55

Barriers Faced by Entrepreneurs of Micro, Small and

Medium Enterprises in Bihar
Bishwajeet Prakash
Jainendra Kumar Verma
Central University of Punjab
Bathinda

Abstract
The Micro Small and Medium enterprises are known as the backbone for the Indian economy. This sector
contribute second highest employment opportunity after the agriculture along with contribution of 8 percent
GDP, 45 percent in production and 36 percent in Export. The problems are faced by the entrepreneurs while
setup the organization as well operationalization of the organization. The Universe study constitutes the
micro small and medium enterprises in state of Bihar. The paper is based on the explanatory nature of work
where data mainly used from the primary survey. The primary purpose of the work is to find out the
constraints faced by entrepreneurs while setup the organization as well marketing and financial constraints
faced during the operation of the unit. The samples are collected from 4 large district of the state with 10 from
each district. Data would be obtained through structured schedule and distributed questionnaire. From the
research, it emerged that the MSMEs sector financial and administrative constraints while setup the
organization and promotion of the products. The cost of advertisement and lack of knowledge in the
entrepreneurs is the major barrier in the operation stage. In overall the MSMEs in Bihar faced huge
disappointment from the administrative and banking institution to promote the organization.
Keywords: MSMEs, Bihar, marketing, challenges.
The Micro Small and Medium scale enterprises (MSMEs) consider as the backbone for the developed
and developing countries. MSMEs are played a crucial role in the economic growth, export earning,
innovation, source of raw materials for large industries, promoting economic renewal and social
development. The sector has being credit to provide the largest employment opportunities next to agriculture
sector. The nature of business to help to reduce the disparities in society, propel sustainable growth with
equitable distribution of wealth in the country. The rapid growth of MSMEs has also improved the
production and non-durable consumer goods for mass consumption. These industries spreads throughout
the country are generally satisfied the local demand, may later contribute the economic growth and full fill
global needs.
Micro Small and Medium Enterprises (MSMEs) has been defined in various manners in different
countries. In Indian context, Micro Small and Medium Enterprises Development (MSMED) Act, 2006,
provides a well-accepted definition of MSMEs. This act defined Micro, Small and Medium enterprises based
on their investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises
providing or rendering services.
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Table1: Definition of Micro Small and Medium Enterprises

Manufacturing Enterprises Service Enterprises

Classification
(Investment in Plant and Machinery) (Investment limit in equipment)
Micro Not exceed more than 25 lakh Not exceed more than 10 lakh
Small More than 25 lakh but below 5 crores More than 10 lakh but below 2 crores
Medium More than 5 crore but below 10 crores More than 2 crore but below 5 crores

Source: MSME Annual report 2011-12 pp.316

Bihar is agriculture based state, where 80 per cent of the populations are living at villages and involved
in agriculture activities. In this prospective it can be assumed the economy of the state is mostly based on the
agriculture and forestry based small MSMEs are growing.
MSMEs face a different range of problems than their larger counterparts, due to their inability to enjoy
some of the advantages in the marketplace. Major problems in the MSME unit are finance problems, Raw
material problems, labour problems, marketing problems and technology problems. In Bihar most of MSMEs
are faced obstacle such as small short term finance for their working capital and fixed capital requirement,
marketing technique, unavailability of raw materials, labour and infrastructure problems. It has been
identified that finance, marketing and packaging are identified as the major obstacle in the growth and
development of MSMEs in Bihar.
Objective
 To investigate the problems and challenges faced by the entrepreneurs established new enterprises.
 The study also examines the marketing and financial problem of MSMEs in Bihar.
Hypothesis
H01A: There is no problem of marketing and packaging in all type of industries.
H11A: There is problem of marketing and packaging in all type of industries.
H01B: There is no problem of finance in all type of industries
H11B: There is problem of finance in all type of industries
Methodology of the Study
Qualitative data were gathered from the qualitative survey by questioning 50 MSMEs entrepreneurs
from 5 major districts of Bihar. The study covers the period from Jan 2018 to August 2018. The researcher
followed following process for his research.
 Formation of research question.
 Reviewing of secondary data.
 Decide research approach.
 Collect information.
 Analyse data.
 Present findings.
The data collected through primary sources. The tools used for the analysis were as Percentage and
ANOVA analysis.
Barriers Faced by Entrepreneurs of Micro, Small and Medium Enterprises in Bihar 509

