Survival or Growth? Nepal’s Microenterprise Landscape and the Case for a Differentiated Policy Approach

Overview & Synopsis

Informal microenterprises constitute a major share of Nepal’s landscape of urban firms. They absorb a large segment of the labor force, acting both as a safety net and as a critical source of livelihoods in a context in which wage employment opportunities are scarce and often of low quality. Yet, the vast majority of microenterprises operate at subsistence levels, with limited prospects for productivity growth or structural transformation. Drawing on novel data from two new enterprise surveys, the 2024–25 Informal Sector Enterprise Survey (ISES) and the 2025 Micro-Formal Enterprise Survey (M-ES), this report provides the first systematic comparison between informal and formal microenterprises in Nepal. The findings of the report show profound structural differences between the informal and formal microenterprise sectors. They also underscore that only a small proportion of informal firms have the capacity to benefit from a transition to the formal sector. These insights point strongly toward the need for a segmented policy approach that supports most informal firms through livelihood and social protection measures, while providing targeted productivity and formalization support to the small subset of firms with growth potential.