In recent years, Nepal’s entrepreneurial ecosystem has been buzzing with opportunities, particularly through government-backed initiatives such as the Startup Loan Program. The program, aimed at nurturing startups with subsidized loans up to Rs. 2.5 million, has garnered significant attention. However, a deeper dive into the data and definitions raises questions about whether the businesses receiving this support can truly be classified as "startups," especially in terms of innovation and scalability.

The 2080 Evaluation: A Success Story or a Missed Opportunity?

To understand the scale of the initiative, let’s rewind to the 2080 program, where 394 project proposers made it to the list of eligible candidates. Of those, 335 gave their presentations. The evaluation was based on a comprehensive set of criteria: presence of proposers, the quality of photos and videos, financial details, the presentation itself, and a Q&A session.

In the end, 183 businesses were selected based on a total score that combined an evaluation committee’s ratings and a credit appraisal. A firm cut-off point was established, requiring more than 50% of the total score to qualify for the final selection. These 183 “startups” were deemed worthy of receiving government-backed loan assistance, signaling a positive start for many entrepreneurs. Out of the 183,  Government had already disbursed NPR 170 Million to 165 startups by end of July 2024 itself. 

But is this really a robust definition of success?

2081: A Significant Surge, But Are They Really Startups?

Fast forward to 2081, the number of applicants for the same program skyrocketed to 3323—a nearly 100% jump from the previous year. Out of these, the Industrial Enterprise Development Institute, the government body authorized for the selection process, will soon conduct the initial screening and publish a shortlist for further presentation and selection. The surge in applications in the second year signals growing awareness and interest, but it also raises important questions:

• Are all of these truly startups, or is the definition being stretched?
• How do these businesses align with the program’s aim of promoting innovation and scalability?

Many of the businesses shortlisted in the past were predominantly traditional ventures such as agro-farms, computer training centers, and small retail shops like beauty parlors and tailoring shops. This has sparked debates on whether such enterprises meet the criteria of "startups," particularly when considering the notion of high scalability and innovation.

Defining a Startup: The Criteria Under Scrutiny

The Industrial Enterprise Development Institute (IEDI), which oversees the Startup Loan Program, has laid down specific criteria for what qualifies as a startup. These include:

1. A business should be operational for no more than 10 years from its registration date.
2. The business must be registered as a private firm, partnership, company, or cooperative.
3. Annual turnover should not exceed Rs. 150 Million in any financial year.
4. The entity must not be the result of splitting or merging an existing business.
5. The business must be based on an innovative and creative idea with high potential for growth.

These criteria are largely inspired by India’s Startup India Scheme, but there's a lingering question: What exactly constitutes an “innovative and creative idea”?

When is a Startup Not a Startup?

Let's take a closer look at the types of businesses that have been selected for this program. Past recipients have included:

• Agro-farms
• Snack shops
• Computer training institutes
• Beauty parlors
• Tailoring shops

These are undoubtedly legitimate businesses and may play a crucial role in the local economy, especially in rural areas. However, do they truly fit the definition of a "startup," which implies a business that can scale rapidly and create significant impact, potentially disrupting markets?

Consider the agro-farm: While agriculture is essential and can be innovative—think of organic farming or vertical farming—most selected agro-farms in these programs have been traditional setups. Similarly, a Snack shop (Khaja Pasal) or tailoring shop might serve a community well but doesn’t seem to meet the “highly scalable” criteria or demonstrate groundbreaking innovation.

Innovation vs. Tradition: Where Should We Draw the Line?

While the definition of a startup doesn’t necessitate tech-driven solutions, the inclusion of small, traditional businesses raises concerns about whether the program is living up to its intended purpose. The key here is scalability and innovation. These are the pillars upon which the concept of a startup stands.

• Scalability refers to the business’s potential to grow rapidly without proportionate increases in cost. A computer training institute or tailoring shop, while vital, is unlikely to see the rapid growth or scaling potential that a tech-enabled platform, for instance, might have.
• Innovation is about introducing something new or improving upon existing products or services in a way that significantly changes the market landscape. Are agro-farms or beauty parlors introducing groundbreaking changes that can disrupt their respective industries?

A Need for Stricter Criteria and Clearer Definitions

Nepal’s startup ecosystem stands at a critical juncture. With the government offering financial support, it is crucial that the program is helping the right kind of businesses. The fact that the number of applications doubled between 2080 and 2081 is a promising sign of growing entrepreneurial spirit. However, the lack of clear demarcation between traditional small businesses and innovative startups could dilute the impact of this well-intentioned program.

What’s missing is a clearer understanding and enforcement of the term "innovative and creative idea"—the heart of a startup. The program could benefit from stricter guidelines on how businesses demonstrate innovation and scalability in their operations. Without this, there’s a risk that the program will continue to fund businesses that, while important, may not contribute to the larger goals of fostering innovation or driving significant economic growth.

Conclusion: Time for a Rethink

Nepal’s Startup Loan Program has the potential to be a game-changer for the country’s entrepreneurial landscape, but the current model seems to be casting too wide a net. While there’s nothing wrong with supporting traditional businesses, calling them "startups" might be a stretch.

Moving forward, policymakers need to rethink the criteria for what qualifies as a startup, focusing on promoting genuinely innovative and scalable businesses. By doing so, they can ensure that government funds are directed towards ventures that truly have the potential to grow and transform the economy, rather than simply sustaining small-scale, low-growth operations.

In this critical time for Nepal’s economy, innovation should be at the forefront of any entrepreneurial initiative—and it's time the program reflected that.