How To Help Very Small Enterprises In Nepal

Transcription

1 Very Small Enterprises in Nepal 1. Background Shiva Sharma National Labour Academy [August 2012] Nepal is predominantly an agricultural and rural economy. Agriculture employs two thirds of the labour force. The structure of the economy is changing however. The share of agriculture in employment has gradually declined and rural areas are becoming increasingly accessible by roads and communication facilities. Small market centers in rural areas and urban hinter land have expanded rapidly to close by villages. The change in structure has made it easy for farm households to diversify their livelihood strategy; most commonly, the nonfarm enterprises have proliferated in rural and semi urban areas in Nepal. The enterprises include small shops (grocery, tea, clothes, stationary), vending activities, and livestock production. Farm households are diversifying their economic activities through such enterprises. The enterprises at the local level extend services to the community and villages; and represent income opportunity to local households. In recent days, with remittance income penetrating rural areas busting the purchasing power of the rural masses, it can be expected that such enterprises will proliferate even more. However, the incidence of very small enterprises is not known as they fall outside the official standard definition of small enterprises which assumes a lower limit of Rs 0.5 million to be defined as a small enterprise. In fact the very small enterprises may involve couple of thousand rupees, and thus remain unrecorded in official data. The contribution of very small enterprises to poverty alleviation can be important as it provides an avenue for additional employment and income. In a situation of rampant underemployment and seasonal employment in rural areas, small enterprises present opportunities that may curb the problem. Additionally women mostly are involved in such enterprises, which make them important for female empowerment. In this paper, we attempt to gauge the size of non-farm very small enterprises by region in Nepal using various macro data. We also present a case study of a NGO that is extending capital support to such enterprises in Morang district of Nepal. Broad policy options are discussed with the purpose of making such enterprises within the reach of marginalized rural households. 1

2 2. Very Small Enterprises (VSE) in Nepal The Nepal Living Standard Survey (NLSS) reports the incidence of households operating nonfarm enterprises. If any member of the household is self-employed in non-agricultural activity, the household is said to be operating nonfarm enterprises. In 2010, almost one third of households were reported being engaged in nonfarm enterprises. The enterprises are mainly engaged in production, trade, services, and "other" activities; each accounting respectively for 35, 36, 17 and 12 percent of nonfarm enterprises (preliminary report of NLSS III, 2010). Detail district level data is available for year 2001 from the Population Census, and is compiled from NLA (2003). It provides information on the incidence of households in nonfarm enterprises divided between production, trade and business, transport, services, and others. District level and aggregate ecological zone data is presented in Annex 1. According to the Population Census almost one fifth of all households are engaged in nonfarm enterprises. This varies by ecological belts: of total households 22.5 percent in terai, 18.1 percent in the hills and 15 percent in the mountain districts are engaged in nonfarm enterprises. In services, almost 7 percent of total households are engaged, while in trade and business 6 percent households are engaged. In nonfarm production activities, only less than 2 percent of total households are reported to be engaged. Thus revealing that services and trade and business being the main contributors to nonfarm activities. In fact of total households engaged in nonfarm activities, 35 percent are reported to be in service activities and 30.5 percent in trade and business activities. Production activities account for little less than 8 percent of all nonfarm activities. The National Labour Force Survey also provides information on nonfarm enterprises that can be useful in formulating policies for this sector. In table 1, the number of labourers employed by industry and location is presented for trade and restaurants and hotels. Of 889 thousand employed in wholesale and retail trade, and hotel and restaurants, 532 thousand, which means that a majority, i.e. 60 percent, in these sectors are based in rural areas. 2

