What is the Importance of Financial Service in Small Scale Industries?

What is the Importance of Financial Service in Small Scale Industries?

Rajesh Kumar, Group CEO & Director, CFS Group, takes up the issue of how small industries stand in the financial sinkhole of life. Says Rajesh, “SMEs are facing many challenges, especially that of finance and credit. Small industries need financial services and these are often left out. Some banks are now providing alternate lending schemes but not all small industries benefit from them. If they can be provided with a finance line and longer tenure loans with relatively low interest rates then a financial disincentive is also provided to other industries. Small scale industries need to pay the balance due on the credit to get funds from the financial institutions. Most industries have only short term deposits or are completely out of the banking sector.”

Small industries with low financial impact can also get interest free loans. What is the difference between these two and how are they different from fixed deposit? Rajesh elaborates. However, there is a cost associated with lending. In lending, there is the cost of processing the loan and managing the finances of the project. Most industries find it difficult to cope up with this cost and have to pay higher rates of interest on the loans. Also, if these companies have good credit profile, they get preferential lending facilities from the financial institutions. That is the biggest difference between lending to small industries with low financial impact and lending to other industries.”

Role of Financial Services in Small Scale Industries?

Financial Services also plays a role in the performance of a small scale industry. Scale is very important for industries to operate in a proper manner. It makes small scale industries to be very resilient and they can afford to invest in cost cutting techniques and scale-up their processes to gain competitiveness in the market. They can take away the fruits of success. But, if scale-up is not the objective of an industry, it is very difficult for it to achieve competitive advantage. One thing that has to be kept in mind while scaling up is the stability of the financial operations and if the financial operation of the firm has to be facilitated, then the interest should not be reduced for small industries.