Nepal small industry registrations have fallen sharply over the past five years, raising concerns that government policy support has failed to address the financing, market access and formalisation problems faced by micro, cottage and small enterprises.
New data from Nepal’s Department of Industry shows that only 21,029 micro, cottage and small enterprises were registered in the latest fiscal year covered by the data. That is down 74.8 percent from 83,386 registrations in fiscal year 2020-21.
The decline has been steady. Registrations fell to 65,039 in 2021-22, then to 37,142 in 2022-23, 23,633 in 2023-24 and 21,029 in the latest year.
The figures point to a deeper weakness in Nepal’s small business environment, despite repeated government efforts to promote local production, entrepreneurship and formal enterprise development.
Nepal small industry registrations weaken despite policy support
Nepal small industry registrations have declined even as the government has introduced programmes meant to support smaller firms.
The government established the Micro, Cottage and Small Industry Promotion Centre in February 2020 to provide training and technology transfer in areas such as tailoring, beauty services, electrical work and plumbing. The centre received a budget of Rs310 million in the last fiscal year, but its allocation has been reduced to Rs130 million for the current fiscal year.
In 2024, Nepal also introduced the Micro, Domestic and Small Industries Promotion Policy. The policy was designed to encourage local production, use the skills of returning migrant workers and simplify investment procedures.
However, entrepreneurs and experts say these measures have not translated into meaningful gains on the ground. Many small business owners still struggle to obtain finance, find markets for their products or access government support without political or bureaucratic connections.
A Department of Industry official said many entrepreneurs may remain unaware of available facilities, while the government has not been fully successful in explaining the benefits of registering businesses formally.
Administrative changes may affect registration figures
The decline in registrations also comes as Nepal has changed how some businesses are registered.
The Department of Industry said it has stopped registering micro, cottage and small businesses with domestic investment of up to Rs250 million under its jurisdiction following the government’s new 100-point reform plan. Such registrations are now handled at lower administrative levels.
That administrative shift may affect where some businesses are recorded. However, the fall in registrations began years before the latest reform and reflects a broader loss of momentum in formal small enterprise creation.
The trend is therefore not only a statistical issue. It also points to weak business confidence, limited institutional reach and a continuing preference among many entrepreneurs to remain outside the formal system.
Informality remains a major challenge
Nepal’s micro, cottage and small enterprise sector is large, but much of it remains informal.
According to the Central Bureau of Statistics, nearly half of Nepal’s business establishments remain unregistered. More than 90 percent of workers employed by micro, cottage and small enterprises with fewer than 10 employees work under informal employment arrangements.
The National Economic Census 2018 recorded 923,356 business establishments in Nepal, with only about half formally registered. Micro, small and medium enterprises account for 99.8 percent of all business establishments, 84.7 percent of total employment and 62.2 percent of annual sales.
They are also central to women’s entrepreneurship. MSMEs represent almost all female-led enterprises in Nepal, accounting for 99.96 percent of businesses managed by women.
These figures show why the registration decline matters. If smaller enterprises fail to formalise or close down, the effect is likely to be felt in employment, household income, women-led business activity and local production.
Entrepreneurs cite finance and market access problems
Entrepreneurs say limited access to capital remains one of the biggest barriers to growth.
Many micro and cottage enterprises operate from homes and on a very small scale. This makes it difficult for them to meet collateral requirements, invest in equipment, improve product quality or expand production.
Market access is another major weakness. Small producers often lack the distribution networks, branding support and institutional backing needed to sell their products beyond local communities. Without reliable markets, formal registration can appear to offer little practical benefit.
Manju Kumar Koju, co-chairperson of the Cottage and Small Industry Committee under the Federation of Nepalese Chambers of Commerce and Industry, said many genuine entrepreneurs receive few benefits despite official policies. He said some are shutting down, while others continue operating informally.
He also alleged that subsidised loans and machinery support often reach those with access to officials, rather than the small business owners most in need of assistance.
NRB study shows weak business performance
A Nepal Rastra Bank study of micro, small and medium enterprises in Chitwan and Makawanpur found that 52.7 percent of surveyed enterprises reported declining business performance. Of those, 23.7 percent reported a moderate decline and 29 percent reported a sharp decline.
Only 27.1 percent of enterprises said their performance had improved, while 20.3 percent reported stable performance.
The study also identified economic and political instability as major constraints. Frequent policy changes and macroeconomic uncertainty have weakened business confidence and made it harder for firms to plan expansion.
The findings support what entrepreneurs have been saying: policy announcements alone are not enough. Smaller firms need predictable rules, accessible finance, technology support, training, market linkages and a business environment stable enough to justify formal investment.
World Bank calls for differentiated policy
A recent World Bank report on Nepal’s microenterprise landscape found that many informal microenterprises operate at subsistence level and remain outside the formal economy out of necessity rather than choice.
The report argued that Nepal needs a differentiated policy approach. Subsistence enterprises may need livelihood support and social protection, while firms with stronger growth potential need targeted productivity support, credit access and formalisation incentives.
This distinction is important because not all microenterprises have the same needs. Some are survival businesses that provide basic household income. Others have the potential to grow, create jobs and join formal supply chains.
Treating both groups with the same policy tools can weaken results. A small home-based producer struggling to survive does not need the same support as a growth-oriented enterprise seeking credit, technology and market expansion.
Decline signals wider industrial weakness
The fall in Nepal small industry registrations also reflects wider concern over the country’s industrial base.
Nepal’s economy relies heavily on imports, remittances and services, while domestic production remains limited. Small enterprises could help create jobs, support local supply chains and reduce dependence on imported goods, but only if they receive practical support.
The sharp fall in registrations suggests that many potential entrepreneurs do not see enough benefit in entering the formal system. Formal registration can involve paperwork, taxes, compliance obligations and costs. If access to credit, training, markets and government support remains weak, businesses may choose to remain informal.
That creates a policy problem. The government wants more formal businesses, but many entrepreneurs do not see formalisation as commercially worthwhile.
Policy delivery will determine recovery
Reversing the decline in registrations will require more than new policies. Nepal will need to improve delivery.
That means simplifying registration procedures, expanding awareness of support schemes, improving access to subsidised loans, ensuring fair distribution of machinery and technology support, and helping small producers reach markets.
The government may also need to strengthen local-level registration and reporting systems after shifting some registration responsibilities away from the Department of Industry. Without reliable data, policymakers may struggle to track whether enterprise activity is recovering or simply moving between administrative channels.
Support should also be targeted. Subsistence businesses need basic livelihood and protection measures, while growth-oriented firms need finance, training, market access and technology.
Nepal’s small businesses need practical support
Nepal small industry registrations have fallen nearly 75 percent in five years, despite policies that were meant to promote entrepreneurship and local production.
The decline shows that the problem is not a lack of policy language. It is a gap between official support and the realities faced by small business owners.
Entrepreneurs continue to struggle with finance, market access, unstable policy conditions and weak institutional support. Many remain informal because formal registration does not yet offer enough practical benefit.
For Nepal, the stakes are significant. Micro, cottage and small enterprises account for a large share of businesses, employment and women-led entrepreneurship. If the sector continues to weaken, the effects will be felt across jobs, incomes and domestic production.
The policy challenge is now clear: Nepal must move from announcing support for small enterprises to delivering support that reaches genuine entrepreneurs and helps viable businesses survive, formalise and grow.
Published in SouthAsianDesk, July 10, 2026
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