Reserve 1\5th of priority sector lending for MSME: study

One-fifth of the total priority sector lending must be reserved for the micro, small and medium enterprises (MSMEs), a segment that contributes 40 per cent to country's industrial output, a study said.

"The government must make it mandatory that like agriculture, MSMEs must have at least 20 per cent quota out of the total 40 per cent priority sector lending quota," the study by small business solution and services firm Milagrow said today.

Citing example of the US, where the new administration wants lending to small businesses to be reserved at a much higher levels than the existing levels, the report said the share of credit to the MSME in India is around 10 per cent.

Recently, RBI Deputy Governor K C Chakrabarty had said the credit flow to MSMEs has more than doubled in two years to Rs 2.57 lakh crore in the financial year ending March 2009.

Milagrow, which is organising a World SME Conference next month, said the commercial banks should recognise the government-approved credit rating agencies and disburse faster and cheaper loans.

More than 16,000 units have filed applications with various government approved credit rating agencies such as CRISIL, CARE, FITCH and Dun and Bradstreet till September.

The MSME sector is facing several problems like funding structure, technology upgradation, policy framework and infrastructure bottlenecks, Milagrow' Founder Rajeev Karwal said.

Milagrow's report has also recommended that the Ministry of MSME should create platforms where the small enterprises can network with similar companies globally.

The recommendations were based on analysis of countries Europe, North and South America, including Germany, Italy, Canada and the US, Milagrow said.