LUẬN văn THẠC sĩ (KINH tế) financial institutions have not assisted in the development and growth of small and medium scale industries in india

Declaration...6 Acknowledgements...9 Abstract...10 Chapter-1...11 INTRODUCTION...11 1.1 Background:...11 1.2 Aimandoverallresearchquestions...12 1.3 Interestandsuitabilityoftheresearcher

Financialinstitutionsh a v e n o t assistedi n t h e d e v e l o p m e

n t andgrowthofsmallandmediumscaleindustriesinIndia

AstudyonSMEindustriesinUttarPradeshregion

DublinBusinessSchool InAssociationwithLiverpoolJohnMooresUniversity

Declaration 6

Acknowledgements 9

Abstract 10

Chapter-1 11

INTRODUCTION 11

1.1 Background: 11

1.2 Aimandoverallresearchquestions 12

1.3 Interestandsuitabilityoftheresearcher 14

1.4 Recipientsofresearch 14

1.5 Majorcontributionofthestudy 15

1.6 ResearchLimitations 15

1.7 Organisationofthedissertation 16

CHAPTER-2 17

LITERATUREREVIEW 17

2.1 Introduction 17

2.2 TheoreticalDefinitions 17

2.3 CriticalEvaluationoftheTheoriesBuiltontheFIsGrowthandSuccessofSMEs 18

2.3.1 TheHamperingandInteractiveIssuesofFIstowardsSuccessofSMEs 18

2.3.2 DeterminantsofcapitalstructureofSMEs 20

2.3.3 Linkbetweencapitalstructureandfinancialinstitutionsdevelopment 21

ReviewofEmpiricalStudies 21

2.4 EmpiricalStudiesinIndia 21

2.4.2 TheRoleofFinancialInstitutionsinFinancingSMEsinIndia 22

2.4.2.3 Non-Governmentorganization(NGO/MFIs) 23

2.4.2.4 Creditunions 24

2.5 SmallandMediumEnterprisesectorinIndia 25

2.5.1 Definingthesector 26

2.5.2 ContributionofSMEsectortoIndianEconomy 27

2.5.3 ChallengesofSMEsinIndia 28

2.5.4 InitiativeswhicharetakenbyGovernmentinorderstimulateSMEsinIndia 30

2.6.1 Africa 31

2.6.2 AsiaandLatinAmerica 31

2.6.3 Europe 32

2.7 ConclusiononLiteratureReview 32

CHAPTER-3 34

ResearchMethodology 34

3.1 Introduction 34

3.2 Researchquestions 35

3.3 ResearchHypothesis 36

3.5 Researchphilosophy 37

3.6 Researchapproach 38

3.6.1 Inductiveapproach: 39

3.6.2 Deductiveapproach 39

3.7 Researchstrategy 40

3.8 ResearchChoice 41

3.9 TimeHorizon 41

3.10 Datacollection 42

3.11 Primaryresearch 42

3.11.1 Quantitativeprimaryresearch 42

3.11.2 Quantitative-Questionnairemethod 43

3.12 SecondaryResearch 44

3.13 Dataanalysis 44

3.14 Sampling 45

3.15 Ethics 47

3.16 ValidityandReliability 47

3.17 Limitationsofthestudy 48

3.18 Conclusion 48

CHAPTER–4 49

STUDYFINDINGSANDANALYSIS 49

4.1 Introduction 49

4.2 MethodologyofResearch 49

4.3 PercentageofResponsesfromSMEs andfinancialinstitutions 50

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4.4 SmallandMediumScaleenterprises 51

