Banks need to think out of the box on MSMEs

Inadequate flow of credit to the MSMEs is a global problem

Kochi: While the Prime Minister has come out with his thrust on 'Make in India' and 'Skill India', the present financial architecture in the country does not truly support such a policy perspective, says Dr P M Mathew, Director, Kochi based Institute of Small enterprises and Development. He was speaking about the 'Micro, Small and Medium Enterprise Report 2014' report, which analyses the latest scene of enterprise development and entrepreneurship in the country and was released recently. Inadequate flow of credit to the MSMEs is a global problem.

While entrepreneurs often complain on the problem of credit stringency, banks account it for entrepreneurs' lack of financial knowledge and improper guidance, a release quoting him said. The ISED findings are based on a research by a team of its specialized knowledge platform, the 'ISED Small Enterprise Observatory'. The expert team's investigation, including discussions with top management of various leading banks, indicates that: morbidity among MSMEs was considerably less than that in the corporate sector; recovery levels were high and the speed with which they fall back on track was faster.

The overall impact of failures was much lower than that in respect of large units. If that be so, one wonders why the interest rates for MSME lending should be 13 to 15 per cent while larger industries get finance at 10 to 11.5 per cent, he asked. While the MSME credit gap is a global problem, a solution can best come from developing and articulating a business case, by which banks find lending to MSMEs a truly attractive business proposition.

However, the thrust of policies so far has been more regulatory than promotional. The report calls for a paradigm shift. New institutional structures and incentive systems need to be explored. Such a search for alternatives need to be based on a close understanding of the existing regulatory and cultural practices at various levels.

( Source : PTI )
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