Review of Literature
There are scholars who contribute a lot for identifying challenges faced MSMEs.
Hussain (2004), considered that removal of QR (quantity restriction) under the impression of WTO as a
obstacle and barriers for the growth of MSME’s in India. Torri. (2012), intimated that less transportation
services and communication networks, are the leading challenges for MSMEs especially in rural India.
Das,et,al. (2007), identified major challenges faced by MSMEs in the path of internationalization : lack of
entrepreneurial, managerial and marketing skills; bureaucracy and red tape; lack of accessibility to
information and knowledge; difficulties accessing financial resources/lack of capital; lack of accessibility to
investment, technology equipment and know-how; non-conformity of standardization; lack of quality
awareness and lack of mutual recognition schemes; product and service range and usage differences;
language barriers and cultural differences; risks in selling abroad; competition of indigenous SMEs in foreign
markets; ;inadequate behaviors of multinational companies against domestic SMEs; lack of government
supply-supporting programs; complexity of trade documentation including packaging and labeling; lack of
government incentives for internationalization of SMEs, and inadequate intellectual property protection .
Dern and Bach, (2013), key challenges faced by the MSME sector in India includes, lack of availability of
adequate and timely credit; high cost of credit; collateral requirements; limited access to equity capital;
procurement of raw material at a competitive cost; problems of storage, designing, packaging and product
display, ;lack of access to global markets; inadequate infrastructure facilities, including power, water, roads,
etc; low technology levels and lack of access to modern technology; lack of skilled manpower for
manufacturing, services, marketing, etc, and multiplicity of labour laws and complicated procedures
associated with compliance of such laws. Bihari,( 2011), insisted that lack of professionally managed top
management , difficulties in accessing capital, complexities at product and service level ,lack of technological
knowhow, Improper training and poor employee management, are the key challenges of MSMEs. Mulimani
et, al(2012), argued that mostly MSMEs are facing problem of shortage of raw materials, low levels of
technical knowledge and counseling, poor infrastructure, inadequate capital and credit facilities, improper
distribution system, lack of facilities for market analysis, and research and development in India. Das et al.
(2011), argued that MSMEs in India are suffering from the situation of indebtedness and there is lack of
convenient access to credit .The lack of infrastructure, logistics and marketing support, lack of adequate
information ,improper new product development, Highly inadequate credit flow, Non-exposure to best
management practices in manufacturing, marketing, distribution and branding, Lack access of packaging
technologies , Lack of Skilled Human Resources ,poor credit facilities, high interest rates, etc. absence of
skilled manpower , Non– availability/ difficulty in procuring construction materials like cement steel etc,
Delay in getting power connection , water connection , permission of concerned authorities to discharge
effluents ,non– availability of raw materials or increase in the price of raw materials without a corresponding
increase in sale price of the products. Entry of many new manufacturers leading to cut–throat competition ,
Poor quality of products, Lack of sales promotion, Poor delivery schedules and lack of proper distribution
system, inadequate bank finance. Diversion of working capital funds for acquisition of fixed assets Absence
of work force planning, poor industrial relations, non– availability of skilled man– power.
Marketing is one of the important and blood of the organization, the failure and success of the
entrepreneurship highly depended upon better strategic marketing skill. Khan (1989), Benerjee (1992) and
Saikia (1992) have identified that the unscientific and primitive marketing practices, lack of any full-fledged
marketing effort, lack of orders and marketability have a greater degree of influence on the health of small
scale units. The same view was expressed by Panda & Kishore (1989) and have elaborated that the marketing
problems finally cause or aggravate the problem of working capital, the most referred cause of sickness in
small scale industries, because such units fail to recycle funds quickly. Sunil K. Saikia, (1992) had studied the
different problems faced by small scale industries in north east region of the country. He pointed out that lack
of infrastructural facilities, absence of training facilities, marketing problems, lack of techno-economic
information and lack of coordination among different industrial units are the important emerging problems
in these industrial units. Islam et al. (2010) In the dynamic and highly competitive business environment,
510 Thirteenth Biennial Conference on Entrepreneurship

