June 12: IFC, a member of the World Bank Group, is investing another $7.3 million into Business Oxygen (BO2), Nepal’s first private equity fund. The investment is being made through two funds managed by IFC, financed by the Climate Investment Funds and United Kingdom’s Department for International Development (DFID), said the international financial institution. The investment will help BO2 increase its financing for small businesses to help them cope with climate change.

According to the statement, BO2, makes equity investments in Nepal’s high-growth SMEs, helping them achieve their potential and create more jobs. IFC previously provided $7 million of its own funds to BO2 in 2015. In this fresh round of financing, DFID brings in $3.7 million while the Climate Investment Fund’s Pilot Program for Climate Resilience contributes $3.6 million.

The BO2 investment is part of IFC’s SME Ventures program for low-income countries where such funding is not available because of the risk profile and difficult operating conditions. For instance, only 39 percent of Nepal’s SMEs have access to finance, leaving a gap for funds such as BO2 to bridge.

“IFC’s increased support to Business Oxygen will boost our ability to engage with more small businesses,” said Siddhant Raj Pandey, Chairman and CEO of WLC Ventures, which manages BO2. “It puts us in a position to use innovative products and services to provide opportunities for farmers, create quality jobs, and promote energy efficiency.”

Small and medium enterprises (SMEs) are vital to Nepal’s economy. The country’s 111,442 SMEs employ 1.75 million and account for 22 percent of the gross domestic product.

“Business Oxygen will help demonstrate the viability of climate-resilient investments in Nepal to other investors, helping to boost the market for similar investments here and in other frontier markets,” said Mohammad Rehan Rashid, IFC’s Resident Representative for Nepal. “The fund’s ability to provide risk capital to SMEs in Nepal provides a vital solution for firms too small or too new for traditional commercial bank financing.”

“The fund has the potential to create jobs and support economic growth. We know how important SMEs are in Nepal and we at DFID Nepal are committed to supporting them to achieve their growth potential,” said Gareth Weir, Deputy Head of DFID Nepal. 

IFC aims to double its climate-related investments between 2016 and 2021 to 28 percent of its financing. A recent World Bank study showed that climate change could push more than 100 million people back into poverty over the next 15 years, reads the statement.