3 Table 1: Currently employed (15+) by locality and selected industry (in 000) Industry Urban Rural Wholesale, retail trade Hotel, Restaurants Source: NLFS 2008 The NLFS also reports on informal sector employment (nonfarm) by sectors with more than 25,000 workers engaged in it. In table 2, the number of informal sector workers in housekeeping and restaurants, shops sales persons, stall and market sales persons and street vendors are reported. Again rural workers account for almost 60 percent (471 thousand out of 789 thousand). Table 2: Informal sector occupations (with 25,000+ employments) (in 000) Occupation Urban Rural Housekeeping, Restaurant Shop sales Stall and market sales Street vendor and related Source: NLFS 2008 So in total 20 percent of the households are engaged in nonfarm enterprises, and a majority of them in rural areas. These enterprises are mostly very small, unregistered, and are sources of informal employment. 3. Small enterprise policies Very small enterprises comprise petty non-farm production, small trading ventures, small shops and commercial agriculture such as livestock and vegetable farming. These non-farm activities are providing employment and income opportunities in rural areas of Nepal. The standard small and cottage industry definition of small enterprises fail to include such smaller enterprises. The periodic plans and annual budgets present some policy guidelines for small and cottage industry. Such industries are required to register in government offices in the district, are ensured credit and training supports, and are under the tax net. According to the MoF (2012) in about fifteen thousand Small and Cottage Industries were registered with about Rs 15 billion investment, average investment thus being one million 3

4 rupees. About 3,000 people were trained for industrial promotion the same year. Very small enterprises however are informal undertakings, with small capital needs of few thousand rupees, and are outside the preview of government data, regulations and support. One of the overriding reasons for policy oversight for very small enterprises can be the smallness and low potential for revenue generation from such enterprises. However, when considered in terms of potential of providing employment and income to poor households, such enterprises are very important. Thus the policy oversight seems unjustifiable. The Local Self Governance Act (1999) however requires that even smaller undertakings be registered at the local VDC offices or municipality offices. But, this is neither enforced, nor smaller enterprises have incentive to register due to lack of local government authority in extending any support to needy enterprises. Hence, the number of very small enterprises and their operation is yet the matter of guesswork. Formal statistics do not exist characterizing such enterprises. Realizing the employment and income contribution of very small enterprises, non-government initiatives such as the Micro Enterprise Development Program (MEDEP) by UNDP has been in operation since MEDEP aims to create employment and income opportunities for the rural poor by providing skill and business training and other support mainly to women and the poor and disadvantaged to set-up micro enterprises. It also aims to work for a better policy environment. MEDEP has till 2008 helped develop 53,000 micro entrepreneurs of which women accounted for 68 percent and Dalits accounted for 20 percent. However, the periodic government plans and the annual budget have not yet recognized these very small enterprises, and there is no reflection yet at the policy front. Micro credit initiatives in rural areas and project support such as MEDEP are however helping the very small entrepreneurs which are spread all over rural areas. The above review points to the urgency of defining very small enterprises for policy and as program targets, since the conventional (official) definition of small and cottage industry with capital of Rs 0.5 million is less relevant for such enterprises. In the case study of NBS, Morang, presented below, such enterprises have raised mere Rs, 10,000 on average as loan to set up and run such enterprises. The need for support in terms of skill/training and access to capital is thus different for such enterprises than the conventional small and cottage industries. 4

5 4. Example of an intervention: The case of Naari Bikas Sangh, Morang Along with the proliferation of very small enterprises, non government initiatives also seem to be expanding to assist small entrepreneurs. By providing access to small loans such initiatives are helping poor households to set up small enterprises. We have focused our research on Morang districts, where one example of such NGO initiatives is Naari Bikas Sangh (NBS). The organization extends support to poor members to establish very small enterprises. NBS targets borrowers who cannot pledge collaterals. Naari Bikas Sangh (NBS) is a locally registered non-government organization and have been in operation in Morang district of Nepal the last decades. It has a broad focus that also includes microfinance, and it has a focus on women. The NGO collects monthly cash deposits from the members and provides interest to the depositors. From the collected deposits, it extends small loans to members for small enterprises including emergency loans. NBS provided us with information on 161 such members who have raised loan for small enterprises in year The information is summarized below, and gives a snapshot of what type of households are members, and insight into the amounts of microfinance provided by a typical NGO that provides microfinance services in addition to it's other activities. Tarai Janjati is 45 percent of the borrowers, followed by Tarai Dalits (14%) and other Tarai castes (17%). Half of the borrowers are illiterate. So these female borrowers are from economically marginalized households. Table 3: Educational Status by Caste of Borrowers Caste Illiterate Literate Up to SLC No. % No. % No. % No. % Terai Caste Terai Dalit Terai Janjati Hill B/C Hill Janjati Muslim Hill Dalit Source: NBS 5

