Problems Associated with MSME

The full potential of MSMEs is often not realised because of several problems tied to their size and scale of operations. Compared with large-scale industries, MSMEs are at a distinct disadvantage in scale of operations, access to finance, ability to use modern technology and procurement of raw materials. Common difficulties include remote locations with weak infrastructure, lack of managerial talent, poor quality, traditional technology and inadequate finance; exporting units also struggle with a lack of data and market intelligence on foreign markets, exchange-rate fluctuations, quality standards and pre-shipment finance.

The major problems are:

• Finance — Non-availability of adequate finance is one of the severest problems. These units usually start with a small capital base and often lack the creditworthiness to raise money from capital markets, so they depend heavily on local sources and can fall victim to exploitation by moneylenders. They frequently lack working capital — because of delayed payment of dues or capital locked up in unsold stock — and banks will not lend without adequate collateral, guarantees or margin money, which many cannot provide.
• Raw materials — Procuring raw materials is difficult. When required materials are scarce, units must either compromise on quality or pay a high price for good quality. Their bargaining power is low because they buy in small quantities, and they cannot risk bulk buying as they lack storage. General scarcity of metals, chemicals and extractive raw materials hits the small-scale sector the hardest, wasting production capacity and causing loss of units.
• Managerial skills — These businesses are usually promoted and run by a single person who may not have all the managerial skills needed. Many owners have sound technical knowledge but are weak at marketing, cannot find time for every functional activity, and cannot afford professional managers.
• Marketing — Marketing generates revenue and requires a thorough understanding of customer needs, but it is a weak area for most small firms. They depend excessively on middlemen, who may exploit them through low prices and delayed payments, and they usually lack the infrastructure for direct marketing. …