What Hinders and What Enhances Small Enterprisess Access to Formal Credit in India?

Overlooked or Ignored – Missing Elements in the Entrepreneurial Finance Policies: A Case of Introducing MUDRA Bank in India

“…Various studies in the past have found a positive correlation between the creation of an enabling environment – like strengthening important infrastructure, input supplies, and market linkages – and access to credit (NCUES, ; Ramadani, ; Yaron, ; Yaron and Benjamin, ). One very recent study on small business financing in India has identified an improvement in systemic factors such as the land administration system, promotion of education, and developing underdeveloped regions such as the north‐eastern region of India as some of the variables affecting financial access (Nikaido et al ., ). The 182nd ranking of India among 185 economies on ease of doing business shows how difficult the ecosystem is for Indian entrepreneurs (The World Bank, ).…”

“…Recently, in one of his speeches, the present Finance Minister of India recognized that around 20 percent of the country’s population is dependent on millions of micro and small entrepreneurs (Sinha, ). However, these entrepreneurs face a lot of barriers, and research has proved that access to credit is one of the key obstacles in entrepreneurship development in India (Daymard, ; Kushnir et al ., ; Lalhunthara and Kumar, 2015; Nikaido et al ., ; Ravi, ). Successive governments in India have also recognized this, and have taken many steps (including policies) to enhance the flow of credit to micro and small entrepreneurs ( Table )…”

“…Nikaido et al . ( ) classified MSMEs into constrained enterprises and unconstrained enterprises. The former represent enterprises that reported a shortage of capital and the latter represent enterprises that did not have a shortage of capital but received credit from a formal or informal source.…”

“…Nikaido et al . ( ) have noted that around 87 percent of small enterprises did not receive credit, maybe because of denial of credit or discouragement from applying for credit due to a fear of being refused. Lipsky’s work on street‐level bureaucracy highlights some of the strategies adopted by people employed in the bureaucratic setup (in this case the banking industry) to keep clients away.…”