Econ-ity » April 2, 2014

Daily Archives: April 2, 2014

So why don’t kirana pasals grow? – One finding

m_IMG_6776Ever noticed how the ubiquitous Kirana Pasals (mom-and-pop stores), always stay put, selling the same things, retaining the same size, same location for years and years, never growing into some mini-marts or the likes? One needs very little capital and the stores can be operated without much expertise in management or technology making it a luring business for the lower and middle class families. But despite toiling for over 14 hours a day, year in and year out, they just don’t seem to grow. Turns out, registration, which is the first step towards gaining a legal status for any enterprise is one of the contributing factors.

In Nepal, Kirana Pasals fall under the purview of fifteen different Acts and six government agencies. These stores need to be registered at four different institutions – municipality or VDC, Ministry of Commerce and Supplies, Ministry of Industry and Ministry of Finance. Ambiguous drafting of laws and regulations complimented by lack of easy access to the information pertaining to these statutory requirements results in huge costs in terms of financial resources, time and energy. Given the volume of business that these stores carry out and the access to information, figuring out the range of approvals and documentations required to operate under full compliance of these central, regional and local laws becomes costly. The related authorities do not share the information on registration of a kirana pasal with each other, therefore requiring an entrepreneur to deal with each institution separately.

When people open up an enterprise, there is a propensity to grow. Some entrepreneurs voluntarily and some without knowing all regulatory compliances, however, end up operating in the informal environment. Growth in kirana pasals means making a transition into a bigger store, preferably a mini-mart, selling imported goods, hiring employees, using modern technologies and so on. To be able to deliver these services, entrepreneurs need to invest additional capital. Therefore, growth in this business means having easy access to finance. The very fact that these entrepreneurs operate informally bars them from accessing finance. As a result, they cannot grow. Growth for informal enterprises also means that they become more visible to monitoring institutions and this provides perfect disincentive to not grow beyond a certain size.

World over, Kirana Pasals have contributed largely to mobilizing human resource, availing several vital goods to local markets, fostering competition and reducing the income and social inequalities. At a time when brain-drain has been popularly viewed as a major hindrance to Nepal’s growth, kirana pasals signify entrepreneurial spirit in people. But operating under informal environment means that these enterprises cannot grow; their property rights cannot be secured by the law; they cannot access finance and can never rise above subsistence. Big informal economy also means that the country loses out on garnering domestic revenue. Something as simple as registering the store poses serious challenges to the formalization and expansion of the business itself.

The best move in favor of these entrepreneurs would be, then, to shorten the registration process. While we have been clamoring for one-window policy for foreign investments, the same could be applied for kirana pasals – go to one office in town, submit your application and you are formalized and good to go. All the institutions whose purview the kirana pasals fall under need to develop a mechanism of sharing information between themselves as they have better understanding of the regulations. Less cumbersome regulatory procedures incentivizes micro and small entrepreneurs to join the formal economy thus opening up an avenue for them to grow.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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