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Wednesday, November 29, 2017


Trends affecting MSME credit in India...!

Trends affecting MSME credit in India...!

A. Shankar, SVP – MSME & Rural Banking, Lakshmi Vilas Bank

India has 388 SME clusters across 180 districts contributing to 40% of the country’s industrial output and 35% of the direct exports. In terms of employment, MSME is second to agriculture and has provided employment to 14 million people. In the last 7 years, the number of MSME enterprises has grown at 4.4%. During the same time, the loan penetration has increased 2-3 times.

While the total demand for credit is ~ INR 40 lakh crores, the current supply through formal channels is 60% indicating that informal channels like moneylenders, etc. are still existent. This is an opportunity for formal channels like banks and NBFC’s to capture in the next few years.

There are 5 major trends that have helped the MSME segment in the past few years

1.     Robust growth of 6.8% in the Indian GDP over the last 10 years 

2.   Strong thrust to improving manufacturing through the “Make in India” campaign with some key initiatives like

a.    Opening up of key sectors including Railways, defence, insurance and medical devices to higher levels of Foreign direct investment

b.   Development of industrial corridors across various regions of the country

3.   Slew of reforms, both at the central and the state governments, to facilitate setting up of businesses

4.   Improved availability of formal credit for the small and micro enterprises segment

5.    In the last few years, digital retail channel has blossomed, this has also led to heavy investments in ramping up the supply chain to support this infrastructure. There has also been immense growth in the Engineering &  Automotive industry, food processing industries thereby fueling a growth in supply chain dominated SME industries.

While these trends have helped the MSME business to flourish, there needs to be concerted effort in 4 important aspects to carry forward this thrust:
1.     Providing adequately trained and skilled manpower: With more and more sophisticated machinery usage, the industry needs have shifted to highly skilled operators and there needs to be a seamless supply in the near future. Skill programmes through the National skill development agency & National council on vocational training could potentially help bridge this skill gap. 

2.   Thrust in policy reforms:

a.    Ease in starting and exiting business
b.   Single window system for approval
c.    Relaxation of Foreign investment norms
3.   Massive need for providing adequate infrastructure including roads, power, etc for these industries

4.   Continued supply of credit: Currently despite the best efforts 40% still rely on the informal sources for funds. There needs to be a concerted effort to provide funds for these sources.

-         The author is Mr. A. Shankar, SVP – MSME & Rural Banking, Lakshmi Vilas Bank


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