What is One to Watch (OTW) doing to support the pandemic-stricken Nepali SMEs?
We observed the need for short term financial and non-financial support for MSMEs to survive through the pandemic early on. However, the market possessed a pre-existing MSME financing gap where financial institutions lacked adequate motivation or need to offer high-risk collateral free lending for MSMEs.
In October 2020, OTW with the support from the Swiss Agency for Development and Cooperation (SDC) launched the Covid-19 MSME Fund Nepal. The main objective of the fund is to support businesses that possess the potential to sustain, pivot and return to positive cash flow by providing them interest and collateral free loans to meet their short- term working capital needs.
For the purpose, we have partnered with NMB Bank, Laxmi Bank and Nabil Bank. Under this arrangement, the fund will be supporting up to 100 MSMEs who will in turn support the retention of 1,000 jobs. Furthermore, selected MSMEs will also be provided with technical assistance in the form of tailored business advice to help them improve, sustain and scale their business operations. We do encourage innovative and sector-disruptive business models but remain sector agnostic – implying that the fund is open to businesses of all sectors.
How has the response been like from the pandemic affected MSMEs to the joint initiation?
We have received an overwhelming response through our online application portal for the Covid-19 MSME Fund Nepal. Applications have been coming from enterprises ranging with turnovers from Rs 3.6 million to Rs 300 million annually. The loan approvals till date have been to sectors such as healthcare, manufacturing, agriculture and education.
Based on our observations and interactions with applicants, businesses irrespective of sector, size and geography have been impacted by the pandemic and will require all the support possible to help them get back. The Covid-19 MSME Fund is at its early stage and we hope to create a strong socio-economic impact as we progress. We initiated this blended finance mechanism to replicate and reinforce our efforts on impact investments in Nepal.
What are the criteria for the SMEs to receive the funding?
We are looking for businesses with at least 2 years of operational history, at least 10 direct employees, audited financial statements for the past two years, with an innovative and sector-disruptive business model, a vision to scale and who are passionate entrepreneurs.
How many SMEs have benefitted from OneTo Watch financing so far?
We have received over 1,000 applications till date. We have initiated our screening process with the applications and forwarded significant applications for further review to the partner banks. A number of applications have been approved and disbursed by the banks and many are underway towards disbursal.
How much investment in the SME sector has OTW made in Nepal so far?
OTW since its inception has prioritised impact as its core investment strategy, resulting in our investments being focused on businesses with strong socioeconomic impact. In Nepal we have invested in 17 SMEs in sectors such as waste management, education, agri-tech, energy, non-food manufacturing and so forth with over USD 6 million already invested. We have also made a conscious effort of investing in women-led businesses.
What are the major issues that SMEs are facing to apply for your financing programme?
Specific to the Covid-19 MSME Fund Nepal, our eligibility criteria has been established to capture a broad MSMEs sector profile of Nepal. However, we are seeing applications from pre-revenue businesses, newly registered companies with no financial history, trading companies with hardly 2-3 employees, companies with consecutive years of losses, ambiguous account books as well as unregistered companies.
In order to get funded, the businesses would have to adhere to the minimum governance, compliance and due diligence requirements of our partner banks. Our partner banks have their respective risk appetite and need to adhere to the guidelines of NRB which creates a gap in access to funding for these companies.
Besides financing, how is OTW playing a broader assistive role to help SMEs overcome the difficulties?
OTW has been providing a wide range of business development services (BDS) to SMEs in the form of accelerator programmes and tailored business advisory services targeted at specific needs of the company. The objective of our BDS activities has been to develop the entrepreneurial ecosystem holistically and create a pipeline of investable companies for OTW by providing mentorship and BDS support for companies in pre-investment stage. Under the mentorship programme, we have a pool of local and foreign mentors that we leverage on and also provide a platform for entrepreneur to network with relevant experts and stakeholders. Till date, in Nepal and Myanmar, we have supported more than 140 companies under BDS and 70 companies have benefited from our accelerator programmes of which 21 have received equity investments.