Lack of proper books of accounts, absence of a cost-effective and innovative credit rating mechanism suited for SMEs, and failure to embrace technology are some of the reasons that deprive formal credit to the Micro, small and medium-sized enterprises (MSMEs), felt the members of a panel discussing ‘Keeping Your Business Well Funded’, at the SME Conclave.
The panel, which comprised members from the banking and financial sector, credit rating agency and small industry body, deliberated on the financial challenges faced by the MSME sector and various solutions to address the issue.
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Credit gap
Today, the credit demand of the SME sector is estimated at ₹37-lakh crore. The formal sources contribute only ₹16- lakh crore, leaving a credit gap of ₹20-25-lakh crore.
“SMEs are not getting their due share of bank credit because they lack professionalism in maintaining the books of accounts and meeting the underwriting requirements of the bank,” said K Srinivasan, Senior Vice-President and Head of CV/CE Business, Federal Bank.
Noting that the SME sector is a crucial driver of India’s economic growth, the banker said that most of the credit applications of SMEs get rejected during the appraisal stage since banks are unable to assess their financial ability due to inadequate information.
Source: The Hindu BusinessLine
