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    Small and Medium Enterprises Financial Problems

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    Saleh Rehman
    Small and medium enterprises (SMEs) face several financial hurdles including low credit availability, lack of technological innovation, and lack of market accessibility. Only 8% of total bank credit goes to SMEs, which employ over 65 million people. SMEs also struggle without collateral, modern technology, or knowledge of market demands. This makes them vulnerable to exploitation and prevents meeting market quality standards. Policy recommendations include promoting business innovation, strengthening SME fundamentals, and facilitating financing and equity capital for SMEs. SMEs are important for economic development by creating jobs, innovation, and sustainability in the overall economy.

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    Small and Medium Enterprises Financial Problems

    Uploaded by

    Saleh Rehman
    83 views4 pages
    Small and medium enterprises (SMEs) face several financial hurdles including low credit availability, lack of technological innovation, and lack of market accessibility. Only 8% of total bank credit goes to SMEs, which employ over 65 million people. SMEs also struggle without collateral, modern technology, or knowledge of market demands. This makes them vulnerable to exploitation and prevents meeting market quality standards. Policy recommendations include promoting business innovation, strengthening SME fundamentals, and facilitating financing and equity capital for SMEs. SMEs are important for economic development by creating jobs, innovation, and sustainability in the overall economy.

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    Financial Accounting

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    Small and medium enterprises (SMEs) face several financial hurdles including low credit availability, lack of technological innovation, and lack of market accessibility. Only 8% of total bank credit goes to SMEs, which employ over 65 million people. SMEs also struggle without collateral, modern technology, or knowledge of market demands. This makes them vulnerable to exploitation and prevents meeting market quality standards. Policy recommendations include promoting business innovation, strengthening SME fundamentals, and facilitating financing and equity capital for SMEs. SMEs are important for economic development by creating jobs, innovation, and sustainability in the overall economy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    83 views4 pages

    Small and Medium Enterprises Financial Problems

    Uploaded by

    Saleh Rehman
    Small and medium enterprises (SMEs) face several financial hurdles including low credit availability, lack of technological innovation, and lack of market accessibility. Only 8% of total bank credit goes to SMEs, which employ over 65 million people. SMEs also struggle without collateral, modern technology, or knowledge of market demands. This makes them vulnerable to exploitation and prevents meeting market quality standards. Policy recommendations include promoting business innovation, strengthening SME fundamentals, and facilitating financing and equity capital for SMEs. SMEs are important for economic development by creating jobs, innovation, and sustainability in the overall economy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    The key takeaways are that small and medium enterprises face hurdles in accessing credit and financing, lack of technology and market access, and exploitation by middlemen.

    Some major hurdles faced by SMEs are low credit availability, lack of collateral for loans, high interest rates, lack of technological innovation, and lack of market accessibility.

    Policy recommendations suggested include promoting business innovation, strengthening business fundamentals, facilitating financing, and smoothing adaptation to economic and social changes.

    SMALL AND MEDIUM ENTERPRISES FINANCIAL PROBLEMS

    Small and Medium Enterprises:


    SME (small-to-medium enterprise) is a convenient term for segmenting businesses and other organizations that are somewhere between the "small office-home office" ( SOHO ) size and the larger enterprise . The European Union has defined an SME as a legally independent company with no more than 500 employees.

    Hurdles In Small and Medium Enterprises:


    The first major hurdle is that the credit availability is low for this sector. It is estimated that the unorganised sector comprises 95% of the total industrial units, employing more than 65 million people. Yet only 8% of the total bank credit finds its way into this sector. Though credit to SMEs fall under the category of priority sector lending, but with the expansion of the priority sector lending to accommodate fast growing areas such as home loans, education loan, the percentage share of credit to SMEs is falling. According to the Third All-India SSI Census (200102), only 14.2% of the registered and 3.09% of the unregistered MSEs availed finance from bank. Arranging collateral security, documentation etc makes clearance of the loan all the more difficult and as a result the business of the local money lenders

    continues to flourish. Inevitably, many of these small units fall into the vicious cycle of debt and poverty and eventually many of them perish. Banks therefore should be encouraged to ensure that all loans upto Rs 5 lakh to MSEs are given free of collateral and at a low interest rate. Formal sector has the option to raise huge sum from the money market, while the unorganised sector doesnt have any such opportunity. In the 11th Five Year Plan, Planning Commission estimates that in the next five years the total working capital and loan requirement by the SMEs/unorganised sector would be 2,96,000 crore. Given the small percentage of financing by the formal banking system, this huge credit requirement cannot be met by the banking system alone. Need of the hour is venture capitalist approach to be encouraged in the unorganised sector as it is practiced in the developed countries. Secondly, if microfinance agencies can be properly regulated and monitored they can serve as a good avenue of investment for people who are interested in high risk- high profit investment. At present most, of the micro finance agencies/projects active in India are either operating with a welfare motive or are too small to make any impact. Second major hurdle is the lack of technological innovation and the knowledge of market demands. This is true particularly in the textiles sector. Most of the household units still work on obsolete technology because of which not only the cost of production remains high but the product also fails to meet the demand of the market in terms of quality. Because of liberalization and opening up of the economy, the MSEs are now facing stiff competition from imports and

    therefore need technological upgradation to manufacture better quality products at cheaper rates. Another major hurdle is the lack of market accessibility for the poor artisans, weavers, household unit owners, etc. Most MSEs do not have money to invest in market research and are unable to carry out design and technical improvements to keep up with market demands. It is because of this lack of information that the middlemen are able to take advantage of and exploit the poor artisans, weavers by paying a paltry sum for their products and selling those products in the international market at exorbitant prices.

    Policy Recommendations to Removed the hardles SMEs.


    Promoting business innovation and start-ups and promoting creative business activity among SMEs. Strengthening the business fundamentals of SMEs by facilitating the acquisition of business resources by SMEs and improving the fairness of transactions involving SMEs, etc. Smoothing adaptation to changes in the economic or social environments by promoting the business stability and facilitating the business conversion of SMEs in response to such changes, etc. Facilitating the financing of SMEs and enhancing the equity capital of SMEs.

    Importance of Small and Medium Enterprises in Modern Age:


    One of the significant characteristics of a flourishing and growing economy is a booming and blooming small and medium enterprises (SMEs) sector. Small and medium enterprises play an important role in the development of a country. SMEs contribute to economic development in various ways: by creating employment for rural and urban growing labor force, providing desirable sustainability and innovation in the economy as a whole .In addition to that, a large number of people rely on the small and medium enterprises directly or indirectly.

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