6 These members have on average made saving of Rs 3210, with Hill Bahun/Chetri saving the most with Rs 6382 (Table 4). The average loans raised by these members are Rs The raised loans are used to set up or expand small enterprises. The main three enterprises for which members raised loans are tea shop and grocery shops (44%), vending (30%) of vegetables, eggs, meat, and other edibles, and livestock (mainly goat, pig, cattle, chicken) raising (14%) (Table 5). Discussions with NBS indicate that more than 80 percent of borrowers started enterprises using the borrowed amount, and the rest used it to expand existing enterprises. It was furthermore said that 60 percent of the enterprises were making profit and had started to pay back the loan. Any income from the enterprises is used to supplement household consumption, finance education of children and meet health expenditures, thus potentially bringing improvement in the standard of living of poor households. Table 4: Saving and Credit by Caste of Borrowers Caste No. Avg. Saving (Rs.) Avg. Credit (Rs.) Terai Caste Terai Dalit Terai Janjati Hill B/C Hill Janjati Muslim Hill Dalit Source: NBS 6

7 Table 5: Purpose of Borrowing by Caste of Borrowers Caste Livestock Vending Tea Shop/ Grocery Trade Not mentioned Education/ Health No. % No. % No. % No. % No. % No. % Terai Caste Terai Dalit Terai Janjati Hill B/C Hill Janjati Muslim Hill Dalit Source: NBS 5. Policy Imperatives Very small enterprises at the village and community level are proliferating to serve local households. As the purchasing power of households, particularly of households experiencing remittance income, increases, demand for products and services from local level enterprises can be expected to increase. More and more such enterprises in villages and market centers will emerge and will provide employment to the local populace. To ensure that participation in such enterprises is inclusive, issues such as lack of knowledge/information and difficulties in access to the capital need to be addressed. Micro credit and initiatives such as NBS can play a catalytic role in this respect. Support to very small enterprises can be channeled through such organizations. Also, a data base on such enterprises needs to be built. References CBS (2008) Report on the Nepal Labour Force Survey (NLFS). Central Bureau of Statistics, Kathmandu. CBS (2010) Preliminary Report on Nepal Living Standard Survey III. Central Bureau of Statistics, Kathmandu. Micro Enterprise Development Programme (Phase III)/UNDP in Nepal http// MoF (2012) Economic Survey, Ministry of Finance, Kathmandu. Naari Bikas Sangathan, Row data on member borrowers. NLA (2003) Jilla Kaa GA BI SA Stariya Tathyanka Ra Naksaharu (VDC level statistics and maps by Districts based on Population Census 2001). National Labour Academy Nepal. 7

8 Annex 1: Households by nonfarm involvement by District and Ecological Regions District [Tarai] Trade/ Business Production Transportation Services Others Jhapa Morang Sunsari Saptari Siraha Dhanusha Mahottari Sarlahi Rauthat Bara Parsa Chitwan Nawalparasi Rupandehi Kapilbastu Dang Banke Bardiya Kailali Kanchanpur Terai

9 (cont d) District [Hills] Production Trade/ Business Transportation Services Others Panchthar Ilam Dhankuta Terhathum Bhojpur Okhaldhunga Khotang Udaypur Sindhuli Ramechhap Sindhupalchowk Kavre Lalitpur Bhaktapur Kathmandu Nuwakot Dhading Makwanpur Gorkha Lamjung Tanahun Syangja Kaski Myagdi Parwat Baglung Gulmi Palpa Arghakhanchi Pyuthan Rukum Salyan Surkhet Dailekh Jajarkot Achham Doti Dadeldhura Baitadi Hill

10 (cont d) District {Mountains] Trade/ Business Production Transportation Services Others Taplejung Sankhuwasabha Solukhumbu Dolakha Rasuwa Manang Mustang Rolpa Dolpa Jumla Kalikot Mugu Humla Bajura Bajhang Darchula Mountain Nepal Source: NLA District Profile, 2003 [based on Population Census 2001] 10