Written By: Yashika Sabharwal

How are banks and other institutions helping MSMEs to grow?

Banks and other financial institutions make money by lending to individuals and businesses, MSME (Ministry of Micro, Small & Medium Enterprises). They get the money to lend from deposits consumers make in the bank.

Small businesses, now easily rely on commercial banks for the variety of services that are helpful for any business to make it easier to do business and grow a company.

Nowadays, MSMEs are continuously contributing to the Indian economy significantly. They are amongst 90% of the industrial units of the country, which are SMEs (Small, Medium Enterprises) and they employ an overall 40% of the workforce. Hereby, their growth automatically connected with India’s growth story.

So, the basic question arises in everyone’s head that what needs to be done to enable MSMEs growth and enhance their full competitiveness.

Let us take some popular examples:-

Choose the right bank

The right bank and financial institution can help you to address the immediate business needs and plan for the future. More often, small businesses don’t expect enough from their finance banking partners. Although due to time constraints or because they think this level of support is only reserved up for larger companies. But, the right bank can help your Micro, small, and medium enterprises thrive in by surprising ways.

Dropping Barriers

Some of the new tools are allowing the lenders (Banks) to assess their creditworthiness for an entrepreneur in the absence of their credit data availability. For instance, the Entrepreneurial Financial Lab has developed an automated psychometric tool that banks can use to screen potential borrowers. These advances are making SGB lending easier, faster, and lower risk. Lenders around the world are embracing them by removing their barriers.

Expand banking systems

Banks and financial institutions should continue to encourage the creation of the buzz and sound for effective banking systems to increase the supply of finance including to SMEs.

Encouraging competition among commercial banks and private banks is also vital, through the privatization of state banks and facilitating the entry to some new reputable foreign financial firms in the investment market.

Banks help by the correct balance of law enacting competition as the law provides a level of playing field for domestic as well as foreign financial institutions alike. Their aim is to maintain the effective central bank rules and regulations for commercial banks as well as any financial institutions. Therefore, they can also flourish and expand the banking systems for enterprises easily as pre-requisites for deep financial systems.

Improve credit assessment for SMEs

By establishing a domestic credit bureau for SMEs as a public-private partnership is showing a useful way to forwarding their way to growth. Later this institution could become an independent company by the credit assessment for their companies.

The more effective system for banks and financial institutions in helping SMEs is the better plethora of industrial policies that they make for SMEs.

There are no quick- pick fixes to reforms that issue for commercial banks financing SMEs, as this process sometimes takes time and requires political and marketing will for their reputation. But improving credit situation by any means can be a good start.

Investment Services Support for SMEs growth

Another way by which Banks help MSME to grow fully as a small business is to invest to their profits for the better additional income or growth which can define their growth in futures. Some of the commercial banks typically have a full investment department so that it can personally engage with MSME only and that can guide you in the selection of stocks, bonds, real estate, and money market accounts. Having this kind of strong relationship with the investment department can highly strengthen your relationship with the loan department of the Banks.

Through the niche approach, we bring value-added knowledge of the industries. We are known as the bank that lends to emerging growth companies. – John Dean

Realigned goals by banks

Banks are increasingly sensitized to the challenges faced by SMEs and have realigned themselves for their necessities and needs. This is done in this era not only because they want to ensure the long-term profitability from SMEs, but also to add value to their business and economic growth of the country.

All the Banks are now keen to provide their extra hand in support to enterprising the honest business persons, who truly want to flourish and focus on their needs. They provide a realigned goal to hand-hold the innovative and enterprising business owners.

With the wide focus on greater communication and sensitivity to each other’s needs, both banks and business owners in the banking sector can play a vital role in guidance, training, and education of entrepreneurs, so that these common goals can be achieved by MSMEs to grow.