Small businesses serve as engines of innovation, growth, and employment, due to their flexibility to respond to new opportunities in the economy and their potential for rapid growth. In India, SMEs constitute 95% of all industrial units, produce 40% of the gross industrial value added, and employ 45% of the nation’s total labor force. However, data suggests that despite their growth potential, SMEs in India do not typically grow to become large companies, as is the case in developed economies. This lack of growth of SMEs in India is seen as a serious hindrance to job creation, social mobility and poverty elimination. The constraints to firm growth include lack of access to efficient and adequately structured financial services, regulatory and legal constraints and limited access to (well-trained) employees as well as lack of infrastructure.
IFMR LEAD’s Small Enterprise Finance Centre (SEFC) aims to serve the SME sector by studying best practices and designing robust mechanisms that ameliorate or circumvent obstacles to firm-growth within this critical sector of the economy. The Centre conducts research that develops insights and products to improve SMEs’ access to financial services, and to resolve existing blockages in the financial system such as labour turnover, market inefficiency, and poor infrastructure. After formulating the problems commonly faced by SMEs, they ideate innovations, practices and products for SMEs driven by knowledge sharing of academics, banks, NBFCs, and public partners. SEFC tests the ideas through on-the-ground implementations such as randomized impact evaluations, audit studies, and large-scale econometric analysis.