Micro-enterprise Development as a Poverty Reduction Strategy in Nepal: A Multidimensional Analysis of the Factors Determining Micro-enterprise Performance

By analysing data collected on micro-firms created or supported by the Nepali government, the researcher examines the determinants of micro-enterprise performance in Nepal. 

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Governments in low-income countries often emphasize the importance of micro-enterprise development as a means of reducing rural poverty. In Nepal, as part of its Ninth Periodic Plan (1997-2002), the government launched a micro-enterprise development programme which extends entrepreneurship trainings, consultancy services, technical assistance and credit to rural villages, with the aim of improving the performance and growth of the country’s cottage and small-scale industries. The programme has been implemented in two-thirds of the rural districts in the country thus far, and had helped create or support over 51,000 micro-businesses and generated employment for 52,374 people in these areas as of 2010. Nonetheless, the programme has also been subjected to the criticism that some of these new micro-firms are not as successful as others, and although micro-enterprise development is one of the major poverty reduction strategies in Nepal, only few studies have been conducted to identify the factors determining micro-enterprise performance in the Nepali context.

Drawing on a rigorous review of previous theoretical and empirical studies, the researcher thus plans to examine the determinants of micro-enterprise performance in rural Nepal by collecting and analysing data on the micro-firms created or supported by the government’s microenterprise development programme. The analysis will focus on the relationship between firm performance (measured by levels and growth rates of sales, profits, assets and employment) and each of the following factors:

  • Entrepreneur characteristics, such as gender, age, education, experience, managerial skills, motivation
  • Firm characteristics, including size, age, sector, financial constraints;
  • Characteristics of the environment in which the firms operate (e.g. level and nature of the competition, firms’ social networks).

Qualitative methods, in the form of case studies and focus group discussions, will be used to supplement the findings derived from quantitative methods, to provide a more comprehensive analysis of micro-enterprise performance.

Findings from this study are expected to be of use to Nepali policy-makers for the evaluation and refinement of the different policy instruments involved in the government’s micro-enterprise development programme.