Vaidehi Joshi, NMIMS School of Law
ABSTRACT
The Micro Small and Medium Enterprises play a vital role in India’s development however, they are neglected by most Financial Institutions and banks. MSME owners generally face difficulties in accessing finance at affordable rates. One of the reasons can be the high risk involved because of which financial institutions hesitate in extending them loans. Moreover, factors such as opaqueness of the firm, improper accounting and unawareness regarding several policy schemes restricts an organization from availing financial support. Moreover, the financial needs of several enterprises are growing day by day, more and more enterprises are qualifying for formal credit and the formal sources are not able to meet this demand efficiently. This leads to the creation of a financial gap. The present research paper aims to identify and analyse the factors affecting the financial gap in MSME Sector in India. The same is done by studying the demand and supply side constraints that lead to the creation and widening of the credit gap. The paper also investigates the role of informal lending in meeting the Debt Demand of MSME enterprises. For the purpose of this research, the researcher has analysed secondary data from several sources such as the publications of MSME, RBI and SIDBI reports, all India census of MSME 2006-07 working papers from the International Financial Corporation and related journal articles.
Keywords: MSME, Financial Gap, Demand, Supply, Financial Constraints, Informal Lending
