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Issues and challenges in access to finance for MSMEs

The inadequate amount of understanding about financial products and services causes hindrance in cash flow

Micro, small and medium sized organizations play a pivotal role in a country’s economic development, especially in India as it’s working on an everlasting growth tangent. This specific sector has a huge contribution towards the country’s growth, innovations and 

employment generation. MSMEs are still unable to integrate seamlessly with the finance sector. But once they do, they can tap their utmost potential backed with adequate finance and investments.

With the advent of modern age technologies and its adoption, the financial sector and institutions have multiple credit services to offer, especially to MSMEs. Unfortunately, it’s the lack of understanding that creates hindrance for MSMEs to grow and make a stable market presence. This segment is yet to comprehend banking procedures and risk return frameworks to excel financially. Besides, there are a range of issues that limit MSMEs in gaining access to finance as follows:

Business Operations Have Friction

The strict government protocols make MSMEs struggle for approvals to begin their business journey. There are multiple loopholes that restrict small sized companies from flourishing or growing well in the market. Factors like construction permits and MSME loans create a ruckus for entrepreneurs. Such issues demotivate them to either drop or delay their start up idea. Moreover, businesses have to wait and clear up multiple legal procedures before actually starting their core operations.

Inadequate Financial Expertise

To keep business expansion from collapsing, the right financial strategy becomes crucial. However, a lot of entrepreneurs have inadequate financial expertise. Lack of information disables them from steering their business in the right direction. Running a business, especially a start up, requires a strong knowledge about the financial market. Otherwise, businesses can end up making wrong decisions and add an unnecessary cost to the company. Start ups also have to rely on MSME loans to keep away from the entire economic shift caused by the pandemic. Hence, understanding and comparing before finally investing in MSME loans becomes of utmost importance.

Feeble Access to Financial Solutions

The regulatory loopholes cause perennial problems for MSMEs. It hinders financial access even though the government has implemented measures to make credit access for startups available. Due to lack of funding, businesses end up in a pithole of problems related to manufacturing, getting access to raw materials and acquiring new technologies. In addition to the MSME financial crisis, liquidity crunch has also troubled MSMEs in getting simpler credit access.

Absence of Collateral for Loans

There are multiple scenarios in which MSMEs are denied loans due to strict collateral requirements. In most cases, small companies do not possess their own property or enough collateral to fulfill the bank’s protocol. As a result, they get stuck with completing 

the verification process to get a loan sanctioned. Such business owners keep an eye for unsecured loans so that they do not have to fret over providing collateral and get stuck in complicated loan approval processes.

Huge Gap in Technology Access

Lack of awareness causes businesses to struggle in reaping the benefits of technological advancements. Hence, keeping a track of favorable technologies should be an integral part of any startup’s beginning stage. The government is making concentrated efforts to streamline and provide solutions to MSMEs technology related problems.


The stance of MSMEs in India has extreme potential as it already adds up to 28 percent of the country’s GDP. But there is an urgent need for a sustainable financial ecosystem. Such a system should promote healthy and secured credit access for companies to bring their innovative ideas to the market. Until the credit gaps are filled, the Indian entrepreneurs would remain immobilized with high debt rate and low loan disbursal availability. Hence, this situation calls out for a financial restructuring and its implementation throughout the nation.