4.4.1 KeyCharacteristicsoftheRespondents 51

4.4.2 FormofOwnership 53

4.4.3 Thenatureofcompany‟soperations 54 4.4.4 Ageofbusiness 55

4.4.5 Hypothesis 57

4.4.6 Experienceonloanapplication 57

4.4.7 Loansuccessrate 60

4.4.8 MajorthreatstothedevelopmentofSMEs 75

4.4.9 Problemsinaccessingfinance 76

4.4.10 Most preferredtypeofexternalfinancing 78

4.5 Financialinstitutions 79

4.5.1 Genderofrespondents 81

4.5.2 Ageofrespondents 81

4.5.3 Typeofproductsandservicesoffered 82

4.5.4 ExperienceindealingwithSMEloans 85

4.5.5 Obstacles 86

4.5.6 Prioritizationwhilegivingloans 87

4.5.7 FactorspreventSMEoperatorsinborrowing 88

4.5.8 DriversofFIsinvolvementwithSMEs 90

4.5.9 Usefulness 91

4.5.10 StrategiestoimproveaccessibilityoffinancetoSMEs 93

4.5.11 OpiniononGovernmentsupport 94

4.5.12 shouldthegovernmentsupporttheSME 95

4.6 Hypothesis: Conclusion 96

CHAPTER-5 98

CONCLUSION 98

5.1 Validationoflaidhypothesis 102

5.2 ConceptualFramework 103

Recommendations 106

Introduction 109

7.2 Learningstyle 109

7.2.1 TheoreticalBackground 109 7.2.2 Reflectiononownlearningstyles 112

7.3 AssessmentofResearchProcess 113 7.3.1 Process 113

7.3.2 UseofSources 114

7.3.3 Formulationofdissertationprocess 114

7.4 Skillsdevelopment 115

7.4.1 Researchskills 115

7.4.2 Timemanagementskills 115

7.4.3 InterpersonalSkills 115

7.4.4 Learningskills 116

7.4.5 Criticalthinkingskills 116

7.4.6 Communicationskills 116

7.4.7 Teamworkingskill 117

7.5 FutureApplicationofLearningandSkillsDevelopment 117

REFERENCE 118

APPENDICES 122

forseekingcredit……… 65Figure4.11Loansizeoftherespondent………

66Figure:4.12Loanproviders……… 67Figure4.13

opinionsonLoanrepayment……… 69Figure:4.14AchievementofSalesrevenue……… 70Figure:4.15Achievementofprofitability……….71Figure:4.16Achievementofphysicalassets……… 72Figure:4.17Achievementoffinancialassets………

73Figure:4.18Achievementofmarketcoverage… … … …

… … … 7 4

Figure:4.19 Threats……… 75

Figure4.20Preventingfactors……… 75Figure:4.21: MostPreferredFinance………76Figure:4.22financialinstitutions……… 76Figure:4.23Genderof

respondents……… 77Figure:4.24

Ageofrespondents………77Figure:4.25products

andserviceofferedbyfinancialinstitutions……… 78Figure4.26Levelofexperie

loans……… 80Figure:4.27Obstaclestofinancialinstitution‟sinvolvementwithSMEs………81Figure:4.28PrioritizationofLoansto

SMEs……… 83Figure:4.29FactorsthatpreventSMEoperatorstoborrowfromFIs……… 84Figure:4.30DriversofFIsinvolvementwith

onGovernmentsupport……… 86Figure:4.32

Ratingongovernmentsupport……… 88Figure:5.1ConceptualFrameworks……… 96Figure6.1: Kolb

……….97Figure6.2:Honey&Mumford;learningstylesdiagram………

……… 98

Signed:Joise Mole Lukose

Date: 23rdMay2014

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Firstofall,Iwould liketothanksGod almightywho

hasbeengivingmeeverythingtoaccomplishthisthesis:Patience,health, wisdom,andblessings

Iwouldliketothankmygreatsupervisor,Mr.MichaelKealyforthepatientguidance,encouragementandadvicehehasprovidedthroughoutthisdissertationprocess.Hissupportwasg r e a t l y appreciatedthroughout

Iwantt o c o n v e y a greatt h a n k yout o allo f lecturersfort h e i r greatcontributioni n sharingknowledgeandadviceduringmyacademicyears.Icouldnotcompletethisthesiswellwithoutt h e i r goodcontributionandideas

.Iwouldliketothankalloftheindividualswhoparticipatedintheresearchsurvey,givingtheirvaluablet i m e ande x p e r t i s e T h e c o n t r i b u t i o n s t h a t werem a d e p r o v e d tob e veryv a l u a b l e i nconductingthisresearchstudy

