'One-fourth of MSMEs do not have access to banks for credit'

Only about 33% of the country's MSMEs have access to banks or institutional financing channels, said a joint study by ResurgentIndia and Assocham

As high as three-fourth of India's Micro, Small and Medium Enterprises (MSMEs) do not have any access to banks or institutional financing channels making their businesses vulnerable, according to a study.

Only about 33% of the country's MSMEs have access to banks or institutional financing channels, said a study jointly done by financial advisory firm ResurgentIndia and industry chamber Assocham.

"In the absence of adequate credit, majority of MSMEs prefer to raise financing through personal channels (friends, family or informal financiers), thus, affecting their businesses," it said.

To encourage greater bank led financing, the RBI had increased its focus on this sector through directed lending policies such as priority sector lending norms, the study said adding but still the financing gap has widen given the significant demand-supply constraints.

Further, it said, mostly banks are hesitant in providing credit to small units because they feel these firms are non-transparent regarding their financial conditions.

"The reason for this may be that some enterprise owners themselves may not grasp their financial conditions well. This results in hesitation from banks to give loan to small-scale units," the study said.

In fact, there is an evidence to establish that a fairly significant proportion of loans given to small units in past have compounded the problem of non-performing assets, it said.

Unless there is fairly detailed information on small firms, banks would hesitate to take risk. Hence, securing transparency of financial conditions, eventually, influences decisions on loan finance, it added.

To overcome such challenges and compete in the globalised world, it is necessary to have a good variety of sources of finance. Therefore, the government and RBI should take few more steps to address the issue of inadequate funding to the sector, the study said.

In order to make bank credit more accessible to SMEs, the government and Small Industries Development Bank of India had set up the Credit Guarantee Fund Trust for Micro and Small Enterprises, providing guarantee cover for credit facilities.

Also, the Prime Minister's Task Force on MSMEs had recently recommended 20% year-on-year growth in credit to micro and small enterprises to ensure enhanced credit flow. But most of the units still face problems in getting easy access to finance.

The MSME sector has been witnessing a slow growth with its share of exports falling from 40% to 36%.

It also contributes over 8% to India's GDP and accounts for 45% of manufacturing sector. There are about 3.6 crore such MSMEs, employing over 8 crore people.