Atal Bihari Vajpayee Institute of Good Governance and Policy Analysis

The main objective of this study is to assess the demand-side and supply-side challenges of microenterprises in Madhya Pradesh. In Madhya Pradesh, 26.74 lakhs micro, small and medium-sized enterprises are available, and only 2.88 lakhs enterprises are registered. Due to their small size, these enterprises lack documentation (credit history and collateral security) and are unable to access finance from the formal financial system. This creates a problem of information asymmetry between the lenders and the borrowers. The formal financing channel of MSMEs goes through the banks and different financial institutions, whereas the informal channel functions independently. The constraint with the banks is that they are providing credit to only small and medium enterprises and no funding to micro and tiny enterprises. This is because micro-enterprises are mainly in the informal setup and heterogeneous and do not have a regular credit record, and are forced to move towards informal channels for