Iame s p e c i a l l y gratefult o myparents,w h o s u p p o r t e d m e e m o t i o n a l l y andf i n a n c i a

l l y T h i s accomplishmentwould nothave beenpossible withoutthem.Thankyou

SmallandMediumEnterprisesarethedrivingforceforthepromotionofaneconomy.Duetoitssignificance,allt h e countrieseither,developedo r developing,areconcentratingo n t h e developmentofSME‟s.Itisadmittedfactthatencouragingentrepreneurshipisakeytoimprovecompetitiveness,b o o s t tradevolume,fosteringeconomica c t i v i t i e s andcreationo f j o b opportunities.Smallenterprisesareconsideredasmaindriverforinnovation,povertyreduction,employmentgenerationandsocialintegration

necessarytocreateaneconomicenvironmentthatenablesSMEstogrowandprosper.Thepurposeofthestudywast o evaluatetheextentofSMEfinancingbycommercialbanks,microfinancialinstitutionsandcreditu n i o n s i n India.A n d i t washypothesizedt h a t therei s a p o s i t i v e relationshipbetweenInstitutionalfinanceandS M E growth.T h e s t u d y adopteda p o s i t i v i s t (quantitativeparadigm)

w i t h acrosssectionaldesign.Thefindingsinrespectofthemainpurposeofthestudyindicatedt h a

t a financiali n s t i t u t i o n makessignificantc o n t r i b u t i o n t o thegrowthanddevelopmento f S

M E s M o s t ofthefindingsprovesthat theSMEowner‟sperceptiontowardslendingstillremainasanissue.Thisstudyfindsitasoneofmajorreasonfor

thelackofcreditdemand.Sothisstudyalsoaimstoshedsomelightontheimportanceofentrepreneurialtraining,mutualloanguaranteeschemesandalsotheeffectiveimplementationandmonitoringofgovernmentmeasuresinSMElending

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s h a r e haslevelledofforf a l l e n i n m a n y countries,e s p e c i a l l y intermsofemployment.NowtheSmallandmedium-

sizedenterprisesreflectedtobeo n e o f t h e m a j o r d r i v i n g forcesi n e c o n o m i c growth.T h

e y m o t i v a t e p r i v a t e o w n e r s h i p andentrepreneurialtalents.MoregenerallytheSMEsindevelopingmarketsdependonmorelabor-

intensiveproductionpracticesthanlargeenterprises,improvingemploymentandleadingtomoreequitableincomedistribution(Luetkenhorst,2004)

However,Indialikeothercountries,SMEsplay avitalroleintheprocessofindustrial developmentandeconomic growthbyconsiderablycontributingto employmentcreation,i n c o m e generationandcatalyzinggrowthin urbanandruralareas(ShambhuGhatak2010p.3)

Withanimpressivehistoryofsmallfirmdevelopmentpolicy,inpost-IndependenceIndiaSMEsdominatetheindustrialscenariothroughitscontributiontogenerationofemploymentandi n c o m e asalsotacklingtheproblemofregionaldisparities(KeshabDas2008).Thepe

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to94millionpeoplewithanetworkof37millionunits(Prof.H.L.NagaraMurthy2012).Despitei t scommendablec o n t r i b u t i o n t o t h e nation‟se c onomy,S M E s e c t o r doesn o t gett h e requireds u

p p o r t fromt h e concernedbanks,financiali n s t i t u t i o n s , governmentdepartmentsando t h e rcorporate,whichisahandicapinbecomingmorecompetitiveintheNationalandInternationalmarkets.T h e c o u n t r i e s s m a l l andm e d i u m enterprisessectori s s e v e r e l y underfinanced.TraditionallendinginIndiaisalsolargelycollateralbased,relyingonsecurityvalueratherthanbusinessfundamentalsasthebasisforlendingdecisions(SimmiSareen2012).ToempowertheS M E sectortotakeitsrightfulplaceasthegrowthengineofIndianeconomy,itisnecessarytos u p p o r t t h e S M E

s , educateande m p o w e r t h e m t o m a k e o p t i m u m utilizationo f t h e resources,b o t h financeandeconomic toachievesuccess(VepaKamesam2003)

