Commercial banks financing to micro, small, and medium enterprises: A study in India

Abstract

The importance of Micro, Small, and Medium Enterprises (MSMEs) is unequivocally pronounced by every entity due to their visible contribution for economic growth, enhancing social cohesiveness, and creating employment for vulnerable group of society like female. Despite the importance this sector has, it faces a number of bottlenecks that needs close attention and research. One of the critical impediments of MSMEs is access to finance. Habitually, it is believed that micro finance institutions are the only formal financial institution to finance MSMEs. This, in addition to the relatively high lending rate and collateral requirement, discouraged operators from seeking commercial banks loan. Due to this issue, a need to assess the overall practice of commercial banks financing to MSMEs is overwhelmingly essential. Therefore, the objective of this study is to assess the practice of commercial banks financing to Micro, Small, and Medium Enterprises in the districts of Dakshina Kannada and Udupi in Karnataka state. To achieve the objective, data was collected from Dakshina Kannada and Udupi districts through questionnaire and interview techniques. The result of the descriptive analysis revealed that commercial banks are placed in the third rank based on the finance priority of the owner-managers to fund their expansion plan. The less attention given for commercial banks was due to awareness problems that MSMEs operators perceive commercial banks are meant for big companies. In addition, it was found that most of the operators in MSMEs are males and their age category is more than 33. To enhance the success and performance of MSMEs through commercial banks financing, appropriate suggestions were given to different participants.