India: Micro enterprises get 24% higher credit

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Jun 2007
Kolkata India, June, 05 2007 - Micro, small and medium enterprises (MSME) seem to have had a better time in 2006-07 in extracting credit from institutional lenders.

Provisional estimates by the ministry of MSMEs and Small Industries Development Bank of India (Sidbi) suggest the credit inflow to the sector from institutional lenders including banks, Sidbi, state finance corporations (SFC) and micro finance units spurted 24% to Rs 1,32,760 crore in 2006-07.

In addition, substantial amount of funds are also believed to have flowed into the sector through the external commercial borrowing (ECB) route during the year, which is yet to be tracked by the ministry, a top ministry official said. Incidentally, in May, the ministry of agro and rural industries & small-scale industries has been renamed the ministry of MSMEs.

According to the ministry’s provisional estimates, Rs 1,25,163 crore has been disbursed by public, private and foreign banks in 2006-07 to the sector, 23% higher than the preceding year’s level of Rs 1,01,385 crore. Of this,Rs 1,02,500 crore was financed by public sector banks, Rs 12,536 crore by private banks and Rs 10,135 crore by foreign banks.

A Sidbi official said credit disbursement by the sector-specific bank went up 13% to Rs 10,203 crore in the year from Rs 9,037 crore in 2005-06. With a shift in focus on direct financing, Sidbi managed to directly disburse Rs 4,985 crore to the sector in 2006-07. This represented a 49% share of its aggregate advances to the sector, up 13.2% from the previous year.

Not to be left behind, SFCs too scaled up their commitment to the sector. Provisional estimates suggests that credit disbursement by SFCs to the units increased 8% to Rs 1,610 crore in 2006-07 compared to Rs 1,490 crore in the previous year. Though the ministry is yet to get a detailed feedback from micro finance units regarding extent of their commitment to the sector, estimates suggest more than Rs 1,000 crore flowed from those financiers to the sector.

Within the banking sector, PSU banks have taken the largest exposure. “An additional Rs 20,000 crore was estimated to have flowed from those banks to the sector in 2006-07. With this, total lending by the banks to the sector is estimated to go up to Rs 1,02,500 crore during the year. Banks’ exposure to the sector may have gone up probably to comply with the government directive of achieving a 20% year-on-year growth in credit disbursement to MSMEs,” the ministry’s additional secretary and development commissioner Jawahar Sircar said. Private banks are also showing greater interest in financing SMEs that have shown high growth and have so far maintained a better track record in loan refund. Many of them are driven by ambition of scaling themselves up.

Their credit requirement is small, up to an upper limit of Rs 10 crore. The credit rating exercise has also improved their creditworthiness, UTI Bank vice-president (advance) Bimal Bhattacharya said.

Sidbi CGM KS Singhwan said the bank is concentrating on increasing direct lending to SMEs through its 65 branches.



 

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