Financing requirements of micro small and medium enterprises - does the size play a role? : a study of textile and auto ancillary industries

Abstract

Worldwide, the small and medium enterprises (SMEs) have been accepted as the engine of economic growth and for promoting equitable development particularly because of their employment intensive in nature. The major advantage of the sector is its employment potential at low capital cost. In India the micro, small and medium enterprises (MSME) sector contributes significantly to the manufacturing output, employment and exports of the country. As per available statistics (4th Census of MSME Sector), this sector employs an estimated 59.7 million persons spread over 26.1 million enterprises. It is estimated that in terms of value, MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country. However, this sector has a major bottleneck which curtails its growth. That is problem of access to finance. Despite the Ministry of Micro, Small and Medium Enterprises, Government of India and Reserve Bank of India forming several institutional mechanism as well as policies to finance this sector, still after six decade since independence this bottleneck is yet to be addressed. In this study we have attempted to analyse the different financial parameters that have undergone changes over a decade for the small enterprise sector and their consequent effect on availability of finance to these sector by the institutional mechanism. Within different credit facilities available to the MSME segment we tried to analyse and interpret their access to Term Loans vis a vis working capital loans. And whether, the policies to ensure credit flow to this sector has identified this weakness and formulated policy in this regard. Further, several global organizations demanding for opening of banking sector in India to foreign banks, allow them at par with Indian banking industries and issue licenses to open several branches in India. , we tried to evaluate the financing pattern of the existing foreign banks in India. And how they behave in their approach to smaller units vis a vis domestic banks in India. For the above purpose we have analysed data for two industries textile and auto-ancillary industries and tried to find out the financing requirements of these industries vis a vis availability of bank finance. Further, we have tried to find out through different parameters the bottle necks in availability of credit to these industries and possible solutions through the research.