Understanding Financing Practices and Constraints of Small and Medium Enterprises in Textile and Clothing Sector: An Empirical Study

Abstract

India has a vibrant micro, small and medium enterprises (MSME) sector contributing significantly to the manufacturing output, employment and exports of the country. It is estimated that in terms of value, the sector accounts for 5 per cent of the manufacturing output and 40 per cent of the total exports of the country. The sector is estimated to employ about 42 million persons in over 13 million units throughout the country. This study was undertaken to analyse the financing practices and constraints faced while availing finance of small and medium enterprises in textiles and clothing sector of an industrial city of India. A sample of 50 units was selected on a convenience basis. The study highlighted that a majority of the respondent units started their business with internal funds only. But, during the current year, a majority of the respondent units employed external funds. Commercial banks emerged as the most preferred source to finance requirements for business. Respondent units reported lengthy paperwork and formalities as the most important constraint faced at the start-up stage. Procedures regarding the disbursement of loans need to be simplified and interest rates should be lowered to enhance the competitive strength of small and medium enterprises.