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Options in MSME financing in India - Deputy Governor - Reserve Bank of India

Options in MSME financing in India - Deputy Governor - Reserve Bank of India

Micro, Small and Medium Enterprises (MSMEs) play a major role in economic development, particularly in emerging countries. There is heightened attention by the international community on the MSME sector. This is primarily because of the critical importance of job creation in the recovery cycle following the recent financial crisis, and the MSMEs’ potentials in that respect.

Yet, lack of access to finance is a major obstacle to their growth. Although the situation can differ among countries and individual businesses, the financing gap for SMEs in the developing country has a few well-accepted causes. These include information asymmetries, higher risks, sizeable transaction costs and a lack of adequate collateral. These factors can be exacerbated by institutional factors within a country. Finally, there are a number of ‘demand side’ considerations that deserve more attention

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