Financing Micro Enterprise Clusters-Challenges, Opportunities and Way Ahead

At the macro level it is being increasingly recognised that most of the Indian micro, small and medium enterprises are available in clusters, with micro enterprises being the majority among them and simultaneously, finance related challenges are paramount among micro enterprises. This paper estimates that two-third of Indian manufacturing MSMEs are present in cluster, with 95% of them being micro and 72% of them being micromicro enterprises. We suggest that while finance is a critical issue in many of these clusters, many a times, the entry point of promoting these clusters are other competitiveness related issues and finance follows as a logical conclusion, very soon. Based on statistical analysis of primary information collected through structured questionnaire from six micro enterprise clusters, we find that (a) micro enterprises are looking for various finance plus models in order to link the micro and the micro-micro enterprises to go for formal sources of financing and (b) the level of institutionalisation of a cluster, i.e., the presence of intermediary institutions and their pro-activeness is directly linked to institutional sourcing of such finances in clusters. Accordingly we suggest (a) various financing tools like order discounting, financial vouchers through technology and raw material providers, (b) working with cluster based intermediaries (associations/other NGOs) for improved financial practices and (c) providing services through empanelled finance experts for better banking practices, etc.