Banks and SMES: Indispensable partners for growth

In a developing economy like India Small and Medium Enterprises (SMEs) plays a pivotal role in promoting economic development as well as industrial production. The numbers of SMEs in India are considerable and employer to millions of people in the country. One of the major hindrances in the growth of SMEs is non-availability of adequate funds for seed capital, working capital, expansion and lack of knowledge of the sources available for getting the funds. On the other hand with stiff competition amongst banks, they are constantly looking out for new segments where they can offer financial products and increase their revenues. This study focuses on how banks and SME can collaborate with each other in the development of portfolio of financial products that are customized to the needs of the SME. This will be in the interest of both SMEs as well as Banks since SMEs will get funds more easily at a lower cost whereas Banks will get a good business from SMEs that will enhance their market presence and eventually resulted in higher profitability. Thus, this alignment will promote the growth of SMEs as well as Banks.