Why access to funds remains a major problem for MSMEs in India?

Micro, small, and medium enterprises (MSMEs) constitute the most crucial part of the Indian economy. The MSMEs in India account for 99% of all the enterprises, and they comprise 63 million MSMEs across various industries. They play a critical role in economic development and growth. MSMEs are the catalysts in developing backward rural areas fuelling economic growth and equal distribution of wealth.

MSMEs are critical to India’s economic development, accounting for 40% of exports. They also contribute to providing maximum employment. Despite their importance, access to funds remains a significant problem for MSMEs in India.

Despite being an essential part of economic development, MSMEs find it hard to obtain financial assistance. It happens because of the lack of awareness, need for credit history, and tedious documentation processes. Even if their request gets approved, it takes a lot of time. These factors worsen the plight of the MSMEs in getting timely assistance.

Only 5.18% of MSMEs (both registered and unregistered) have financed from institutional sources. And 2.05% have availed of financial assistance from non-institutional sources, and 92.77% have no access to financial help. They solely depend on self-financing. Why do MSMEs find it problematic to have access to funds in India? Let us find out what the reasons are as per the report.

Reasons Why MSMEs Face Problems in India to Have Access to Funds

• Most of the time, the banks reject the loans even before entering them into the Loan Proposal Tracking System. They only approved the loan applications with the solid possibility of extending the financial help. And also, several entrepreneurs are not aware of the online process of loans.
• They also do not give the reasons for the rejection of the loan, and if the MSMEs know the reason, they could make changes accordingly in the proposals.
• Another major hurdle for access to funds is the complex documentation process of the banks.
• In many cases, banks also provide underfinancing. They offer fewer funds than the required amount.
• Most entrepreneurs are unaware of the banks’ policies and guidelines, creating more gaps.
• Banks also lack trust when it comes to the loan repayment capacity of the MSMEs. Therefore, they implement stricter regulations, especially on the start-ups.

The report also suggests a need for running financial awareness programs for MSMEs entrepreneurs. And also, the NBFCs and cooperative banks can play a crucial role in financing micro, small, and medium enterprises (MSMEs).

The MSMEs entrepreneurs choose cooperative banks and NBFCs in India to opt for loans over commercial banks as they offer ease of providing loans and dedicated services to the MSMEs. On the other hand, commercial banks are reluctant to loan new entrepreneurs. Commercial banks have a considerable documentation process, such as they require income tax returns, financial statements, and the like.

And in the case of NBFCs, entrepreneurs find that they follow a more customer-friendly approach. They collect the customer documents in one go, and sometimes they even visit the customer’s home. The entrepreneurs appreciated this gesture as they need not waste their time visiting NBFCs several times and could concentrate on their business. Whereas in the case of banks, entrepreneurs need to visit the branch several times to submit the documents.

Furthermore, NAFA has made financing MSMEs easier by opting for digital solutions for hassle-free loan processing. There are numerous MSMEs agri finance companies in India; however, NAFA leads the race by being ahead in many criteria.

At NAFA, you can complete the loan processing in a couple of minutes through e-signing, video KYC, and digital stamping. Therefore, you are a few clicks away from availing of agricultural loans. We are one of India’s most reliable Agri finance companies for innovative technologies and offer timely help.

Conclusion

Easy access to funds will enable MSMEs to contribute more to economic development and create more employment. Therefore, many NBFCs are coming forward to assist MSMEs because their growth is imperative for the country’s economic growth. You can learn more about various loan facilities by contacting NAFA.