Why digital solutions matter for micro, small and medium enterprises in Nepal

Digital finance solutions such as e-commerce have proven essential to increase resilience and mitigate the economic impact of COVID-19 on micro, small and medium enterprises.

Maria Perdomo

  • Read Time 4 min.

The government of Nepal and its people have made enormous progress in reducing poverty and swift economic recovery from COVID-19, with estimated growth of almost 5 percent in 2023. However, the lingering impacts of the pandemic and inequality pose significant threats to the achievement of the Sustainable Development Goals (SDGs) in Nepal.

At this ‘make or break’ moment for Nepal, the delivery of targeted and effective finance has the potential to be a decisive factor in our collective success. The UN Capital Development Fund (UNCDF) is ready to deliver on the promise of SDGs in Nepal by catalyzing public and private finance and channel it towards development gains with traditional grant-making and technical assistance.

But we want to go further to reach the last mile and we can employ UNCDF’s unique financing instruments, including loans, guarantees and blended finance funds, to help digitize micro, small, and medium enterprises’ (MSMEs) supply chains with innovative development finance. MSMEs are a key catalyst to the growth of Nepal’s economy, contributing 22 percent to the GDP of the country. Over 90 percent of registered enterprises are MSMEs and 95 percent of employment is created by the sector, employing 2.7 million people. However, despite their key position in the country’s economy, job creation and economic progress, 37 percent of MSMEs cannot grow due to a lack of access to finance. Overall, the MSME finance gap in Nepal is estimated at US$3.6 billion with only around $731 million currently available. The situation is more acute for women entrepreneurs as they face specific barriers when it comes to access financing for their business such as lack of collateral, social norms that prevent them from owning land or lower business, financial and digital skills. All those factors feed negative stereotypes financial institutions have against women.

On top of these long-existing challenges, MSMEs were greatly impacted by COVID-19, experiencing temporary closures and declines in sales. As we recover from the effects of the pandemic, we have a once-in-a-lifetime opportunity to build back better. Digital finance solutions such as e-commerce have proven essential to increase resilience and mitigate the economic impact of COVID-19 on MSMEs. The government has made deliberate efforts on promoting digitalization with the adoption of the 2019 Digital Nepal Framework. And yet the digital transformation has not occurred among MSMEs, as only 15 percent of Nepali businesses have increased the use of digital platforms or invested in digital solutions since COVID-19.

In that context, UNCDF has leveraged the experience gained over more than 10 years in building inclusive digital financial markets in least developed countries in Africa and Asia, including Nepal. In Nepal, digitalization has already shown how MSMEs can help businesses grow. Over the last year, together with the Swiss Agency for Development and Cooperation (SDC)—our trusted partner and a true supporter of equitable socio-economic development in Nepal for all and, in particular, for women—we helped 4,200 MSMEs go digital.

Our partner e-commerce platforms—Sastodeal and Thulo—as well as Nepal industry federations—Federation of Nepalese Chamber of Commerce and Industry and Federation of Nepali Cottage and Small Industries—helped us to give the most marginalized a chance to join online platforms and gain new digital and financial skills.

Digital literacy and digital skills are key barriers to mobile phone ownership, and often digital financial literacy is lower among women than men. While women-owned MSMEs are on the rise, inequality in wage rates persists and women’s participation in the labour force is much lower than that of men. That is why we focused our efforts on empowering women entrepreneurs with digital and financial capabilities, and now 2,500 women have the right digital and financial skills to better run their businesses, improve their livelihoods and achieve personal goals.

UNCDF’s work in Nepal does not stop at digitizing MSMEs and upskilling their owners. Another example of our strong partnership with SDC in Nepal is our global programme, Migrant Money. The programme is supported by SDC with a generous grant of $8 million and operates in more than 40 countries across the globe. Its 14 private sector partners received performance-based grants totalling more than $3.2 million.

While women-owned MSMEs are on the rise, inequality in wage rates persists and women’s participation in the labour force is much lower than that of men. 

In Nepal, Migrant Money has partnered with IME Pay, Nepal’s top remittance company and the country’s second-largest mobile wallet provider to co-create, pilot and scale up digital finance solutions to understand the remittance market and advocate that migrant financial inclusion and resilient efforts are scaled up in the country. Lack of awareness among remittance receivers means that the adoption of cheaper and quicker digital alternatives to traditional cash channels is limited. In partnership with UNCDF, IME Pay is conducting research to increase the uptake of digital channels by remittance recipients, primarily women.

The vision of UNCDF is to promote inclusive digital economies that leave no one behind and we are thrilled SDC has supported us in realizing this vision in Nepal. UNCDF is dedicated to pursuing strategic partnerships with the government of Nepal, key development partners, including donors, sister United Nations entities and the private sector. Our financing capabilities with the specific capabilities of other organizations can have a transformative impact on the development of Nepal for the benefit of those most left behind.

Read more about lessons learnt from the Leveraging digital solutions for micro, small and medium enterprises in Nepal project here.

The above article is drawn from the statement delivered by Maria Perdomo at the Leveraging digital solutions for MSMEs in Nepal workshop held in the capital on Tuesday. Maria Perdomo is the Regional Coordinator of the UN Capital Development Fund (UNCDF), Asia Regional Office. 


The United Nations Capital Development Fund (UNCDF) is the United Nations’ flagship catalytic financing entity for the world’s 46 least developed countries (LDCs). With its unique capital mandate and focus on the LDCs, UNCDF works to invest and catalyse capital to support these countries in achieving ​the sustainable growth and inclusiveness envisioned by the 2030 Agenda for Sustainable Development and the Doha Programme of Action for the Least Developed Countries, 2022–2031. 

UNCDF builds partnerships with other UN organizations, as well as private and public sector actors, to achieve greater impact in development; specifically by unlocking additional resources and strengthening financing mechanisms and systems contributing to transformation pathways, focusing on such development themes as green economy, digitalization, urbanization, inclusive economies, gender equality and women’s economic empowerment.

A hybrid development finance institution and development agency, UNCDF uses a combination of capital instruments (deployment, financial & business advisory and catalysation) and development instruments (technical assistance, capacity development, policy advice, advocacy, thought leadership, and market analysis and scoping) which are applied across five priority areas (inclusive digital economies, local transformative finance, women’s economic empowerment, climate, energy & biodiversity finance, and sustainable food systems finance).