Background

This report builds on the study Characteristics of Better Performing Nepali SMEs and Implications for Policy (SOAS-PEI 2023), which covered 352 SMEs across four provinces of Nepal—Bagmati, Madhesh, Lumbini, and Karnali—involving agro-based industries, tourism-related services, and light manufacturing. This study identified organizational, technical, and marketing capabilities, market dynamics, and access to finance as critical determinants of better performance. It highlighted that higher-growth SMEs utilized tacit knowledge transfer, unique product offerings, and selective use of political networks to enhance their competitive edge. The findings suggested that while systemic challenges persist, high-growth SMEs demonstrate the potential to achieve better outcomes even within the current business environment.

To build on these insights, a second round of surveys was conducted, covering 427 firms, across the seven provinces, focusing on the tourism sector (175 firms), agro-processing (197 firms), and urban waste management services (55 firms). The survey was designed particularly to understand the differences between risk-taking firms and look at the factors that make many SMEs in Nepal not want to grow at all (we call these ‘satisficing’ firms). The survey also had responses on the green practices adopted by SMEs and the support received to implement these practices. 

Supporting SMEs of specific types is an effective strategy for inclusive growth across ethnicities, castes, and genders. What are the most effective ways to help create productive and competitive SMEs that can drive Nepal’s inclusive development? When do competitive SMEs adopt green technologies and what are the most effective ways of encouraging this transition? These two questions clearly need to be considered together. In our earlier work, we described the slow growth of the SME sector in Nepal and the limited organizational and technical capabilities of most firms. In this follow-up survey, we extend our analysis to look at characteristics of SME firms that are beginning to make a green transition in the tourism sector and in urban waste management.