An Empirical Analysis of Barriers and Strategic Pathways for Unbanked Entrepreneurs in Nepal: A Pilot Study

Abstract

Background: Smaller entrepreneurs are considered indispensable in the developmental economy of emerging countries such as Nepal, but a substantial portion of them are left out of the financial system.

Objectives:

1. To examine financial literacy among small entrepreneurs.
2. To highlight major obstacles in getting access to banking institutions.
3. To analyze the viability of digital financial solutions and microfinance institutions.
4. To comprehend awareness and effectiveness of government schemes.

Methods: A cross-sectional study using a structured format with a population of 50 small shopkeepers in Sukedhara, Kathmandu, was used. Data analysis included descriptive statistics, Cronbach's Alpha Test in SPSS for reliability, and a Pearson Correlation Test for four major hypotheses.

Findings: Lack of financial literacy (r=0.68, p<0.01) and geographical restrictions (r=0.72, p<0.01) were strongly related to financial exclusion and informal financial participation. M-banking had a great potential for financial inclusion (r=0.61, p<0.01) but this was conditional on digital literacy. Awareness of government schemes was a critical factor where no important relationship with better access existed (r=0.19, p>0.05).

Conclusion: The financial gap is perpetuated by interwoven demand side (literacy, perception) and supply side (access, product) barriers.

Implementation: To make this vision a reality, a synergistic approach can be adopted, which will include the following: (1) Financial and digital literacy programs at a national level; (2) Improving mobile banking infrastructure and trust; (3) Improving public-private credit guarantee schemes and awareness thereof; and (4) Banks developing new products based on an alternative credit.