It is observed based on facts that only a micro percentage of MSME units could avail bank finance and the majority are still left out from availing Bank finance. Such units meet their financial needs from their own equity or sources like borrowing from friends and relatives or resort to costly private borrowings.
The cause for not accessing bank Finance is inferred to be the following:-
- Not able to meet the requirements of Banks for extending credit like their insistence on.
- Bringing more equity as margin
- Collateral security
- Third-party guarantee
- Submitting required financial details owing to failure to keep proper books of accounts.
- Not able to put their credit request in a bankable proposal.
- Tend to confine their activity within their own means, thereby forgo benefits of the larger scale of operation.
On the other hand, Bankers hesitate to lend due to various reasons and some of them are:-
- High-risk perception by them about the proposed venture, including possible diversion/siphoning of borrowed funds.
- Reluctance to come out from the traditional security approach based lending, requiring collateral security, third party guarantee, etc. notwithstanding the availability of CGTMSE guarantee cover for credit limits up to Rs100L.
- Apprehension about lack of required management and marketing skills, professionalism, adequate technology innovations, market awareness, experience, adequate infrastructure, capacity to withstand competition, capacity to sell the product with competitive terms, etc which are much-needed inputs on the part of the entrepreneur so as to be successful in the venture, unless he is able to convince the lending Bank on all these vital points.
- The relatively small ticket size of loans, no credit history, no previous bank dealing by the applicant, etc. also hinders credit sanction.
We are citing the above for your best information so that you can plan well in order to get eligible Bank finance and enjoy the fruits of financial inclusion. Please note that the following would be of help to MSMEs:-
- Building up the transaction and good credit history over a period of time
- Scaling up various govt schemes available to MSME including financial inclusion
- Skill development, developing technical, marketing, and managerial abilities will confer to you the ease of doing business and taking your enterprise on the planned growth track.