When approaching small and medium-size enterprises (SMEs), no matter where you are, and you ask them what their major hurdle to further growth is, you will most likely find a common answer: funding.
In order to grow the business, firms need more money in order to scale efficiently and effectively – however, that funding is often lacking. This was confirmed by the Asian Development Bank (ADB) through a recent research report.
One of the remedies, according to the bank, is to establish credit-information infrastructure for SMEs and provide credit guarantees to ease their access to finance.
The authors of the report also suggest that the development of SME credit risk databases, credit bureaus and credit ratings could support lenders better understand and study the risks associated with lending to smaller companies
Credit guarantee schemes are another way to lower credit risk and help the SME sector flourish
Through the measures, the bank states that the loan infrastructure in India would be strengthened, which would in turn empower the SMEs by providing them with more funding in order to expand their business.
These measures would indeed provide a tremendous boost for the Indian SME sector, that currently accounts for roughly 30% of all GDP in the country, as well as employment for more than 111 million people.