In India, the micro, small and medium enterprise sector plays a crucial role in the country’s economy. Almost 50 million such enterprises operate in various industries across India, employing over 100 million people. More than half of them are based in rural areas, while over 7percent of entrepreneurs are women. In all, the sector accounts for a substantial 37 percent of India’s GDP and over 40 percent of its exports. However, lack of adequate and timely access to finance has remained the sector’s biggest challenge, constraining its growth.
Importantly, India’s small enterprises have not been able to use their moveable assets – machinery, stocks, receivables or livestock – to access working capital loans, despite these assets being accepted as collateral internationally. These moveable assets account for over 80 percent of the asset base of India’s small enterprises – a pattern similar to other developing countries.
Now an International Finance Corporation (IFC) supported project – called India Collateral – has helped make it easier for India’s MSMEs to use their movable assets to borrow from financial institutions. As a result of this initiative, earlier this year, the Indian government introduced a new rule permitting lenders to register their moveable assets as collateral.
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