manufacturing industries are under tremendous pressure due to the free market economy, rapid
technological development, and continuous changes in customer demands.
Finance is the most important resource in small scale industries and the small entrepreneurs do not have
an easy access to the finances thus, calling for more financial discipline by the small scale units. Srichand
(1989), the economic times research came-out with the finding that internal financial factors, like inadequate
provisions for depreciation and bad debts, unwise distribution policy and high debt position belong to the
category of factors responsible for sickness. Rao and Rao (2012) discussed some practical problems of small-
scale industries and pointed out that the attempt to solve the problems of small units by financial means
alone, like making large borrowings available, would only add to interest and repayment burden of the units
and make them more sick. Mitra, (1998) attempted to examine the various factors affecting the flow of credit
to the SSI sector and he categorized these factors in two segments. One set of reasons indicate shortcomings
inherent in the SSI sector. Rao and Revathy (2001) in their research examined that lack of access to credit
represented a strong restriction in the expansion of small scale industrial establishments, with the proprietors
themselves typically perceiving financing as their most pressing input constraint. Tambi (2013) purpose of
this paper is to examine and analyze the challenges faced by the local small and medium scale textile
industries in Jaipur. It asserts that perhaps availability of finance is not as much of a problem as repayment of
it is. The repayments of financial liabilities are stressful and discouraging due to low paying capacity and
insignificant sales. Nishanth and Zakkariya (2014), analyzed to identify the various barriers faced by MSMEs
in raising finance and to identify the various sources of finance other than banks. The analysis of preliminary
results reveals that only a small percentage of firms availed the credit scheme offered by banks. While
evaluating the reason for non- availing credit schemes, highest percentage of respondents feels that too many
formalities are there while availing credit schemes. Aruna (2015) focused that hurdle like financial constrain
and issues relating to power, raw material procurement should be more effectively dealt by the government.
Problems and Challenges Faced by MSME Analysis and Interpretation
Profile of Entrepreneurs
Table No.2 describes the profile of the entrepreneurs have taken for the study. Out of 50 entrepreneurs
68 per cent of the entrepreneurs are in the age of 30 to 50 yr and 36 per cent enterprises are working within 5
to 10 years, 52 per cent of them have invested in the enterprises as capital below 5,00,000,32 per cent
entrepreneurs has qualified up-to matriculation, 52% enterprises are owned by other backward
category(OBC),72 per cent enterprises formed by sole properitors,40 per cent of entrepreneurs involved in
agriculture and allied sector industries,54 per cent of the entrepreneurs started their business in their native
palace, and 72 per cent of them using own fund to start their enterprises.
Table 2: Profile of the Entrepreneurs
Particular No of Respondents %
Age of Entrepreneurs Below 30 6 12
30 -50 34 68
More than 50 10 20
Total 50 100
Age of Enterprises Less than 5 yr 12 24
5 to 10 yr 18 36
10 to 15 12 24
More than 15 yr 8 16
Total 50 100
Capital Invested Below Rs.5,00,000 26 52
Rs.5,00,000 to 10,00,000 11 22
Rs.10,00,000 to 15,00,000 6 12
Barriers Faced by Entrepreneurs of Micro, Small and Medium Enterprises in Bihar 511

Rs.15,00,000 to 20,00,000 2 4
Rs.20,00,000 and above 5 10
Total 50 100
Education Under Matriculation 6 12
Matriculation 16 32
Pre University 12 24
Graduate 10 20
Above Graduate 6 12
Total 50 100
Ownership Details Schedule Cast 9 18
General Category 12 24
Other Backward category 29 58
Total 50 100
Type of Organization Proprietary 36 72
Partnership 6 12
Limited Company 8 16
Total 50 100
Nature of activity Agro, food & allied based units 20 40
Engineering based units 8 16
Repairs & Service based units 13 26
Forest based units 9 18
Total 50 100
Selection of Location Native place 27 54
Availability of power and fuel 10 20
Available of Market 7 14
Industrial estate 6 12
Source of Finance Own Fund 36 72
Borrowed Money/Loan 14 28
Total 50 100

