New Delhi, Sept 16 (KNN) The overall debt finance demand of the micro, small and medium enterprises is currently estimated at Rs 32.50 lakh crore and it is only 22 per cent of this which comes from the formal sector.
A recent study by the Small Industries Development Bank of India (SIDBI) estimated that most of the debt flows to the registered enterprises, as the risk perception attached to unregistered or unorganised enterprises limits immovable collateral.
As per a paper on the Indian banking industry by resurgentindia – ASSOCHAM, working capital finance and debt for capital expenditure are the major offerings sought by the MSME sector.
“Geographically, MSMEs in eastern India and particularly North Eastern states have been lagging behind as compared to the other states in terms of access to formal source of finance. Lack of facilities such as infrastructure and electricity and roads has been a significant obstacle for the growth of MSME industries in these regions and consequently their access to organised lending from banks. The MSME industries in these states are varied and range from the trade and metal processing centres in Orissa, Jharkhand and Chhattisgarh to forest products and handloom related centres in the North Eastern states,” it said.
Further, awareness of formal financing opportunities increase within the MSME sector, banks get an opportunity to grow their credit exposures, limit risks and seek better spreads by developing and implementing specific policies for MSME sector.
Public sector banks account for over 70 per cent of the debt financing to this sector, while private and foreign banks account for 22 per cent of credit flow.
The traditional challenges faced by MSMEs are limited skills in terms of market assessment at branches; centralised product design across rather than need based customized products that address the needs of specific sub segments; and vanilla models of fund based products and limited credit assessment skills for knowledge based industries with limited immovable collateral.