The reasons for the challenges faced by the SME and Banks and explore possible solutions.

While SME Sector plays an important role in the Economy, it has its own unique challenges, especially funding by banks. Banks have an important responsibility to fund SME Sector which is the real backbone of the economy, in such a manner that there can be a mutual win-win scenario. However, recently the banks are reluctant to lend to SME over several skip cases and NPA .  On the other hand, when we speak to SME segment, we get the sense of fear and panic in case of a possible default. It may be noted that such a situation usually arise due to circumstances beyond the control of business people. Though vast majority of business are SMEs, the Bank lending to them is just small % of the total Bank exposure. SME sector complains about the difficulties involved with dealing with banks while banks have their grievances about SME clients. In the current market, the situation has aggravated with banks further tightening the credit lines that has started impacting even the genuine businessmen, triggering a chain reaction.

Support of financial institutions- 

Banks have realigned themselves to the needs faced by SME. Not only do they want to ensure long-term profitability of SMEs, but also add value to their business. Banks are now keen to provide extra support to honest business persons, and focus on the need to hand-hold enterprising business owners. With greater communication and sensitivity to each other’s needs, we in the banking sector can play a vital role in guidance, training and education of entrepreneurs, so that these common goals can be achieved.

Financial awareness and their regular check for SME 

An integral part of this journey is financial awareness of an entrepreneur. While most SME owners understand the importance of financial management, they often pay inadequate attention to it. Many business owners try to manage the finance directly, which may be viable only for a small operation, but does not evoke confidence in a banker.







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