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Financial inclusion key to growth of micro enterprises

The findings reveal that only 15 per cent of the working capital needs of these micro enterprises were being met through institutional finance

Business Standard  |  New Delhi 

Financial inclusion key to growth of micro enterprises

CRISIL in association with Associated Chambers of Commerce and Industry of India (Assocham), analysed 12,000 micro enterprises (rated between January 2010 and September 2015) to understand the scenario with regard to financial inclusion among micro enterprises - those with annual turnover of less than Rs 1 crore.

The findings reveal that only 15 per cent of the working capital needs of these micro enterprises were being met through institutional finance. They relied heavily on promoters' contribution (59 per cent) and supplier credit (26 per cent), pointing to a huge gap in funding.

Apart from this, it also came to light that the average receivables position of these enterprises was high, at over 70 days. This is in violation of the provision of the Micro, Small, and Medium Enterprises Development Act, 2006, which stipulates that receivables be limited to 45 days, further confirming the gap in working capital funding, which, CRISIL believes, can be bridged by institutional funding. Implementation of various government initiatives such as Pradhan Mantri Mudra Yojana and Trade Receivables Discounting System, among others, will help these enterprises improve access to finance.



Note: This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy. CRISIL has rated over 75,000 MSMEs in India. CRISIL and Assocham released the joint report, 'Financial Inclusion for Entrepreneurship', during the event SME Excellence Award - 2015 organised by Assocham on December 10 in New Delhi.

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First Published: Mon, December 21 2015. 21:10 IST
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