- Reserve Bank of India deputy governor SS Mundra on Wednesday said loans to micro, small and medium enterprises (MSMEs) should not be seen as a matter of government compliance or charity but as a means to prop up the sluggish bank credit growth. Given the problems faced with loans provided to the large industrial sector, the MSME segment offers a potential business area, he said.
- “If you look at the credit scenario in the banking industry — the slowing down of credit growth, the experience that the banking industry has faced in the large industrial sector — there is a very strong case for banks to look at the MSME sector as a potential business area,” he said at the launch of the certified credit counsellors programme of Small Industries Development Bank of India (SIDBI). “There is a limit to which the entire banking industry can remain focused on individual loans or consumer loans,” he said.
- India is estimated to have about 48 million MSMEs, employing about 11 crore people and contributing nearly 45% of the manufacturing output and about 40% of exports.
- Mundra said the sector is one of the most important vehicles for inclusive growth, job creation and poverty alleviation.
- “Despite a number of initiatives taken on the supply side, the fact remains that a large set of MSME units is outside the formal banking sector,” Mundra said. “This means there is a lack of communication and there is a gap where existing demand and supply are unable to meet in a meaningful way, which means that we need to build bridges.”
- According to global estimates, barely 30% of small businesses survive beyond 10 years of formation. About 80% of those that don’t survive fail due to lack of credit.
- “The SME sector largely is in the formal financial sector but the formal sector is meeting their requirement only partially, that’s why they have to fall back on the informal sector,” Mundra said.
via MSMEs: Loans to MSMEs a means to prop up the sluggish bank credit growth: RBI deputy governor SS Mundra – The Economic Times