Disparity between Demand and Supply of Finance to MSMES: Dilemma Faced by Financial Service Providers

Abstract

Availability of ample and timely credit at reasonable rate of interest is vital for the development of MSME sectors. The major problem Indian MSMEs face is unavailability of adequate amount of finance. There seems to be a gap between demand for and supply of the bank credit to the MSMEs. Priority sector lending scheme with the advent of nationalization of banks is being revised periodically in order to diminish this credit gap. But the public sector banks are unable to reach the prescribed targets to priority sector due to various reasons. Credit constraints continued to prevail over the years. It has been reported that the constraints faced by the bankers with regard to deployment of credit to priority sector are lack of viable credit products, implying lack of demand for credit etc. If MSMEs are to improve, bank lending to MSMEs is to be improved. Hence, the need for examining various issues related to this gradually widening credit gap arises.