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Financing preferences and practices of Indian SMEs

Author

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  • Kent Baker, H.
  • Kumar, Satish
  • Rao, Purnima

Abstract

Using survey data from 309 small and medium sized enterprises (SMEs) from the northwest region of India, this study examines the financing preferences and practices of these SMEs. It also investigates the differences in the financing preferences across firm and owner/manager characteristics and documents the drivers of financing practices in India. Respondents prefer internal funds followed by bank financing mainly in the form of long-term loans and funds from government and financial institutions. Among informal sources, SMEs prefer trade credit followed by funds from family friends, relatives, and money lenders. The least preferred source of financing is external equity. The study contributes to the extant literature on SME financing by comparing the financing preferences and practices of SMEs and identifying a financing gap. By providing a holistic view of financing sources to SME owners and managers, the study can assist policymakers in designing appropriate policies for these individuals and help identify underutilized financing sources for SMEs.

Suggested Citation

  • Kent Baker, H. & Kumar, Satish & Rao, Purnima, 2020. "Financing preferences and practices of Indian SMEs," Global Finance Journal, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:glofin:v:43:y:2020:i:c:s1044028317301837
    DOI: 10.1016/j.gfj.2017.10.003
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    Cited by:

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    2. Fangbin Qian & Yuanjie Pu & Yunfeng Shang, 2023. "Financing preferences and practices for developing sustainable exhibitions in Chinese companies," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.
    3. Chen, Xiaohui & Shen, Shaowei, 2024. "Probability causal inference of interest rate fluctuations: Evidence from private credit in emerging markets," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    4. Sushma Verma & Samik Shome & Aakruti Patel, 2024. "Exploring the Effects of Firm-Specific Factors on Financing Preferences of Listed SMEs in India," Business Perspectives and Research, , vol. 12(1), pages 149-163, January.
    5. Madiha Noshad & Mariam Amjad & Muhammad Nouman Shafiq & Seemab Gillani, 2019. "Performance and Obstacles of SMEs: An Empirical Evidence from BRICS Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 1(2), pages 113-132, December.
    6. Ștefan Cristian Gherghina & Mihai Alexandru Botezatu & Alexandra Hosszu & Liliana Nicoleta Simionescu, 2020. "Small and Medium-Sized Enterprises (SMEs): The Engine of Economic Growth through Investments and Innovation," Sustainability, MDPI, vol. 12(1), pages 1-22, January.
    7. Manpreet Kaur & Kanwaljeet Singh & Sarita Arora, 2023. "Are SMEs relationship seekers or price watchers? Target marketing implications for banks," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(3), pages 615-625, September.
    8. Jing Gu & Junyao Wang & Yang Yang & Zeshui Xu, 2019. "Credit Line Models for Supply Chain Enterprises with Channel Background and Soft Information," Sustainability, MDPI, vol. 11(10), pages 1-20, May.
    9. Agyekum, Francis K. & Reddy, Krishna & Wallace, Damien & Wellalage, Nirosha H., 2022. "Does technological inclusion promote financial inclusion among SMEs? Evidence from South-East Asian (SEA) countries," Global Finance Journal, Elsevier, vol. 53(C).
    10. Ansita Aggarwal & Satya Ranjan Acharya, 2019. "Choosing Equity As A Source Of Finance: Perception Of Sme Promoters," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(4), pages 27-46.

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    More about this item

    Keywords

    SMEs; Financing preferences; Financing practices; India;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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