Entrepreneurs in the Micro, Small and Medium Enterprises (MSME) are as prone to take loans from moneylenders as farmers. Reason: the delay in release of loans by financial institutions and failure of the government to rehabilitate sick industries.

The Mysore Industries Association (MIA) has pointed out that less than 10 per cent of entrepreneurs take loan from banks and almost 90 per cent of the businessmen in the MSME sector were forced to take loan from moneylenders who are registered non-banking finance companies.

The high-interest rates charged by such firms were also a factor in most of the units tottering on the brink of closure as they fail to cut their loss. “Despite the efforts of the Reserve Bank of India and public sector banks to expand their clientele base, only 7 per cent to 10 per cent of self-employed persons, petty business men and SMEs take bank loan and instead take it from lenders and pay exorbitant interest rates,” Suresh Kumar Jain of the MIA said.

He told The Hindu that the MSMEs depend on non-banking finance companies due to reasons such as the guarantee of the availability of the finances and timely release as against delay and red tape in banks and other government financial institutions. But the flip side is the high rate of interest that eats into their wafer thin margins and the failure to clear it erodes their profits sending the unit into the brink of closure. High processing fee and foreclosure charges of up to 5 per cent levied by the non-banking firms were other factors contributing to the loss.

There are nearly 40,000 registered MSMEs in Mysuru region of which 20 per cent are sick and 20 per cent are anticipating sickness while another 25 per cent have already shut operations, according to Mr. Jain. He said only 35 per cent of the industrial units were functioning well and some of them had even expanded from micro to small and small to medium industry. But such success stories are a handful against the number of failures, Mr. Jain said.

Though the State government has an ambitious project to rehabilitate sick industries, it is pertinent to note than only two MSMEs have benefited from the scheme in the last 5 years in the entire State.