Government cannot provide more funding to MSMEs | SupportBiz

Finance Forum

Government cannot provide more funding to MSMEs


The government has been pumping funds into the SME sector to boost growth, but the sector is still in dire need of more funding.

Over 30 percent of MSMEs are facing financial trouble, inspite of the governments funding efforts.

The chairman of the Confederation of India Industries (CII), Ramesh Datla said: “In order to ensure the desired growth rate of these units, alternative funding mechanisms should be put in place.”

According to a Hindu Business Line report, Datla was also bullish on the proposal of the SME exchange, which will be up, and running by the next fiscal. This will certainly help funding in SMEs, said Datla.

Debt financing is the main means of funds for MSMEs, where 75 percent use it for short-term requirements and 60 percent use it for long term funding requirements. Only 15 percent use equity for funding.

Dalta stressed the importance of the removal of the 24 percent FDI cap for MSMEs and 20 percent mandatory buying of goods and services by the government from MSMEs, to help with funding in this sector.

In a pre-budget meeting, CII also urged banks to create a platform for interaction between MSMEs and venture capitalists. A green technology fund and a R&D fund were also proposed in the meeting.

 “Banks will have to achieve a 20 percent growth in MSME lending every year”, said Maghanath, the GM of RBI. Beyond this, MSMEs are urged to look for alternate sources of funding.