CHALLENGES FACED BY MICRO, SMALL AND MEDIUM ENTERPRISE (MSME) SECTOR IN INDIA

Abstract

A major obstacle to the growth of the vital Indian micro, small and medium enterprises (MSME) sector is its lack of adequate access to finance. This paper examines the major issues in the financing of MSMEs in the Indian context, such as the information asymmetry facing banks and the efficacy of measures such as credit flow for MSMEs; whether transaction lending would be adequate to address the information issues or would lending have to be based on a relationship with the MSME, using both ‘hard’ and ‘soft’ information; and whether the size and origin of the bank affect the availability of credit to MSMEs. Some aspects are elevated in the paper, such as the role and importance of the credit flowto MSME sector for the economic growth and development and the role that banks can play in developing the MSME sector in India.