Major Challenges Faced By The Msme Sector And Their Impacts


Micro, small, and medium-sized enterprises (MSMEs) play an important role in our country’s economic growth because they generate a considerable number of job opportunities in every corner of India. MSMEs’ growth should not be stifled at any moment, and the government should provide enough support to ensure this. 

The current economic climate is not ideal for small businesses, despite the government’s efforts to keep them afloat with stimulus funds. While there are many efforts the government has been taking to improve the sector’s financial situation, several issues still need to be addressed. We’ll walk you through the most pressing issues plaguing the industry right now. Let’s dive in.

Also Read: Highlights of the MSME Budget 2022-23

Challenges Faced by MSME Sector 

Here are the challenges MSMEs face:

1. Ease of Doing Business – Regulatory Issues 

Most Indian start-ups encounter this issue in their early phases because of an overabundance of rules and regulations. Even though India has improved its ranking in the World Bank’s Ease of Doing Business Index, the system still has major flaws that inhibit businesses from growing and prospering. 

Most of the time, difficulties with getting an MSME loan, contract enforcement, or dealing with building permits deter entrepreneurs from starting a business. While the time to establish a new enterprise has dropped from 127 days to 30 days, business owners in Mumbai must wait and go through 12 steps of procedures before they can open their doors, whereas worldwide, the average is only five.

2. Lack of Funds

Despite the government’s efforts to make business loans more freely accessible and encourage entrepreneurship, most companies still have difficulty getting financing or applying for an MSME loan. Regulatory flaws that cause delays in obtaining permits and insurance can harm the chances of small and medium enterprises. A lack of resources hampers most firms when it comes to producing their products, buying raw materials on time, or even gaining access to innovative technologies and expertise.

Also Read: MSME & Small Business – Digital Transformation for Growth

3. Lack of Financial Know-how

Even as entrepreneurs devise new tactics and growth prospects, there are still those who lack the financial know-how to properly manage their businesses. Some entrepreneurs may not make key business decisions relating to MSME loans if they lack prudent financial expertise. Your firm could be in jeopardy because of a lack of financial expertise unless you seek outside help. 

It is also crucial to have a working grasp of money since an MSME loan can help you get through any financial difficulties that may arise. Before applying for an MSME loan, make sure you’re familiar with the terms, conditions, and interest rates associated with each type of loan.

4. Technological Advancements 

Technological advancements have been plentiful, and most industries have experienced some sort of transformation to stay competitive. Although, because of a lack of experience and awareness, many firms are missing out on the latest technology advancements in their industry. As a result, MSMEs must be kept informed of technology advancements that directly impact the success of their companies. It is critical that scientific research institutions remain engaged with local MSME groups and pay attention to their technological concerns and issues. 

5. Labour

Indian MSMEs lag far behind their international counterparts in terms of technical expertise due to their reliance on low-wage informal workers who do not possess the necessary education or training to contribute significantly to production. As a result, small businesses are compelled to take on positions requiring modest levels of experience and training, further limiting their long-term chances for growth.

Entrepreneurs in both urban and rural areas can benefit from businesses’ efforts to improve their skills and connect them to the market. When the economy is in trouble, putting more emphasis on employee education and training can be extremely helpful. 

Also Read: Evolution of SME Lending In India

6. Trust Concerns 

Banks are reluctant to provide MSME loans because the amounts are still tiny and because they believe MSMEs lack the repayment capabilities. They end up enforcing harsher controls on these start-ups in this situation. Certain businesses have difficulty getting loans because of a lack of recognition of a company’s credit score. Adding to their woes is the fact that typical credit choices require business owners to meet stringent eligibility requirements, which further dulls their spirits. 

7. Collateral for Loans

A rigorous collateral requirement can make it problematic for some businesses to access an MSME loan. Small businesses may not have the collateral or assets necessary to receive a loan from a bank. Thus business owners can take out unsecured lines of credit from creditors and not worry about meeting the MSME lending criteria.

8. Absence of Standardised Policies

In India, just a few policies are in place to support small and medium-sized businesses. As a result, MSME growth and entrepreneurship development programs lack coherence. Even though strides have been made in Delhi over the years, more remains to be accomplished at the national scale if Indian businesses are to be more relevant in the world economy for global companies and stakeholders.

9. Impact of the Challenges MSMEs Face

Due to MSMEs’ low efficiency, mismanagement, and poor workplace conditions, growth has been difficult to achieve. Thus, the sector’s liquidity and profitability have slowed to levels that are incompatible with economic growth. There will be a considerable increase in the number of jobs created in India if the MSME sector is robust.

Also Read: An Overview of MSME Registration In India: Process & Benefits Discussed

Wrapping Up

The MSME has several serious issues which necessitate an immediate response. The government is working hard to lay forward a plan for this industry that will help it overcome its many challenges and prosper. In India, there is a stimulus package of 3 lakh crores that allows MSMEs to get collateral-free loans from specified lenders. However, the plans are beset by serious problems that the authorities must address right away.