IFC, a member of the World Bank Group, has released a new study that finds financial institutions meet only one-fourth of the financing demand of micro, small and medium enterprises in India, noting that a sizeable part of this unfulfilled opportunity is viable.
The study estimates the overall finance shortfall for micro, small and medium enterprises to be over $400 billion. Formal sources are able to channel only $ 140 billion. Banks can address the sector’s debt and equity financing requirement of over $ 70 billion, it estimates.
The study, Micro, Small and Medium Enterprise Finance in India: A Research Study on Needs, Gaps and Way Forward, recommends a mix of well-rounded fiscal support, strong policy framework and incentives promoting innovation to significantly expand formal financing to these enterprises.
There are an estimated 30 million micro, small and medium enterprises across industries, employing 69 million people. The sector accounts for 45 per cent of industrial output, and has been growing consistently at over 11 percent a year, higher than India’s overall economic growth. Inadequate financing and market linkages constrain growth of these businesses. The study, jointly undertaken by IFC with the government of Japan, outlines potential interventions to address their biggest challenge of accessing finance.