MSME Lending Norms
A Study
On
Lending Pattern for Micro, Small and Medium Enterprises
(MSME’S)
Abstract
Micro, Small and Medium Enterprises (MSME’S) play a major role in most global economies. This calls for a better understanding of the financing aspects of MSME’S.
In general there are two broad classifications for financing MSME’S, formal and informal. The formal source comprises of banks and financial institutions who are the lenders of first resort. These are governed by various policies which direct them to provide financing options for MSME’S which form a part of the priority sector. Financial institutions have been set up specifically to provide finance and guidance to MSME’S. Banks on the other hand are stipulated by RBI to ensure that they provide financing to MSME’S as part of their priority sector lending.
The informal sector consists of money lenders, chit funds and family members of the promoter. The money lenders and chit funds comprise of the informal micro finance sector that is prevalent in the Indian economy.
The formal sector perceives the MSME market as a risky prospect. This is a result of the unreliability of the revenue streams of the micro industries, lack of modern management practices, technological constraints and government policy relating to writing off of bad loans. This has created the very negative impression of the MSME market which has resulted in a reluctance of banks to provide finance. The lack of adequate finance option from the formal sector has led to the informal sector comprising of money lenders and chit funds as a major source of financing for MSME’S.
Key words: MSME, RBI, Lending process, Finance, SIDBI
Introduction
Financing of MSME’S is a topic of great interest to both the government and various development financial institutions. MSME’S all over the world play a major role in the economic development of various
On
Lending Pattern for Micro, Small and Medium Enterprises
(MSME’S)
Abstract
Micro, Small and Medium Enterprises (MSME’S) play a major role in most global economies. This calls for a better understanding of the financing aspects of MSME’S.
In general there are two broad classifications for financing MSME’S, formal and informal. The formal source comprises of banks and financial institutions who are the lenders of first resort. These are governed by various policies which direct them to provide financing options for MSME’S which form a part of the priority sector. Financial institutions have been set up specifically to provide finance and guidance to MSME’S. Banks on the other hand are stipulated by RBI to ensure that they provide financing to MSME’S as part of their priority sector lending.
The informal sector consists of money lenders, chit funds and family members of the promoter. The money lenders and chit funds comprise of the informal micro finance sector that is prevalent in the Indian economy.
The formal sector perceives the MSME market as a risky prospect. This is a result of the unreliability of the revenue streams of the micro industries, lack of modern management practices, technological constraints and government policy relating to writing off of bad loans. This has created the very negative impression of the MSME market which has resulted in a reluctance of banks to provide finance. The lack of adequate finance option from the formal sector has led to the informal sector comprising of money lenders and chit funds as a major source of financing for MSME’S.
Key words: MSME, RBI, Lending process, Finance, SIDBI
Introduction
Financing of MSME’S is a topic of great interest to both the government and various development financial institutions. MSME’S all over the world play a major role in the economic development of various
References: RBI Master Circular ‐ Lending to Micro, Small & Medium Enterprises (MSME) Sector IFC: Report on Micro Small and Medium Enterprise Finance in India, November 2012. Ministry of MSME, Govt. of India: Annual Report 2011-12. Research Paper by Rajib Lahiri: Problem and Prospects of MSME in India in the area of globalization. Web Link: RBI Wikipedia http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8192 http://www.ifc.org/wps/wcm/connect/4760ee004ec65f44a165bd45b400a808/MSME+Report-03-01-2013.pdf?MOD=AJPERES http://www.ifc.org/wps/wcm/connect/4760ee004ec65f44a165bd45b400a808/MSME+Report-03-01-2013.pdf?MOD=AJPERES