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Finance for Micro, Small, and Medium-Sized Enterprises in India: Sources and Challenges

Author

Listed:
  • Singh, Charan

    (Asian Development Bank Institute)

  • Wasdani, Kishinchand Poornima

    (Asian Development Bank Institute)

Abstract

Finance for micro, small, and medium-sized enterprises (MSMEs) has been a concern for all stakeholders including entrepreneurs, financial institutions, and government organizations. The key objective of the study was to identify various challenges faced by MSMEs in sourcing of finance during different stages of their life cycle. This study is a first-of-its-kind attempt to focus on these aspects. The study further explores whether the financial awareness of MSME entrepreneurs is a major limitation in the identification and utilization of sources of finance. Data was collected through personal interviews using a structured questionnaire from a sample of 85 MSMEs. The survey was conducted mainly in the city of Bangalore covering a wide spectrum of sectors like precision tools, weavers, jewelers, food retailers, metal works, textiles, and book shops. The results reinforce the findings of other studies that utilization of formal sources like banks is significantly small compared with informal sources like personal and family wealth. The study found that the main challenges faced in underutilization of formal sources were inadequacy of collateral assets and lack of financial awareness of entrepreneurs. Based on the conclusion that requirement of finance differs with the life-cycle stage of the MSME, recommendations have been proposed for entrepreneurs, financial institutions, and policy makers.

Suggested Citation

  • Singh, Charan & Wasdani, Kishinchand Poornima, 2016. "Finance for Micro, Small, and Medium-Sized Enterprises in India: Sources and Challenges," ADBI Working Papers 581, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0581
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    References listed on IDEAS

    as
    1. Ricardo N. Bebczuk, 2004. "What Determines the Access to Credit by SMEs in Argentina?," Department of Economics, Working Papers 048, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    2. Soumitra K Mallick & Amitava Sarkar & Kalyan K Roy & Tamal Duttachaudhuri & Anjan Chakrabarti, 2010. "Dynamics of emerging India's banking sector assets: A simple model," Journal of Asset Management, Palgrave Macmillan, vol. 11(1), pages 62-70, April.
    3. Asian Development Bank (ADB), 2014. "ADB-OECD Study on Enhancing Financial Accessibility for SMEs: Lessons from Recent Crises," ADB Reports RPT146403-2, Asian Development Bank (ADB), revised 08 Jul 2014.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Vincent MASAKA, 2022. "Challenges Being Faced by Small and Medium Enterprises in Accessing Credit Facilities in Lusaka Province, Zambia," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 3(5), pages 49-61, May.

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    More about this item

    Keywords

    India; SME; small and medium-sized enterprises; microenterprises; finance; loans; capital; start-up; economic growth; firms; banks; financial institutions; financial awareness; sources of finance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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