MSMEs heavily reliant on Debt Financing: CII Survey [Mar 2012]

March 22, 2012 5:05 am

According to a survey undertaken by the Confederation of Indian Industry, nearly 63 per cent of Indian MSMEs use debt financing for their long term financial needs. In the short term, however, the reliance on debt is even more profound with close to 78 per cent of MSMEs relying on debt as compared to 22 per cent on equity.
“Lack of options to explore equity financing, absence of exit route and a lower cost of debt are the key reasons why the Indian MSMEs have been looking at debt as the main source of funding their business operations,” stated Chandrajit Banerjee, Director General, CII. However, proposed launch of the SME Exchange is expected to give a fillip to the options for exploring equity finance, such as IPOs, Venture Capital, Private Equity etc, he added.
The CII survey also shows that nearly 85 per cent MSME entrepreneurs are using bank overdraft facility or cash credit facility, while the rest are using ECB (External Commercial Borrowings), Commercial Paper or bonds. On the other hand, the very few that are using equity are mostly reliant on common stock.

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