The Reserve Bank of India has asked banks and financial institutions to follow the “guidelines in letter and spirit” for providing credit to the MSME sector.
RBI Deputy Governor Anand Sinha said the central bank had issued instructions to all banks for ensuring timely flow of credit to the MSME sector, particularly the more employment-intensive units.
“We urged banks and other institutions to implement the guidelines in letter and spirit,” Sinha said. Sinha said it was true that credit flow to the MSME sector was not adequate. Only 5-7 percent of the MSMEs get institutional funding. “There is a huge gap,” he said. He added that the RBI has taken a lot of initiatives like financial inclusion and raising of the limit of collateral-free loans.
For high-growth units, venture or risk capital could be alternative sources of funding. Factoring was also an alternative source of working capital, he said.