Only about 34 per cent of companies operating in the micro, small and medium enterprises sector have access to banks and financial institutions, while the rest raise money through informal channels, says a survey.
“Lack of adequate finance due to shortage of organised lending from banks and other formal sources together with absence of transparency regarding their financial condition is proving to be a stumbling block in growth of MSMEs in India,” the survey by industry body Assocham and Resurgent India said. The un-organised channels include informal financiers, friends, family and other such personal channels.
The MSME sector at present has debt finance demand of over Rs 32 lakh crore. Out of this, over Rs 6 lakh crore debt is financed through the formal sector.
“Considering the significant scope for flow of banking credit in the MSME sector, RBI had taken steps like priority sector lending to encourage greater bank-led financing.
However, the financing gap has only widened given the massive demand-supply constraints,” Assocham secretary general D S Rawat said.
Public sector banks (PSBs) account for over 70 per cent of debt financing to the MSME sector, while private and foreign banks account for over 20 per cent of credit flow.
“There is an urgent need to strengthen and streamline the credit guarantee system as in its absence smaller units would continue to suffer neglect in accessing much needed credit for both inception and expansion,” Rawat said.
There is also a need to spread awareness about formal financing opportunities within the MSME sector to grow their credit exposure, limit risks and seek better spreads by developing and implementing sector-specific policies, he added.
The government should also facilitate platforms for market linkages, skills development, technological upgradation and promoting cluster development, enhancing advisory support and growth of venture funds targeting the MSME sector.