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Facilitating Credit via Mid-Level

November 12, 2010 | COMMENTS ( 0 )

Facilitating Credit via Mid-Level

Access to credit, remains a major problem for the MSME sector. MSME is mostly an informal sector with 94% of unregistered units and 97% of un-incorporated units operating under the umbrella. Access to adequate funding is a major problem in this sector. An RBI report shows that only 5% units in this sector has access to institutional funds. Even though lending to MSME is compulsory for commercial banks as part of priority sector lending (PSL), which is 40% of its total lending, they are not given a fixed target for disbursal to this sector like in agriculture (18%).

 

The present financial flows are hugely insufficient.  Sidbi takes up the role of refinancing from time to time and NSIC is a small, niche player. Keeping in view the size of the sector’s demand, their impact has been rather modest. MSMEs not only face difficulty in obtaining funds they also suffer from the poor quality of service, lack of transparency in costing and deficient domain knowledge of bankers.

 

Currently the MSME sector comprises around 26 million units. Around 70% of them are service enterprises. It is a hugely heterogeneous sector that includes every possible business activity. The major sub-sectors of the sector include food, textiles, engineering (using metals, plastics, chemicals, rubber etc), leather, telecom, machineries and machine components and pharmaceuticals. The sector is clocking a growth rate higher by two percentage points over the average industrial growth for years now. This drift is likely to continue for some time. Anil Bhardwaj, secretary-general, the Federation of Small and Medium Enterprises (Fisme), believes creating dedicated financial institutions to fund start-ups of first generation entrepreneurs would go a long way in fostering MSME.

 

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