Lack of institutional finance has always remained the Achilles heel of our micro, small and medium enterprise (MSME) sector – a recent RBI report again points out this fact. The paper, "Report of the Committee on Medium-term Path on Financial Inclusion" released by the central bank last week views that access to adequate credit, in spite of various policy support measures taken for the sector from time to time, has still remained elusive. Citing International Finance Corporation data, it adds that overall finance gap in the sector stood at a whopping Rs. 21 trillion in 2009-10. I don't think the situation has improved much since then.

The RBI report calls for, among other recommendations, broadening of the present structure of credit guarantee with the participation of private agencies, both public and private, that can provide credit guarantees in niche areas. It stresses on creation and strengthening of specialized institutions such as NBFCs and MFIs that focus on the provision of credit for different types of MSMEs as banks lack adequate skills and time to assess credit-worthiness of MSMEs and their 'one size fits all' approach towards risk assessment is of little good. In addition, the committee also views that the role of counter guarantee and re-insurance companies should be explored.

The study also stresses on introduction of a system of unique identification for all MSME borrowers and the sharing of such information with credit bureaus. These credit intermediaries will, on the one hand, help small enterprises to draw up their financial statements and assess their viability so that they can access finance with greater ease, and on the other hand, they will provide banks with key information so that non-viable enterprises can be identified. The idea sounds good. Banks usually reject small business loan applications based on the generalized notion that SME lending is riskier. But it is also true that small businesses typically lack skills in managing cash flows or preparing financial statements. The proposed mechanism seeks to bridge this gap.

Another suggestion made in the study relates to innovations in SME financing. Citing examples of 'new lending and equity financing initiatives' by organizations outside the banking system, such as Amazon Lending by Amazon, and 'innovative financing structures and instruments', such as supply chain finance (SCF) initiatives by companies like Financial Times and Nestle, the study views that innovative solutions in access to finance can play in propelling the growth of SMEs. It is also recommended that a framework for movable collateral registry for micro and small enterprises may be examined to step up financing to this sector. These possibilities sound worth exploring.

I invite your opinions.