Therefore,themajorconcernofthisstudywasfocusedsolelyonassessingthefinancialproblemst h a

t a r e b e i n g facedbyIndianS M E s a n d cameo u t w i t h t h e p r o p o s e d strategiesf o r improvementsintheareaofgovernment,financialinstitutions aswellasidentifyingsomeoft h e gapsintheexistingknowledgerelatedtofinanceinsmallenterprisedevelopment.Forthepurposeof th is study,s a m

p l e s aretakenfromU t t a r Pradesha st at e locatedi n NorthernIndia,representing16.4%ofIndia‟spopu

ofpolicymakingdistrictsandi t providesemploymentopportunitiest o n e a r l y o n e

-t h i r d o f -t h e s-ta-tes-to-tall a b o r forceini-tssmallmediumscaleindus-triesincluding-tex-tilesandsugar-

refining.TheSMEsectoraccountsf o r almost6 0 % o ft he totali n d u s t r i a l o u t p u t i n U t t a r Pradesh.T h e st at e haso v e r 31 l a k h SMEunitsatpresent,accordingtothelatestcensus(2006-

2007).Outofthese,87,522unitsareregistered.A n A S S O C H A M s u r v e y r e p o r t s t h a t U t t

a r Pradeshhase m e r g e d ast h e t h i r d leadings t a t e i n facilitatinggrowthi n

t h e smallandm e d i u m enterprisessector.Thes u r v e y indicatesover30,000jobsweregeneratedinUPintheSMEsectorbetween2011and2013.Sot h e s m a l l andm e d i u m scalei n d u s t r i e s constituteani m p o r t a n t segmento f t he U P e c o n o m y intermsofemploymentgenerationandasasourceofforeignexchangeearningsthroughexports

1.2 Aimandoverallresearchquestions

Small andMediumEnterprises(SMEs)playaverysignificantrolein

theeconomyintermsofbalancedandsustainablegrowth,employmentgeneration,developmentofentrep

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SMEsarenot ableto stand up to

thechallengesofglobalization,mainlybecauseofdifficultiesint h e areaoffinancing.With

theopeningup oftheIndianeconomy,ithasbecome necessarytoconsidermeasuresof

smootheningtheflowofcredit to thissector.(Y.sreenivas2005)

Butonthecontrary,itisoftensupposedthatmanyentrepreneursorSMEsthatdonotcurrentlyhaveaccesstofundswouldhavethecapabilitytousethosefundsproductivelyifthefundswereavailable;butmanystudiesrevealedduetomanyreasonsthefinancialsystemdoesnotprovidefinancetoSMEs.SoitisveryimportanttoascertainwhetherIndianSMEsaregettingadequateamountoflendingfromfinancialinstitutions

Thisobjective leadto thefirstresearchquestion (RQ1):

Whetheror not financial institutionsare providingadequatecreditsto SMEs?

Theprovisionoffinancet o t h e S m a l l andM e d i u m Enterprise( S M E ) segmenti s a t o p i c ofcrucialp o l i c y importance T o c u r e theoveralldiseaseoflacko f ap pr op ri at e growtho f IndianS

M E s –

SmallandMedium Enterprises,Indianeeds severals t r o n g remedies suchasadequatecreditd e l i

v e r y t o S M E s , betterr i s k m a n a g e m e n t , technologicalu p gradationo f Banks,andattitudinalchangeinBankersandsoon.Amongthem,themajorproblemofinadequatefinancingtoSMEsneedsanurgentattention(TarakShah&AnshuKhedkar2006).Thisstudyistherefore,importantonprovidingempiricalevidenceabouttheproblemsfacedbythesmallandm e d i u m enterprises.S o t h e rationalf o r t h e f o l l o w i n g questioni s toassessthefinancialbasedproblemsfacingsmall andmediumenterprisesinIndia

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hypothesis.T h i s s t u d y a i m s t o proposea conceptualframeworkf o r s o l v i n g t h e problemsandanalyzingdata‟stoanswerproposed researchquestionsandproposedhypothesis.

