Government's Focus on Strengthening SME Financing

Small and medium-sized enterprises in India have grown to become the backbone of India’s economy. The government has recognized the contribution of such enterprises and plans to introduce initiatives and policies that help SMEs grow and overcome the challenges they face currently.

Indian SMEs are predicted to have unparalleled growth with efforts from the government to provide more credit and financing to the players of this industry.

SMEs have contributed significantly to the country’s economy by bringing more investment and providing ample employment opportunities to its people. They have brought about major changes in terms of economic and social development. The growth of SMEs will multiply these advantages and benefits tenfold. However, the sector still faces obstacles such as:

• Lack of finances for start-ups and established SMEs to run a business successfully.
• Limited regulated financial agencies to provide credit. Borrowing from the unregulated financial bodies involves high interest rates which lead to difficulty in sustaining the enterprise.
• A  large working capital gap due to the late payments from large corporate companies.
• Issues related to collateral assets are also an obstacle as most entrepreneurs looking forward to setting up their SME usually do not have the required assets or are unwilling to mortgage family owned collateral items.

Government’s Step to Eliminate the Financial Challenges faced by SMEs

1. RBI along with other skilled policy makers has already begun to bridge the gap between the SME professionals and the regulated financial bodies. A variety of schemes for debt solutions and lending have been introduced to fulfil even the smallest of financial demand by SME sector.
2. Many financiers  have introduced customised lending solution to reach to all the levels of entrepreneurs.
3. To tackle the issues arising out of collateral requirements, the government has introduced collateral free loans of up to Rs. 1 crore.
4. Introduction of the ‘Make in India’ initiative focuses on increasing the manufacturing capacity of the country. It also aims at increasing the contribution of the SMEs in the overall GDP of the country.
5. The working capital gap  of SMEs can be bridged through credit solutions such as  traditional bank overdraft, securitization of receivables, short term trade advance and working capital term loan
6. Programs such as “Digital India” and “Skill India” have also been introduced that will help the SME owners acquire the skills to go digital and find the required finances. 

SMEs are predicted to witness unmatched growth with the implementation of the new policies aimed at providing more finance and better credit solutions.