INNOVATIVE STARTUP CAPITAL GRANT SCHEME BY GOVERNMENT OF NEPAL

The National Planning Commission, Government of Nepal, issued a notice on 29 Baisakh, 2076 (11 May 2020) requesting proposals (“RFP”) from innovative startups in need of initial capital (seed capital) to start their business. The RFP was issued as per the Innovative Start-up Capital Grant Procedure, 2076 (“Procedure”) and Guidelines and Procedure for Call for Proposal and their Selection for Innovative Start-up Capital Grant, 2077 (2020) (“Guidelines”). As per the notice, any person or institution who is an inventor, industrialist or entrepreneur with innovative knowledge, skill and capacity (“Innovators”) may apply for the grant.

Further requirements and procedure will be guided by the Procedure and Guidelines. Government issued the Procedure following the power vested by Section 9 of the Appropriation Act, 2077 with an aim to clarify, manage and ease the process of availing the initial capital (seed capital) to the Innovators such that they could start their business or enterprise and steering committee formed pursuant to the Procedure (“Committee”) constructed the Guidelines. Guidelines and Procedures provide that selected applicants shall be provided with a grant of a maximum of NPR 5 million or 50% of their project cost; whichever is less; and the number of projects to be awarded shall be as decided by the Committee. As for now, the Committee has not revealed such numbers of grants it will be handing out or the total size of grant amount for the fiscal year of 76/77 (19/20).

The major aspects of the Procedure and Guidelines is elaborated below:

Required Qualifications for the Applicants/ Project:

    1. Applicant must be any person or institution who/which is an inventor, industrialist or entrepreneur belonging to the sectors of either information technology, agriculture, energy, health, tourism, education, industry or other specified miscellaneous sector specified in point number 2 of the Guidelines; and their project area must be in Nepal.
    2. Applicant shall be either one of the following:

a. A person or institution who invents any goods or service for public benefit through self study or research ; or
b. Any micro, cottage, small or medium industry, firm or company that shall produce goods or services using innovative knowledge, skill, technology and capacity; or
c. Any inventor, person or institution that invents modern technology which decreases production cost, such as the technologies that make industrial use of agricultural products.<

    1. Applicants must use innovation (self entrepreneurial tasks that develop high quality invention and technology with efficiency, proper and minimum utilization of time, cost, energy and optimum utilization of bare sources through technology) in their proposed project.
    2. The proposed industry or business must be lawfully registered at a concerned government office. And must own a Permanent Account Number.
    3. The constitutional documents of the Innovator must be related to the work area of the enterprise or business.
    4. The term of the proposed innovative project shall be not more than eighteen months.
    5. Mobile apps, products, equipment, tools, service, software et. al. used in the proposed innovative project must be made in Nepal.
    6. Applicants must not have been blacklisted by the Credit Information Bureau and should not have received any prior grant from the government of Nepal.
    7. The capital or cost of the project must be a minimum of NPR 1 million, and a maximum of NPR 10 Million.

How Can One Apply/ Terms and Conditions

      1. Prescribed form (annex 1 of the Guidelines) shall be submitted along with required documents including the project proposal in prescribed format (annex 2 of the Guidelines) to the National Planning Commission (“Commission”) within thirty days of the notice i.e. 27 Jestha, 2076/ 9 June 2020.
      2. Project proposals must include the status of self investment, amount of grant requested and other investment partners. It must be signed and stamped and submitted following all procedures.
      3. An applicant can apply for only one project. If the applicant submits more than one, only one of such submissions shall be included in the selection process. However, it is not clear whether proposals of companies with overlapping investors could be sanctioned with this provision.

How Will the Selection be Made?

The Committee shall form a Proposal Evaluation Subcommittee consisting of concerned specialists to evaluate the proposals. Subcommittee shall then select appropriate projects on the basis of:

      1. subject matter, gain and effect, risks, cost of the project,
      2. ratio of self investment in the project,
      3. applicant’s qualifications, capacity and network to execute the project,
      4. preparatory works conducted for the proposed project,
      5. and other as considered by the Committee and as provided in Guidelines.

Subcommittee shall then inform the Committee of its decision along with recommendation and the selected proposals. If the recommendations seem appropriate, the Committee shall inform the selected applicants (proposals) within three days and publish the notice through the website of the Ministry of Finance (“MoFA”) and Commission. The number of projects to be selected shall be as decided by the Committee.

Committee will have to complete the whole selection within thirty days of the deadline it published for submission of the proposals.

How Much Worth Is the Grant?

Each grant will be capped at NPR 5 million, or 50% of the proposed cost of the project; whichever is less and the remaining cost should be managed by the applicant herself.

How Will the Grant be Released?

First the Committee will sign an agreement with the selected applicant for the term required for execution of the proposal (“Agreement”). The Committee will then write to the MoFA along with a copy of that Agreement.

MoFA will then release the grant through the stated bank or financial institution in following three installments:

      • 1st Installment of 30% of total grant: Upon Selection of the project.
      • 2nd Installment of 40% of total grant: On the Basis of Work Progress i.e. upon submission of report of completion of 50% of the project work.
      • 3rd Installment of 30% of total grant: After Completion of the Project.

Payment of 2nd and 3rd Installment shall follow only after inspection from concerned ministry.

Confiscation of Grants

Grant can be used only for the approved project. So, the grant amount may be confiscated as the government debt, if the grant is not used accordingly.

The grant may be confiscated along with an interest, if the receiver fails to make amends as ordered or notified after inspections made by the Committee and concerned ministry.

Compliance Requirements After Grant Approval/ Receipt of Grants.

      1. Reporting: Any grant receiver shall submit a report of their activities in every four months to the Steering Committee formed pursuant to the Procedure (Point number 11 of Guidelines).
      2. Assist inspections conducted by the Committee and concerned ministry.
      3. Further terms and conditions for compliance shall be as per the Agreement.

This is a very welcome effort of the government of Nepal that shall definitely encourage young entrepreneurs, innovators and possibly block an early stage of brain drain. It might also bring hope to entrepreneurs, industrialists, business persons, innovators among others in a post COVID phase where the economic situation has been forecasted to be doomed. However, given the lockdown, enthusiastic applicants are expected to face hurdles in applying for the grant.

Our take:

While the initiative itself is noteworthy that the Government of Nepal has finally come up with something relevant to startups and entrepreneurs which may pave the way for fostering entrepreneurship and innovation in Nepal, the implementation is the key and also the very idea of grant may lead to misuse of the funds. These are the few points that the government should have considered:

    • Should have been started as a “revolving fund” requiring the beneficiaries to repay so that this can work as a sustainable model on the long run and this scheme continues to be self sustainable without any stress on the government treasury and people’s hard earned money paid in form of taxes.
    • A nominal interest of say 2 to 3% should have been able to cover its administration and management expenses.
    • The overall implementation should have been given to a government incubator or private incubators (through a transparent bidding system) rather than the National Planning Commission.

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