Credit Accessibility and Issues to Formal Credit: A Study on Informal Micro Enterprises in Kochi Municipal Corporation

The informal sector has been a dominant characteristic feature of the developing countries providing livelihood to a large number of households and micro entrepreneurs for a prolonged period. However, enterprises in this sector are often stunted by myriads of problems among which meagre access to formal financial services is a crucial constraint as access to other enabling conditions often hinges upon the access to finance. This article is based on a study of such enterprises in the Kochi municipal corporation—the most populous metropolitan city in Kerala, where the number of micro enterprises are relatively higher in general. Samples of 275 units were found using convenience sampling and snowball sampling methods. The article explores the extent to which the informal micro-businesses can access external finance and the factors preventing access to credit from such formal financial institutions to these enterprises. The results revealed that even though respondents had access to external finance, the depth of financial access is very thin in most cases and the business risks influence the accessibility to credit facilities to a great extent followed by cost of credit, lack of information on finance and later the collateral requirements.