Holding up half the economy

Why do women entrepreneurs and female small business owners in Nepal have a hard time attracting capital to grow their businesses? A series of conversations I had with banks and female entrepreneurs a few months ago provided some insights.

Suppliers of capital (i.e., banks) said that they funded mostly those women entrepreneurs who could use land as collateral, and who came to them via impeccable references, which was a euphemism for ‘upper class’.

They repeatedly termed women entrepreneurs as ‘risky’, adding that they did not offer business advisory services. As such, they were unable to advise the women on how to make the best use of the loans.

Once the loans were disbursed to women with such impeccable references, the female entrepreneurs had to pay the interest every month, and that was the extent of the financial relationship with the banks. Most banks said that they did not feel comfortable advertising or marketing their women-focused business financing schemes for fear of attracting all sorts of 'small women entrepreneurs'.

But they all said that they did have the funds, earmarked for women-owned businesses. Disbursing the loans to them, was a bit of a hassle.

On the demand side, one small business owner said that even though she had been in business for ten years, and wanted to expand her bakery to a Nepal-wide e-commerce platform, the bank she went to, told her to stick to her existing stand-alone bakery, and forget about the broader e-commerce idea.

Her frustration was that the bank did not see her years of experience as a plus, but instead wanted her to lower her ambitions to run only the bakery, which had been running well anyway since 2012. She had funded the business herself, and had only gone to the bank for additional investment to branch out to e-commerce.

Another entrepreneur was ready to accept foreign investment, but the government’s policy of not allowing FDI of less than $500,000 in Nepali small businesses put an end to the process. She then turned to local private investors who took too much time to decide whether to chip in or not.

When they did, they wanted more ownership and more control of the business, essentially turning her into their employee. This discouraged her from talking to other moneyed local investors.

Another female entrepreneur said legacy women’s business associations were managed and run by women of means, who had long-standing social, cultural and professional ties to one another. They were not agile or sensitive enough to the financing needs of the next generation of ethnically-diverse, less ‘well-connected’ women entrepreneurs.

One entrepreneur funded her medical business by taking out loans from friends and family businesses. Her business took off, and she struggled not so much with finances but with operational issues. She said she would have paid for this advice, which, would have saved her money. This showed that finance that came with operational or technical assistance had a greater scope of helping women entrepreneurs grow their business and generate additional jobs.

Another café owner we spoke to mentioned that she did not consider bank loans because interest rates were high and the paperwork looked intimidating. Besides, once she learnt that the bank interest rates were unstable, she gave up on the loans altogether, for she did not want to be hit by a rising interest rate over a five-year period.

Instead, she borrowed money from her partners. That partnership did not go well, which led her to think that she needed training or advice on negotiations and partnership management-- skills, which would have saved her money.

Another tech entrepreneur shared that her lack of knowledge about finances came to light when her company ran out of cash during Covid times, making her unable to meet the payroll. Looking back, she wishes she had a better grasp of financial knowledge which would have helped her manage cash better.

All the female entrepreneurs I spoke to said that the financing institutions did not pursue them. The banks’ assistance to women entrepreneurs remains available but appears to be deliberately under-marketed and under-sold. Nepali society lacked role models of financially successful women who rose through their own hard-work, and not on the coat tails of their husband or father.

Venture funds, one entrepreneur said, had such high requirements and demands that women had so far stayed out of their radar. All agreed that financial solutions catering to women entrepreneurs should not be looked at in isolation. Instead, it should also encompass enhancing women’s financial and investment literacy and their knowledge of business operation efficiency.

After all, running and scaling up a business was not only a matter of accessing finance but being prepared to access finance in ways that assure the lenders or capital providers that the women entrepreneurs would make good use of the invested capital.

Likewise, another entrepreneur said that of all the sources of funds, the most reliable are personal and family funds. These allow the women to get things started, but, after that, women get stuck as to how to leverage their credibility to access further funds from strangers and institutions. This was, she said, the valley of death – where most women-owned businesses either failed to grow further and continued to gasp for cash or stayed small without maximising their business potential.

Though Nepal’s laws around women entrepreneurship and women’s right to own assets have improved somewhat in recent years, they are still framed through a lens of patriarchy, which does not count women as possible economic beneficiaries, except as an afterthought.

That women need to join the workforce is a given. That women can start businesses and scale them up well to provide jobs, is not. The constraints appear to be around growth capital and advisory services.

Unless government policies, donor funds and private capital unblock these constraints, funding and scaling women-run and women-serving Nepali businesses remains a promise far short of its potential.

Ashutosh Tiwari, founder at SAFAL Partners, starts this monthly column CrossCurrent in Nepali Times. He will focus on entrepreneurship, management, public policies and development as if Nepalis mattered.