Lack of understanding of financial products hindering MSME

The lack of basic understanding of financial products and services is hindering the progress of MSMEs, a senior RBI official has said.

Micro, small and medium enterprises play a significant role in economic development, in terms of their contribution to employment generation, innovation, exports and inclusive growth, he said.

The union government and the RBI have undertaken several measures for orderly growth of the sector, said RBI Regional Director for North Eastern Region, Manoranjan Dash, while inaugurating the 'Financial Literacy Week 2020' here.

"The lack of basic understanding of financial products and services, banking procedures and risk-return framework inhibit the progress of MSME units," Dash was quoted as saying in a release issued by the central bank on Monday.

The fourth edition of the Financial Literacy Week held from February 10-14 on the theme of MSMEs focused on collateral free loans, trade receivables discounting system (TReDS), formalisation and timely repayment of loans, and how they benefit by being a part of the formal banking system.

With a network of about 6.34 crore enterprises, the sector contributes about 45 per cent to manufacturing output, more than 40 per cent of exports, over 28 per cent of the GDP, while creating employment for about 11 crore people, the RBI release said.

The Expert Committee on MSMEs (June 2019) constituted by the RBI has made several recommendations for addressing problems persisting in the MSME sector, Dash said.