Page 27 - Banking Finance December 2019

COVER STORY

CHALLENGES IN

CHANGING

LANDSCAPE IN MSME

LENDING FOR BANKS

& SUGGESTIVE

MEASURES

Abstract :

The Role of MSMEs in the economic and social development of a country can hardly be over- emphasised. They are the
major contributor in export, GDP and they play a significant role in maintaining balance in economic development
yet they suffer from lack of adequate finance.
It has been observed that business with tremendous growth potential fails to gain strong foothold due to paucity of
both short term & long term finance.
Banks/ FIs has important role to play in nurturing the small business units by providing them with adequate finance.
It is observed that "Return on Capital Employed" in case of MSMEs using external finance is higher compared to SMEs
who do not borrow. Unfortunately, still many MSMEs are unbanked; they still rely on informal sources of finance such
as family, friends and relatives.

The banks/ FIs also face several challenges in lending to MSMEs due to the inherent limitations of the sector like inability
to submit required papers, lack of adequate collateral security, poor business financials etc.

In this article , we have discussed the major challenges faced by banks in lending to MSMEs and some suggestive measures
for improvement.
S engine of our economy. They employ approximately

About the author mall and Medium enterprises (SMEs) are the growth

R Sumitra 40% of the India's work force; contribute to around
Senior Manager & Faculty 45% of the manufacturing output and 40% of total
Bank of Baroda India's export. Hence, supporting financial needs of SMEs is

BANKING FINANCE | DECEMBER | 2019 | 27