SME Securitization: A New Ray of Hope for SMEs in India

Abstract

This article attempts to analyze the role small- and medium-scale enterprises (SMEs) have played in India from 1991 to 2010. The authors observe that SMEs have not been utilized to their potential because of various factors, such as a lack of skilled labor, limited utilities, competition from big firms, rural domination, and lack of infrastructure. The major reason, which has been an issue for about 60 years now, is the “financial gap.” The demand for capital by SMEs has not been sufficiently met. The time has come for India to find new sources of financing for SMEs. One of those sources is securitization, but there is no appropriate model developed in India to implement it for SMEs. This article studies the functioning of the SME loan securitization markets in Germany, Spain, Italy, the United States, Japan, and Malaysia and explores a suitable model called “MYNA” for India, along with proposing some changes to the current SARFAESI ACT 2002, which governs securitization in India.

TOPICS: Fixed income and structured finance, emerging