Credit and finance for MSMEs: Lack of financial discipline among micro, small and medium enterprises (MSMEs) irks banks in priority sector lending to such enterprises in the MSME sector that suffers from a massive credit gap. Even as the government has taken a number of initiatives to bridge that gap and provide access to affordable credit, still a large number of enterprises, particularly micro and small, have remained outside the formal credit fold. A prime reason for the lack of bank credit to MSMEs has been zero-to-little collateral available as not all enterprises perhaps might be eligible for collateral-free credit.
In such a scenario, how should banks assess the capability of the borrower in paying back loans? According to Sangram Singh, President, Commercial Banking Coverage Group (CBG), Axis Bank, financial discipline in a company is essential to understand. In an interaction with FE Aspire at the SME Artha 2022 event, he explains how MSMEs are evolving to understand how to use debt in the most efficient way and whether cash flow-based lending will reduce the use of balance sheets and more.
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