World Bank SME Development Project Approved for Nepal
4th February 2026, Kathmandu
The World Bank’s Board of Executive Directors has officially approved a USD 95 million financing package to accelerate World Bank SME development in Nepal. Announced on February 3, 2026, the Sustainable and Inclusive Finance (SIF) project is designed to dismantle structural barriers that have long hindered the growth of small and medium-sized enterprises (SMEs). With a target to benefit more than 100,000 entrepreneurs, the initiative prioritizes job-led economic growth, financial inclusion for women-led businesses, and the integration of local firms into global value chains.
World Bank SME Development
In a statement from Washington DC, David Sislen, the World Bank Country Director for Maldives, Nepal, and Sri Lanka, emphasized that by easing access to finance and reducing transaction barriers, the operation will foster a resilient private sector capable of driving national prosperity.
Addressing the Financing Gap for SMEs
The primary challenge for World Bank SME development in Nepal is the significant financing gap, estimated at approximately USD 3.6 billion. Most SMEs operate with limited collateral and lack formal credit histories, making them appear “high risk” to traditional commercial banks.
To bridge this gap, the USD 95 million project focuses on:
Expanding Risk-Sharing: Encouraging banks to lend to smaller businesses by sharing the potential losses.
Reducing Collateral Dependency: Shifting the focus from physical assets to cash-flow-based lending and data-driven risk assessment.
Enhancing Productivity: Providing the capital necessary for SMEs to invest in technology, improve product quality, and scale their operations.
Strengthening the Deposit and Credit Guarantee Fund (DCGF)
A cornerstone of the World Bank SME development strategy is the institutional strengthening of Nepal’s Deposit and Credit Guarantee Fund (DCGF). The project will modernize the DCGF to make it a more effective risk-mitigation tool for lenders.
Key upgrades to the DCGF include:
Management Information Systems (MIS): Implementing advanced digital platforms for faster claims settlement.
Risk-Based Pricing: Transitioning to a system where guarantee premiums are based on the actual risk profile of the borrower.
First-Loss Coverage: Introducing mechanisms where the DCGF covers initial losses on SME portfolios, giving banks the confidence to enter underserved markets.
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Focus on Women-Led Enterprises: Dedicated guarantee products specifically designed to empower female entrepreneurs who face disproportionate hurdles in the banking sector.
Modernizing Credit Information Infrastructure
In addition to funding, the World Bank is investing in the technical capacity of the Credit Information Bureau of Nepal (CIBN). This component of the World Bank SME development project aims to create a more transparent and inclusive financial ecosystem.
By integrating “alternative data sources”—such as utility bill payments, mobile phone usage, and trade records—the CIBN will be able to provide credit scores for businesses that do not have traditional bank loans. This “Data-Driven Inclusion” ensures that even the smallest startups can build a credible financial identity. The International Finance Corporation (IFC) is providing technical support to ensure these systems meet global standards for data security and privacy.
Promoting Employment-Led Growth
The ultimate goal of World Bank SME development is to transform the domestic labor market. In Nepal, SMEs account for over 90 percent of industrial firms and the majority of private-sector jobs. By formalizing these businesses and providing them with growth capital, the project aims to reduce youth unemployment and the high rate of labor migration.
The project aligns with the Government of Nepal’s second Financial Sector Development Strategy, focusing on sectors with high employment potential such as agribusiness, tourism, and light manufacturing.
Continuation of National Financial Reforms
The USD 95 million project is not an isolated effort; it is a continuation of the financial sector reforms initiated under the “Development Policy Credit” (DPC) series that concluded in 2024. Those previous reforms laid the groundwork for stability and inclusion, while the new SIF project provides the specific investment needed to turn policy into practice.
Expected Economic Impact
With 100,000 SMEs gaining improved access to finance, the long-term impact on the Nepalese economy is expected to be substantial. Increased SME activity will lead to:
Higher Tax Revenue: As businesses grow and formalize, they contribute more to the national treasury.
Global Integration: Helping local MSMEs meet the quality standards required to join regional and global supply chains.
Resilience: Building a diverse private sector that can withstand external shocks, such as natural disasters or global market fluctuations.
Conclusion
The World Bank SME development project represents a strategic pivot toward a more inclusive and dynamic Nepalese economy. By providing USD 95 million to strengthen the DCGF, modernize the CIBN, and support 100,000 small businesses, the World Bank is empowering the very backbone of the nation. As these SMEs gain the capital and data identity they need to thrive, Nepal moves one step closer to achieving its vision of sustainable, private-sector-led growth.
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