterprises. MSME includes micro enterprises, which are smaller in scale than SMEs, typically with lower investment and fewer employees, thus covering a broader range of business sizes.
A new business can register as an SME in Nepal by applying through the Office of the Company Registrar or the Department of Industry, submitting required documents such as business plans, investment details, and proof of address. Registration helps in accessing government benefits and formal recognition.
Yes, the Nepalese government, often in collaboration with banks and financial institutions, provides various loan schemes and credit facilities specifically designed for SMEs. These loans usually come with lower interest rates and flexible repayment terms to encourage SME growth.