Determinants of Access to Formal Credit for the Micro, Small and Medium Enterprises in India: An Inter-regional Analysis

Abstract

Micro, small and medium enterprises (MSMEs) are significant contributors to the country’s growth and development. With the immense contribution to the Indian economy, the sector is undergoing a severe credit crunch. Mainly, formal credit is a pressing challenge for MSMEs across the nation. The article examines the inter-regional variations in the determinants of formal credit access to the MSMEs in India. The 73rd round (2015–2016) of the National Sample Survey Organization (NSSO) on Unincorporated Non-agricultural Enterprises has been used for the analysis. The study executed a descriptive analysis to assess the credit distribution and applied a logit model to determine the predictors of access to formal credit in each region. Results from descriptive analysis highlight significant regional differences in accessing formal credit in India. The Southern region has more access to formal credit than the other regions. The Northeast, Central and North regions are laggard in accessing formal credit. Besides, the study highlights that the determinant factors at the n ational level are uneven across the regions. Based on the evidence, it emphasises the government to re-examine its measures and implement the regional-specific programmes to create a conducive environment for the MSMEs in accessing formal credit.