The number of registered micro, cottage, and small enterprises (MCSEs) in Nepal has declined sharply over the past five years, dropping nearly 75 percent despite government efforts to bolster the sector. Data from the Department of Industry reveal that only 21,029 such businesses were registered in the most recent fiscal year, compared with 83,386 in fiscal year 2020-21.

The registrations have steadily decreased year by year, with totals falling from 65,039 in 2021-22 to 37,142 in 2022-23, and then to 23,633 in 2023-24. Officials attribute part of the decline to a shift in registration responsibility: under the government’s 100-point reform plan, the Department of Industry ceased registering businesses with domestic investments up to Rs250 million, delegating this task to lower administrative levels.

Government representatives acknowledge challenges in raising awareness about the benefits of formal registration. A Department of Industry official noted that many entrepreneurs may remain unaware of support mechanisms, despite ongoing promotional efforts.

In 2020, the government established the Micro, Cottage and Small Industry Promotion Centre to provide training and technology transfer in skills including beauty services, tailoring, and plumbing. The centre received a budget of Rs310 million in the last fiscal year, but funding has been cut to Rs130 million in the current year. Further, the Micro, Domestic and Small Industries Promotion Policy introduced in 2024 aimed to encourage local production, harness skills from returning migrant workers, and simplify investment procedures, but has yet to yield significant results.

Despite these initiatives, informal operations remain widespread. The Central Bureau of Statistics indicates that nearly half of Nepal’s business establishments are unregistered. Moreover, over 90 percent of workers in micro, cottage, and small enterprises with fewer than 10 employees work informally. The National Economic Census 2018 reported 923,356 business establishments nationwide, with about half formally registered. MCSEs comprised 69.3 percent micro enterprises, 25.2 percent small enterprises, and 5.5 percent medium-sized enterprises, collectively employing approximately 2.74 million people.

Micro, small, and medium enterprises (MSMEs) represent 99.8 percent of all businesses, 84.7 percent of total employment, and 62.2 percent of annual sales, while also accounting for almost all women-led enterprises. Nonetheless, a Nepal Rastra Bank study found declining business performance among 52.7 percent of surveyed MCSEs, with only 27.1 percent reporting improvement.

Entrepreneurs frequently cite limited access to capital as a primary obstacle. Manju Kumar Koju, co-chairperson of the Cottage and Small Industry Committee at the Federation of Nepalese Chambers of Commerce and Industry, highlighted that most micro and cottage businesses operate at a small scale from homes and lack sufficient funding. Koju also criticised inadequate market support and alleged that government-provided benefits such as subsidised loans and machinery often favor entrepreneurs with political or bureaucratic connections, leaving genuine small business owners struggling or operating informally.

Economic and political instability further complicates the environment. According to the Nepal Rastra Bank report, frequent policy shifts and macroeconomic uncertainty have undermined confidence and constrained growth. The report identified a disconnect between MSME needs and current institutional support, calling for more accessible, stable, and technology-driven interventions.

A World Bank analysis echoed these findings, noting that most informal microenterprises operate at subsistence levels without growth prospects and remain outside the formal sector primarily out of necessity. It recommended a differentiated policy approach that balances social protection and livelihood support for subsistence businesses with targeted productivity and formalisation measures for those with growth potential.