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As lockdown hits hard, easing loan interest rates and late payment fees may be the difference between scraping by and closing completely for small enterprises

Armed with a spray, hand sanitizer and a mask, Sarmila Chaudhary opened her small clothing shop after three months going without business. She makes sure her customers are wearing masks and sanitize their hands before they enter the shop. 

The sub-metropolis of Dhangadhi, in the far west region of Nepal, has slowly come back to life after three months of lockdown. But it is small businesses like Sarmila’s that bore the brunt of the lockdown and its economic impact.

Sarmila Chaudhary in her clothing store before the lockdown. Now Sarmila only opens her shop for three hours in the mornings and evenings. She strictly applies preventive measures and requests her customers to wear masks and sanitize their hands.

Sarmila opened her small business a year and a half ago with the help of Mercy Corps Nepal’s education project Supporting the Education of Marginalized Girls II (STEM II). The project has supported access to finance with collateral free loans for girls who are interested in opening small businesses and enterprises through the Girls Transition Fund, a revolving fund operated by local cooperatives. 

Sarmila had taken a loan of 250,000 Rs through the GTF to start her small business. After the nationwide lockdown and travel restrictions came into effect on March 24th, Sarmila had no option but to close her business. “At the beginning, we didn’t know the lockdown would continue for so long. But as it kept on getting extended, I started to worry about my business and the loan payments I had to make.” As the days passed by, Sarmila not only lost her regular income but was also facing a challenge to pay back her loan. 

Laxmi Chaudhary of Fulbari was also facing similar problems.  A budding entrepreneur, Laxmi operates a small mobile repair shop in a small town called Fulbari amidst the vast plains of the Terai region. Her dreams to open a revamped mobile showroom have been halted due to the current crisis. “I reopened my shop after three months. I have very few customers now. My daily transactions have decreased to less than 1000 Rs a day. It is 50% of what I used to make in normal times,” says Laxmi.

Many of the small businesses supported by the project through its GTF program and Vocational training program were affected by the lockdown. To help, Mercy Corps Nepal has worked to decrease the repayment burdens on these entrepreneurs. In coordination with the 6 local partner cooperatives, exemptions have been made on late payment fees and the loan interest rates have been reduced from 8% to 5%.  The project also started providing counseling focusing more on the wellbeing of the participants, as an assessment showed that more than 60% of the girls faced some sort of psychological stress due to the impact of lockdown.

Although many businesses are now cautiously reopening, there are no guarantees with the current situation and many small enterprises may see even tougher times ahead. Still, the reduction of interest and fees has helped entrepreneurs like Sarmila stay positive for a little while longer. “The reduction in loan amount was very helpful for me. It significantly helped in balancing the loss incurred during the lockdown.” A sum of NPR 5493 was reduced from her monthly payment sum of NPR 14,488. Sarmila, eligible for another loan application, is eager to expand her business through the GTF loan provision. “I want to add new products and the latest designs. This will attract more customers and help my business grow,” adds Sarmila with a positive smile.