Impact of Institutional Financing on Small Enterprise Growth: Evidence from India and Meghalaya

Abstract

The competitive strength of small business depends largely on the availability of funds for implementation of appropriate strategy. The paper explores the critical relationship between financial institutions and the growth of small enterprises, with a specific focus on India and the state of Meghalaya.  It examines how institutional financing impacts small-scale industrialization, addressing key research questions such as the correlation between small enterprise growth and institutional financing, the influence of financial factors, and the role of bank branches and credit-deposit (C/D) ratios.  The study employs correlation, and regression models, over a 37-year period (1976–2013). The findings reveal a significant positive correlation between institutional financing and small enterprise growth in terms of units, capital investment, and employment, both at the national level and in Meghalaya.  However, challenges such as credit constraints, lack of proper documentation, and limited entrepreneurial skills hinder the sector's development, particularly in Meghalaya.  The study also highlights the need for improved financial accessibility, capacity building, and policy measures to address these barriers.  It concludes that while institutional financing plays a pivotal role in fostering small enterprise growth, a more inclusive and supportive financial ecosystem is essential for sustained development.