Access to institutional finance remains biggest hurdle to growth for MSMEs: Study
Updated: Dec 11, 2015 03:12:59pm
New Delhi, Dec 11 (KNN) Access to institutional finance remains the biggest hurdle to growth for MSMEs, said a study adding that the MSEs tend to be overlooked by institutional finance, for reasons such as information asymmetry, lack of awareness and adequate financial infrastructure.
A joint study by CRISIL and ASSOCHAM found that access to institutional finance remains the biggest hurdle to growth for this segment.
“With access to institutional finance for meeting working capital needs as low as 15%, a good 59% of the promoters relied heavily on own contribution and 26% on supplier credit”, the study found.
All of this impacts the working capital cycle and profitability of micro enterprises, impacting their ability to upgrade infrastructure and technology, expand, or hire skilled workforce, the study highlighted.
To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs.To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs, adds the study.
The study showed that credit flow to MSEs in 2014-15 was Rs 11.37 trillion, of which a lion’s share of Rs 9.66 trillion was through scheduled commercial banks. The study estimates the Rs 11.37 trillion is only a quarter of the total funding demand of MSEs. The rest is met through informal sources, self-financing or remains unmet.
It means Rs 45 trillion would be the total credit demand in the MSE sector over the medium term, including Rs 5.15 trillion in the near-term. The calculation considers three major categories – term-finance, working capital finance, and non-fund limits for enterprises into manufacturing and trading, highlighted the study.
MSEs, together with medium-sized enterprises, form the backbone of Indian industry, employing nearly 80 million people – the most after agriculture. In the study sample of micro enterprises, the average number of employees per enterprise with less than Rs 0.5 crore turnover was 17, compared with 20 for an enterprise with turnover Rs 0.5-1 crore and it points to the large scope for employment in the sector.
It has been wonderful of late to see the sector driving innovation and process/product development in this age of e-commerce. Yet, MSEs tend to be overlooked by institutional finance, for reasons such as information asymmetry, lack of awareness and adequate financial infrastructure, adds the joint study. (KNN Bureau)
A joint study by CRISIL and ASSOCHAM found that access to institutional finance remains the biggest hurdle to growth for this segment.
“With access to institutional finance for meeting working capital needs as low as 15%, a good 59% of the promoters relied heavily on own contribution and 26% on supplier credit”, the study found.
All of this impacts the working capital cycle and profitability of micro enterprises, impacting their ability to upgrade infrastructure and technology, expand, or hire skilled workforce, the study highlighted.
To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs.To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs, adds the study.
The study showed that credit flow to MSEs in 2014-15 was Rs 11.37 trillion, of which a lion’s share of Rs 9.66 trillion was through scheduled commercial banks. The study estimates the Rs 11.37 trillion is only a quarter of the total funding demand of MSEs. The rest is met through informal sources, self-financing or remains unmet.
It means Rs 45 trillion would be the total credit demand in the MSE sector over the medium term, including Rs 5.15 trillion in the near-term. The calculation considers three major categories – term-finance, working capital finance, and non-fund limits for enterprises into manufacturing and trading, highlighted the study.
MSEs, together with medium-sized enterprises, form the backbone of Indian industry, employing nearly 80 million people – the most after agriculture. In the study sample of micro enterprises, the average number of employees per enterprise with less than Rs 0.5 crore turnover was 17, compared with 20 for an enterprise with turnover Rs 0.5-1 crore and it points to the large scope for employment in the sector.
It has been wonderful of late to see the sector driving innovation and process/product development in this age of e-commerce. Yet, MSEs tend to be overlooked by institutional finance, for reasons such as information asymmetry, lack of awareness and adequate financial infrastructure, adds the joint study. (KNN Bureau)
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