IFC Study Finds Indian Small and Medium Enterprises have Huge Unmet Financing Demand
New Delhi, India - 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. The study is available at http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/south+asia/publications/msme+report.
“Micro, small and medium enterprise sector has the potential to stimulate growth,” said S. Muhnot, Chairman and Managing Director, Small Industries and Development Bank of India. “With adequate financial resources and specialized skill development, the sector can grow manifold and contribute to the economy.”
There are an estimated 30 million micro, small and medium enterprises across industries, employing 69 million people. The sector accounts for 45 percent 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.
The study provides a framework for the financial sector and policy makers to develop appropriate and innovative products and services that will ensure easier flow of capital to these smaller businesses,” said Anil Sinha, IFC’s General Manager for Advisory Services in South Asia.
Micro, small and medium enterprises are an essential focus of IFC’s work in South Asia. In addition to making investments in private sector projects, IFC works with governments to improve investment climate, builds skills of local entrepreneurs, and promotes access to finance and markets for small businesses.
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In FY12, our investments reached an all-time high of more than $20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges. For more information, visit www.ifc.org.
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