Lack of institutional credit biting UP MSMEs

The lack of institutional credit has been a major impediment to the growth of the Micro, Small and Medium Enterprises (MSMEs) sector in Uttar Pradesh.

Uttar Pradesh has over three million MSME units contributing almost 60 per cent of the state’s industrial output.

According to all-India census of MSMEs, only 62,500 units or roughly 2 per cent of MSMEs in the state had access to institutional financing. The rest were either self-financed or financed through non-institutional sources.

“The lack of financing options has impeded the growth of sector. Only handful of entrepreneurs can arrange funds from personal resources for working capital needs or expansion,” Indian Industries Association (IIA) President Anil Gupta told Business Standard.

He lamented MSME sector was considered risky, hence banks were reluctant to finance them. “Interestingly, the non performing assets (NPA) of MSME sector in India is just Rs 5,000 crore, while a similar amount could be NPA of one big corporate house,” he said.

While, entrepreneurs rue that credit options before them were limited, banks maintain they have sufficient funds, but not much credit demand was coming.

Meanwhile, IIA has joined hands with India’s biggest lender State Bank of India (SBI) for better credit flow to MSMEs and the uplift of the sector. IIA held a meeting with SBI top officials here recently and submitted four-point proposal for meeting the financing needs of the sector, which were granted in-principle approval.

The action plans include tie-up for providing loan to MSMEs, wherein proposals could be routed through IIA, which would evaluate the proposals for processing by SBI. Gupta said Small Industries Development Bank of India (Sidbi) was doing a similar project in Faridabad and wanted a similar arrangement with IIA.

IIA has urged SBI to associate with the former’s e-data centre project. The two partners could organise awareness programmes related to finance/credit and conduct joint studies/surveys to ascertain the health of sector in Uttar Pradesh.

Besides, a joint committee could be constituted to resolve financing and other issues.

SBI Chief General Manager Abhay Kumar Singh said the bank had about 100,000 MSME clients, however, more awareness was required to popularise financing schemes for the sector.

MSME pockets in the state include Varanasi, Allahabad, Moradabad, Saharanpur, Lucknow, Kanpur, Agra, Ferozabad, Meerut, Bhadohi, Ghaziabad, Noida, Bareilly, Gorakhpur, Khurja, Aligarh and Mathura.