Small and Medium Enterprises Financial Problems
Small and Medium Enterprises Financial Problems
Small and Medium Enterprises Financial Problems
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.