Living in the developed world, we take for granted the availability of credit for business expansion. However, in many of the emerging economies, micro, small and medium enterprises (so-called MSMEs) do not have access to banks for credit.
A survey conducted jointly by the financial advisory firm Resurgent India and Assocham (Associated Chambers of Commerce and Industry in India) found about three-fourths of India’s small enterprises don’t have access to bank financing.
The vast majority of these small businesses rely upon an informal system of personal lending and non-regulated loans. This dramatically affects their ability to expand and grow their businesses and serves to keep many industries fragmented.
“Most banks are hesitant
to lend to these small businesses.”
“The reason for this may be that some enterprise owners themselves may not grasp their financial conditions very well. The result is hesitation on the part of banks to give loans to small-scale businesses,” the study read.
The Reserve Bank of India, in an effort to increase bank lending to small enterprises, has offered to fund a growing number of these lending programs.
The government, through the Prime Minister’s Task Force on MSMEs, has recommended increasing lending by 20 percent annually to help these businesses grow. In support of this initiative, RBI has set up the Credit Guarantee Fund Trust to provide credit facilities.
Still, the MSME sector has a long road ahead of it. In the most recent period measured, growth in exports coming from these small and micro enterprises slipped from 40 percent to 36 percent year over year.
Source: economictimes.com. Photo source: acestoohigh.wordpress.com.