Prospects and Challenges of Informal Economic Activities in Nepal: A Comparative Study of Two Sub-Metropolitan Cities in Lumbini Province

Abstract

This paper analyzes informal economic developments in Nepal and their prospects and challenges by evaluating two sub-metropolitan cities named Butwal and Nepalgunj within Lumbini Province. A total of 130 informal business owners from 65 establishments in each city participated in the survey, which used a quantitative research design and closed-ended questionnaire assessment. Two policy-level interviews through key informant interviews were conducted with the mayor of Butwal Metropolitan City and the chief administrative officer of Nepalgunj. The study unveils the problems during business operations, growth potential, and social and economic implications that informal businesses face in these metropolitan areas. The study confirms that informal businesses in Butwal and Nepalgunj face infrastructure, financial, and regulatory barriers that hinder their growth, yet contribute to employment, market adaptability, and potential formalization. The business conditions in these cities differ regarding market infrastructure, financial access, regulatory challenges, and growth potential. Finally, the study contributes to offering strategic policies that will allow informal businesses to become part of the formal economy and support sustainable urban economic growth.