MSME Cluster Financing in India: A Regional Study

Book ID: ISED-207

Book Type: Paperback

Description

This publication falls under the 'Research Reports' Series of the Institute. The purpose of the Series is to bring to the public domain, the findings and recommendations of the Institute's research work, both commissioned studies, and of those belonging to the core research of the ISED. This report is the output of an in-house research of the Institute, initiated by the ISED Small Enterprise Observatory. This report is based on a larger study commissioned by the ISED, Cochin, in the context of the preparation for the India MSME Report 2012. The study was meant to understand the relative position of finance to MSME clusters, in relation to that of stand-alone MSMEs. The key question posed by the study was whether bankers preferred lending to cluster-based MSMEs as compared to stand-alone units. It also attempted to determine whether MSMEs that are part of clusters get better terms from bankers as compared to their peers that are not part of clusters. The scope of the study covers three clusters - Foundry cluster in Hyderabad, Mango processing cluster in Chittoor and Imitation Jewellery cluster in Machlipatanam. The study brings out some interesting findings: banks benefit from lending to units that are located in clusters in terms of lower transaction cost per account and higher information availability. However, banks do not often treat the borrowers in a cluster any different from MSME borrowers in general, unless borrowers bargain collectively for favourable terms. These findings are indicative. The Government and MSME Associations should work towards capacity building of the cluster associations, as strong associations would enable better access to finance. The study also suggests that banks that service the clusters should be incentivised to take enhanced ownership of the cluster and to offer shared services to the cluster.