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Overview of Cluster Financing


TThis section is based on the primary data collected through a survey to understand the modes of finance and fund requirements of leather goods and textile companies that operate in the industrial belt of Kolkata.

According to the survey results, 47% SMEs find loan availability to be easy and 30% companies find it to be moderately difficult in the cluster. Bank term loan is the most preferred mode of finance among the SMEs in the cluster, followed by internal accruals / own sources. In future also majority of the companies are planning to avail loans in the form of term loans.

In the last 3 years, 55% SMEs in the cluster availed loans and in the next 3 years 53% SMEs (in both leather and textile sectors) plan to take loan. Most companies availed loans for purchasing machinery and for meeting working capital requirements in the past. In future also, most companies plan to avail loans for purchasing machinery to ensure modernisation of their existing set-up and for meeting working capital requirements to ensure sufficient cash flow for both their short-term debt and operational expenses.

The SMEs in the Kolkata cluster find the time taken for loan approval and interest rates to be major hindrances while availing loans.

Section A: Leather Industry

Availability of loans

Around 49% companies found that acquiring funds is easy while 31% companies feel that it is moderately difficult to acquire funds.

According to the survey, the three most preferred sources of financing for the leather SME’s in the cluster were: bank term loans, overdraft/cash credit and internal accruals. Most companies are planning to avail loans from the same source which they had availed in the past. Bank term loans emerged as the most preferred source of financing for companies in the past and are likely to remain so in future.

Credit requirement

In the past 3 years, 83% surveyed leather goods companies in Kolkata availed loans and a large part of these companies availed loans for purchasing machinery and for meeting working capital requirements.

Around 80% of these leather companies are planning to avail loan in the next 3 years and use these funds for purchasing machinery to modernise their existing set-up and for meeting their production benchmarks.

Credit obstacles

The time taken for approval of loans and interest rates were the major obstacles faced by companies present in the leather goods sector in the Kolkata cluster while availing loans.

Section B: Textile Industry

Availability of loans

Forty-seven per cent of the textile companies find fund availability to be easy in Kolkata while 27% find it to be moderately difficult.

Source of finance

According to the survey results, majority of the respondents in the textile industry prefer to arrange for their financing needs through bank term loans and internal accruals or through their own sources of finance.

Credit requirement

According to the survey results, only 27% companies have taken loan in the last 3 years. A large share of the companies has taken loan for business expansion and for meeting working capital requirements.

Unlike the leather goods industry, where majority of the companies are planning not to avail any kind of loan in the next 3 years, only 27% of the textile companies are planning to take loan in the next 3 years. Most companies are planning to take loan for business expansion, purchase of machinery, meeting working capital requirements and purchase of raw materials in the next 3 years.

Credit obstacles

For the textile companies in Kolkata, high interest rate, paperwork and time taken for approval of loan formed the biggest hurdles while availing loans, revealed the survey.