A Case Study on Performance of Financial Institution in Funding SMEs and Challenges Ahead in India for SMEs

Abstract

Small and medium-size enterprises (SMEs) have long been recognized as one of the corner stones of a country’s development. It is thus, important to understand what contributes to their success as well as the difficulties they face. Surveys have shown that the lack of available financing from financial institutions is one of the biggest problems facing small businesses today. In this paper, we try to identify the aspects of obtaining financing that SMEs have most problems with as well as to determine which firm specific factors (such as; type of set-up, size of operation, years in operation and type of industry) contribute to the firms’ ability to borrow. For the firms that applied, the main difficulties faced were the lack of collateral, the lack of proven track records, the lack of proper business plans and the need to show good sales turnover. Actions that may be taken by the SMEs, the financial institutions, the Indian government and tertiary institutions finds that after so much contributions SMES are struggling with financial constraint.