The role of Finance in promoting SMEs

In most developing countries, small and medium enterprises (SMEs) are the backbone of the economy. These SMEs run the majority of businesses worldwide. They create employment opportunities, promoting the overall development of the country. Small and medium enterprises represent about 90% of businesses. This is almost more than 50% of employment worldwide. According to the reports of the World Bank, SMEs significantly contribute up to 40% of national income (GDP) in emerging economies. 

Many government policies are made to promote these small-scale businesses. They are truly an emerging market, creating job opportunities. However, access to finance is a key constraint to SME growth. To avoid any financial constraints, quick personal loans are available at low interest rates.  

 

Case study on the significance of finance in promoting SMEs

 

A popular case in India is a prime example of understanding the significance of finance to efficiently operate SMEs. The government launched a Mudra Yojana scheme to promote SMEs (small and medium enterprises). The scheme provides collateral-free loans up to ₹10 lakhs to small businesses. It empowers young microentrepreneurs who lack access to traditional banking channels. Over 37 crore loans have been sanctioned under the Mudra Yojana. Women and marginalised communities are the major beneficiaries of the Mudra Yojana. These funds help businesses expand and upgrade technology. It creates employment opportunities for the youth of the country. Schemes like the Mudra Yojana contribute significantly to the growth of SMEs by providing timely financial support. It drives India’s economic development and financial inclusion.

 

Measures taken to fill the finance gap in Developing Countries

Innovative solutions are taken to increase SMEs’ access to finance. With sufficient funds available, these small-scale businesses can grow economically.

A holistic approach combining advisory and lending services to clients increases the contribution that SMEs can make to the economy. It includes promoting underserved segments of society, such as women-owned SMEs.

Support SME finance mainly includes evaluation, implementation support, global endorsement, and knowledge sharing of good practice. For example, you can take some of the measures enlisted:

• To increase the SME’s access to finance, financial sector assessments are taken. These tests determine areas of improvement in the regulatory and policy aspects of the SMEs.
• Set-up of credit guarantee schemes and a holistic environment must be implemented. These steps enable the SMEs to drive towards sustainable development. 
• Various strategies, like improving credit infrastructure, are highly promoted. Proper credit reporting systems and secured transactions result in increased SME access to finance. 
• In modern times, e-lending platforms are used for credit transactions. These include e-invoicing, e-factoring, and supply chain financing. Most of these platforms are highly trusted and make your banking easier.
•  Policy and analytical work done to advocate SME finance at the global level is promoted. It can be done through participating in and supporting the G20 Global Partnership for Financial Inclusion. Financial Stability Board and the International Credit Committee for Credit Reporting on SME Finance-related issues.
• You must include knowledge management tools to uplift the SMEs. The flagship publications on good practice, successful models, and policy frameworks are also equally significant.

 

Conclusion

To sum it up, Finance is an important field in any business. Without proper finances, it is almost impossible for SMEs to function efficiently. Sufficient finances can help businesses to allocate resources and buy important inventory. In today’s world, technology is an integral part of a successful business. To indulge in the use of this advanced technology, we require adequate capital. The government has also launched several schemes to promote these small-scale businesses. The SMEs provide various job opportunities to the youth of the country. This, in return, promotes economic stability. Therefore, the role of finance in promoting SMEs is highly significant to grow and sustain economically.