1.3 Interestandsuitabilityoftheresearcher

Saundersetal

(2007)proposest h a t t h e d i s s e r t a t i o n t o p i c m u s t b e s o m e t h i n g researcheri s capableofundertakingandonethattheresearcherfeelsexcitementandenthusiasmfor,aswellashavingthenecessarycompetencytocomplete.Beingastudentoffinance,theresearcherhasaspecialinterestinstudyingSMEfinance.Throughadetailedanddeepresearch,theresearcherhasdevelopeda k e e n interesti

n understandingh o w t h e s e s m a l l businessesa c t u a l l y affecto u r economy.ThegrowthofSMEshavebeensaidtocombinethestrategiesofpovertyalleviationandindustrializationintoauniquepackagethatisbeneficialnotonlytoentrepreneursbuttothec o u n t r y atlarge.Ift h e s e arep r o v i d i n

g p l e n t y o f benefits,t h e n t h e q u e s t i o n remainst o b e answeredis:whySMEsarestillcontinuetofacechallengesingettinginstitutionalfinance?So,t h e researcherrealizedthepotentialandopportunityforthis topicto beexplored

Asapersonwhowouldlovetobecomeanentrepreneurinfuture,Researcherbelievesthattheknowledgegainedfromt h i s researchw o u l d n o t o n l y h e l p herbetteru n d e r s t a n d t h e s t a t u s o f S M

E s i n Indiabut wouldalsotraintheresearcherinstrategizingwhensheintend tostartup

1.4 Recipientsofresearch:

Therearef o u r m ai n recipientst o t h i s researchw h i c h i s carriedo u t asa parto f th e M as t e r of BusinessAdministrationinFinancein DublinBusinessSchool.Theyareasfollows

1 ThefirstandforemostrecipienttothisresearchisDublinBusinessSchoolwheretheresearcheris currentlypursuinghis MBA inFinance

2 ThesecondrecipienttothisresearchisLiverpoolJohnMoore‟sUniversity,whowillawardtheresearcherforherMaster‟sprogramme

3 ThethirdrecipienttothisresearchisMr.MichaelKealywhoisthesupervisorfortheresearcherandguidedherthroughoutthethesis.

4 ThefourthrecipientgrouptothisresearchincludestheIndianSMEs,relatedfinanciali n s t i

t u t i o n s andtheconcernedpolicymakers

1.5 Majorcontributionofthestudy

Themainaimofthisstudyistoprovidevaluablecontributionforthedevelopmentandsuccesso f theSMEsinIndia.Firstofall;researchthathasbeensubmittedinthisareaislimited.Avastn u m b e r

o f studiesareavailableintheissueofmicrofinanceassistancetoSMEs.butnotconsideringotherfinancialinstitutions.Remainingsomewereignoredthefinancialproblemsofs m a l l scalei n d u s t r i e s f

o r whichh a s a l i f e t i m e o f l e s s t h a n 5 years.Basedo n t h e availableevidenceresearcherattemptedamodestapproachtofilltheknowledgegapofexistingstudies.A n d alsos h e believesthatt h i sstudyw o u l d b e v e r y helpfulf o r o t h e r researchscholarsandprofessionalswhoaregatheringdata‟

s regardingthistopic

1.6 ResearchLimitations

Tocoveralltheregionsintheentirecountrywasimpossiblebecauseofthelimitedtimeframeandamounto f f u n d s f o r t h i s research.Fort h i s r e a s o n , t h e researchw i l l b e coveringU t t a r Pradesh,oneofthestateslocatedinNorthernIndia.Thechoiceofthisregionisduetothefactt h a t i t i s

t h e t h i r d leadings t a t e t o facilitategrowthi n S M E sector(AssociatedChambersofCommerceandIndustryofIndia2013).Researcherbelievesthatthiswillprovidegoodsourceofdataforthestudy.Butthisstudyfocusesonlyonthesmallandmediumsectorsofthebusiness.Microscaleenterprisesarenotincludedinthestudy.Anothermainlimitationofthisresearchisi t s chosenmethodofdatacollection,t

h e foremostobjectiveofquantitativeresearchistogeneralize.Ineveryquantitativeresearch,itmaynotbepossiblefortheresearchertostudythew h o l e population ofinterest.So,theresultsmaynotproducefullyreliableandaccuratefindings

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