The Financing of MSMEs – Role of Venture Capital

Abstract

The Micro, Small and Medium Enterprises (MSMEs) Sector is considered to be crucial to the growth of the economy. It provides large employment opportunities at low cost, helps in industrialization of rural and backward regions, reduces regional imbalances and promotes equitable distribution of income and wealth. The small and ancillary units of MSMEs are complementary to large industries and contribute to the growth of the economy.  It is important to provide adequate and timely finance for the growth of MSMEs. However, studies have indicated that the sector faces great difficulty in obtaining adequate and timely finance during its early stages. Venture capital has an important role to play in effectively meeting the early stage requirements as Bank finance is not forthcoming due to various constraints. The study examines the importance of MSMEs, their growth constraints, financial sources, role of venture capital in meeting financial requirements, measures to channelize venture capital funds to MSME sector.