Middle Enterprise Finance in India: Technical Note Series 2

Examining constraints and positive developments in MSME financing in India

This technical note discusses constraints to and scope of micro, small, and medium enterprises (MSME) growth with particular focus on Missing Middle enterprises in India.

The note states that the Prime Minister Taskforce on MSME has recognized lack of access to capital as a key constraint for MSMEs, particularly for microenterprises. Constraints include:

  • Financial requirements of the Missing Middle are too small for banks and too large for MFIs;
  • Current Reserve Bank of India (RBI) guidelines restrict MFI role in microenterprise financing;
  • MFIs do not have the financial products, processes, appraisal systems, and staff expertise needed to deal with this segment;
  • Micro entrepreneurs often self-exclude because of their perceptions that banks only finance big businesses and have long and complicated due diligence processes.

Positive development in financial access of MSEs include government’s prioritization of MSMEs, setting up of the Prime Minister Taskforce on MSME, fresh guidelines from RBI on priority sector lending to banks to facilitate greater flow of credit to MSMEs, increase in loan outstanding of scheduled commercial banks to micro and small enterprises, and the continued role of public sector banks in MSME lending.

Jan 2013, MSME Umbrella Programme GIZ India

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