Entrepreneurship is portrayed, often justifiably, as a tool for employment generation and economic growth. However, a common finding across economies is that most entrepreneurs do create very few, if any jobs (Shane, 2009; Astebro and Tag, 2017). Over 90 percent of enterprises in Nepal employ less than five people, often including the entrepreneurs themselves. Therefore, micro and small firm growth (MSE) is an important policy challenge. In this context, this study was conducted to answer two questions:

(1) What factors are impeding the growth of MSEs (number of employees per MSE) in Province 2 and Province 5

(2) What policy actions can address those factors?

We conducted our study using a sample of four distinct categories of firms. The first category of entrepreneurs are the graduates of Micro Enterprise Development for Poverty Alleviation (previously Micro Enterprise Development Programme) project. These entrepreneurs come from very marginalized and underprivileged backgrounds, and usually have low education levels. The second category of entrepreneurs represent the tourism industry and are homestay operators. The background of these entrepreneurs vary from one homestay to another. The third category of entrepreneurs are from manufacturing/production based enterprises. They display strong entrepreneurial qualities. The fourth category of entrepreneurs are from the IT sector, which is usually not talked about when discussions on MSEs are held even though they essentially are MSEs. This wide range of enterprises give us a holistic picture of the challenges faced by entrepreneurs in their quest for growth.

Using in-depth interviews with entrepreneurs and various stakeholders together with literature review and secondary data analysis, we have identified ten factors that affect MSE growth in Province 2 and Province 5. Out of the ten factors, three are related to the entrepreneurs themselves while the remaining seven factors are mostly characteristic of the environment. The salience of these factors vary depending on what category the entrepreneurs come from.