Major attention is received by investment policies that support small and medium-sized enterprise (SME) and technology-driven starts-ups. In this research, we investigate the role of the banking and finance policies that support SMEs self-development in Nepal. After joining the World Trade Organization (WTO), the country's government has commenced numerous policies that support entrepreneurial activities. This study's empirical-research results show that, regardless of the funds and plans supporting SME self-development, Nepal still needs a regulatory framework that backs innovative business enterprises and other societal organizations. That will help the country transition to an innovation-driven economy, by enhancing the competitiveness of its SMEs. The insights gained are applicable to other developing and emerging economies, particularly through comprehending the vital role that financial mechanism play in building an innovative economy. Moreover, SMEs often struggle to adopt new and innovative managerial practices. Besides that, also need a bank for lending the loan only to SMEs. [ABSTRACT FROM AUTHOR]