Page 43 - Banking Finance November 2020

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emphasis on collateral and do not truly paint an effective MSMEs has to be designed and circulated to All Banks. It
picture on a borrower's ability to repay a loan. Because has to be a simplified and easily understandable to the
many financial institutions do not spend adequate time on MSME entrepreneurs. It should be made available at all web
the ground with MSMEs, understanding their business sites of all stake holders involved in MSME finance and
models and monitoring their performance, traditional Development
lenders are unable to create loan underwriting systems that
are more relevant to MSMEs. In most cases, institutions rely Transparency - MSMEs have to be allowed to know at what
more on evaluation parameters that focus on past stage their loan application is and what are the factors
performance of the enterprise rather than future hampering their rating and worthiness. Disclosure of
opportunities. appraisal system would be helpful for better financial
discipline of MSMEs that leads to improved credit access.
Lack of Product Innovation - Traditional lenders continues
to lack understanding of the MSME sector, and, therefore, Special loan products - There are thousands of clusters in
they have not changed their approach to lending. They still the country. Almost all the MSMEs in the particular cluster
rely on loan products that often seem misaligned to the have business similarities. i.e. supply chain, Markets,
needs and capabilities of MSMEs. Their loan products Technological issues, Man power etc. The key constraint to
require specific types of immovable collateral, and are these Enterprises is delayed payments from the big Industries
inflexible in terms of their tenure and payment structure, and Government Departments. Designing a loan product for
forcing MSMEs to seek finance through other avenues. A specific clusters (i.e. Pharma cluster in Hyderabad, Auto
grassroots approach to developing novel methods to serve components cluster in Indore, Readymade Garments, and
MSMEs with debt finance is necessary for banks and other Bangalore etc.) would address the specific problems of the
institutions in order to advance the growth of the sector. local Enterprises. The loan product has to be designed based
on constrains faced by them taking in to account their
Suggestions for Improvements temporary liquidity crunches, Quality improvement
Financial literacy - The major constraint of MSMEs is lack programs, Energy saving and green initiatives.
of financial knowledge. They do not maintain proper books
of accounts. MSMEs can't afford to employ accounting Proper research and development - There should beproper
experts. They are dependent on outside Financial research and development in respect of innovative method
Consultants which is again a heavy cost factor to them. The of production and service rendering. The innovative products
Financial statements are prepared to avoid or save taxes. will provide the cheaper products and the SMEs will be able
The real and clear picture of performance of MSMEs is not to cope up with the situation.
reflected. It is utmost important to make MSMEs financial
literate in order to have easy credit access from Banks. Lending skills - Often it has been seen that Bank officers
Transparency of balance sheet will improve the willingness have fear psychosis to lend to this sector on account of low
amongst Bankers to lend to this sector. compliances and defaults. Commercial Banks need to
improve the skill of credit officers to assess the MSME
Training and development, awareness programs - There proposal. Knowledge and skill will enhance the confidence
must be conduction of training and development programs
levels of officers. This will change the attitude of the Bank
by the MSME ministry. The currently running programs are
officers. Bank Authorities also have to create conducive
not so effective and sufficient. One of the important reasons
environment for MSME lending.
for slow intake in the utilization of schemes is the lack of
knowledge about schemes and their likely benefits. The
Credit Counselling Cells - Bank should form credit
current knowledge dissemination system is limited in its
counselling cells to counsel and advise the MSMEs to be able
outreach. There is a need to develop a better to submit Bankable proposals. The practice which is in place
communication strategy and use of new age media tools.
now is that MSMEs hire the services of Chartered
Common application - A common loan application for Accountants who act as an Intermediary between Bank and

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