Reasons for Micro Entrepreneurs not getting Institutional Finance

Abstract

After the 1991 financial reforms, the Indian MSMEs are finding it difficult to cope with the challenges of globalization mainly because of poor access to financial services. The MSME sector faces financial problems such as low capital, delayed payments, working capital, lack of timely credit, collateral and interest rate, etc. This study attempts to identify the reasons for micro-entrepreneurs failing to obtain institutional finance for their business. Simple random sampling has been used to collect data from 257 micro-entrepreneurs using a well structured interview schedule. Results of the study reveal that quantum of loan requested by the micro-entrepreneurs seems to be too much for the banks to sanction and this is the major factor contributing to these entrepreneurs failing to get bank credit for their business ventures. Using Factor Analysis, three factors such as poor management, credit capacity and inadequate capital and collateral have been identified as the most important reasons for these micro-entrepreneurs failing to get bank credit for their business. Canonical Correlation has been used to find out the most important reasons for the micro-entrepreneurs failing to get bank credit The reasons vary according to their family size, generation of entrepreneurship, family-orientation of business, location of business venture, type of industry, capital employed and number of business ventures owned and managed by the micro-entrepreneurs.

Keywords

• micro enterprises
• non-instituional sources
• credit capacity