Defining MSMEs: A Study of Global Practices for Implementation in a Nepali Context

Abstract

This research examines criteria used by countries around the world in defining micro, small, and medium enterprises (MSMEs) and the implications they have for the Nepali economy. The study employs secondary data analysis of Micro, Small, and Medium Enterprises Economic Indicators (MSME-EI) database, which includes data from 176 countries, utilizing statistical analysis to gain insights on global practices while also looking at what is being done in Nepal for the same to compare and chart a path forward. Employee count emerged as the most widely adopted criterion, with turnover and assets size being used as well for classification. Similarly, it was also found that while a country's income level was associated with the use of asset-based classification schemes, a similar association could not be established for employee based and turnover based classification schemes. This contrasts with Nepal's approach of classifying SMEs based on fixed capital while micro enterprise classification is based on multiple criteria such as fixed capital, employee number, annual turnover, annual transactions, involvement of owner and usage of energy. The study shows a need to update the criteria for micro, small and medium sized industries to become more inclusive of existing enterprises as well as upcoming sectors.