More than 60 per cent of Indian micro, small and medium enterprises (MSMEs) rely on debt as a mode of financing for their long-term financial needs, says a survey by Confederation of Indian Industries (CII).
For the short term, close to 75 per cent of Indian MSMEs use debt financing while 15 per cent use equity. Lack of equity finance options is a big drawback for the MSMEs, the survey says.
Overdraft facility and the cash credit facility is the most preferred debt financing options among Indian MSMEs, with nearly 85 per cent opting for these.
Ninety per cent of the respondents said the current interest rate structure in India was worse than the structures being followed around the world. Nearly 65 per cent were of the opinion that “exorbitant credit costs” would have an unfavourable impact on their business.
According to the survey, close to 35 per cent thought that the current policy initiatives taken by the Government, such as the purchase preference policy, the national manufacturing policy, the SME exchange and allowing FDI in retail, would help the sector in accessing higher volume of credit at competitive costs.