Funding is an issue for MSMEs, but track record helps

Access to institutional finance remains an issue for micro, small and medium enterprises (MSMEs). However, within the segment, players with a longer track record have a greater chance of securing such funding.

An analysis of 2,752 MSMEs across India between fiscals 2012-13 and 2014-15 by CRISIL shows MSMEs with a track record of over five years have better access to external funding compared with peers that have been in the fray for over a year but less than five years. They tend to have established relationships with lenders as well, as reflected in a 41 per cent share of funding through institutional finance, compared with 32 per cent for those with a shorter track record.

MSMEs with a shorter track record are more dependent on extended credit from suppliers for their working capital requirements. Their dependence on supplier credit was 40 per cent, compared with 33 per cent for those with a track record of over five years.

CRISIL believes easy access to credit for new businesses is imperative, and better implementation of various government schemes such as financial assistance under the Performance Credit Rating scheme and priority sector lending can help.

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Note: This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy. CRISIL has rated over 91,000 MSMEs in India.