The need to have a thriving range of large corporations on a national scale notwithstanding, it has been proven over time that the presence of a wide array of micro, small and medium-scale enterprises (MSMEs) is an important growth driver. It is also a fact that the need to provide financial assistance and business development services to MSMEs is essential to ensure sustainable and consistent economic growth. It is no secret that the need of the hour is to show greater financial commitment towards such enterprises, thereby pushing the growth engine as well as generate employment at a local level.

A major roadblock for the development of MSMEs has been a lack of access to, or lack of, credit. While MFIs have come forward to do the needful, an important aspect in identifying MSMEs to back is to analyze and understand their financial needs. Since MSMEs differ in scale of operations, as well as in products and services they deal with, the need is to finance them in a customized manner. This requires to be determined by factors like whether a particular MSME is in a start-up phase or an existing one looking at expansion. So, MFIs looking at providing loans to MSMEs need to identify whether they would like to support existing entrepreneurs or back potential entrepreneurs with growth prospects.

Raising working capital is the primary obstacle for existing MSMEs, and most such entrepreneurs often end up borrowing from informal lenders at much higher rates of interest.

Since MFIs deal with a higher level of risk compared with that of formal banks, a careful analysis of an MSME’s portfolio carries the promise of good repayment. While dealing with MSMEs, microfinance institutions generally provide the dual services of financial intermediation and enterprise development. Financial intermediation involves providing funds to MSMEs in the form of business loans. These loans can be utilized for further investment in the existing business or for setting up smaller business ventures.

MFIs also provide enterprise development services along with the knowhow to raise human capacity and organizational abilities. Besides, they also provide guidance about access to markets, skills development, training in marketing and use of technology so that their customers can use their resources more productively.

Given that MSMEs need to play a major role in adding to the nation’s wealth through sustainable growth, it is imperative for more and more MFIs to join the development juggernaut, to push the growth engine in a more efficient manner.