Source: Field Data

Problems of Micro Small and Medium Enterprises in Bihar

Problems are common in each and every walk of life. Similarly, the MSMEs units have also face different
type of the problems in various ways and stages. The problems may relate to production, distribution or in
providing service. Most of the business firms face problems relating to finance, marketing, labour, raw
materials and packaging issues etc.
Survey Result
It is already stated that different type of the problems are faced by the entrepreneurs at the different
stages. Well-structured questionnaires were administered to different groups of respondents, wherein, above
other things, the respondents were asked to indicate on five point scale, the problems that have faced by the
enterprises. Five point ‘Likert type’ scale has been used to quantify the data which was otherwise qualitative
in nature so as to analyze the industrial problems statistically. The response are based on the likert scale of 1
(No difficulties) to 5 (Great difficulties) against the mid-rating value (i.e. 3).
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Problems Faced by Entrepreneurs at the Initial Stage

The respondents are asked to state the problems that are normally faced at the initial stages while
established the unit. The problems were relating to registration of the firm; lack of infrastructure facilities,
lack of technology, marketing aspects, availability of labour or availability of capital. The data collected in
this aspect using ranking method are shown in Table 3 for analysis.
Table 3: T- Test Analysis
Problem Mean t-value p-value Result
Electricity department 4.04 9.7424 .000 Rejected
Labour Problem 3.26 1.949 .057 Accepted
Getting premises on rent/purchase 4.02 9.071 .000 Rejected
Marketing Problem 3.68 5.264 .000 Rejected
Obtaining raw material 3.84 6.516 .000 Rejected
Procurement of machinery/equipment 3.92 9.358 .000 Rejected
Taxes 3.94 7.885 .000 Rejected
Financial sources 4.26 13.413 .000 Rejected

Source: Field Survey

It is found that for the Micro Small and Medium enterprise, the prime problem at the initial period is
financial resource(mean value: 4.26); the second one is electricity department (mean=4.04), the third one is
getting premises on rent (mean=4.02), the fourth one is taxes compliance (mean=3.94), the fifth one is
procurement of machinery and equipment (mean=3.92), the sixth one is obtaining raw materials (mean=3.84),
the seventh problem is marketing problem(mean=3.68),and last is labour problem(3.26).
A further analysis was conducted using t-test of significance and the results revealed that the problem
faced MSMEs entrepreneurs at initial age in Bihar have greatly affected their growth and development of the
MSMEs with the t-test ranging from (-1.949to 13.413) and p-values are (.000 to .057), less than and more than
.05 at 95% confidence level. Therefore the Null Hypothesis that ‘entrepreneurs of MSMEs in Bihar have no
difficulties regarding electricity department, getting premises on rent/purchase, marketing Problem,
obtaining raw material, procurement of machinery/equipment, taxes and financial sources are rejected
except labour problem is accepted.
Relationship between Nature of Activity and Marketing and Packaging Problems
Marketing and Packaging problems are found to be most difficult problem for MSMEs; the problems
mostly arise due to lack of standardization, inadequacy of products and packaging designs, use of low
quality materials, lack of precision and inconsistency in the finishing of products etc. The market–oriented
problems from inadequate resources at the disposal of small scale industries include identification of the
market outlets and market characteristics of products and also tapping profitably the existing new market
outlets and contexts. Some marketing and packaging based question asked to entrepreneurs, and results are
mentioned in the table 4.
The result revealed that the MSMEs are facing marketing problem related all components mentioned in
table mean are more than 3 except Customer resistance, Inferior quality and Untimely introduction of
product.
Barriers Faced by Entrepreneurs of Micro, Small and Medium Enterprises in Bihar 513

Table 4: ANOVA Analysis Nature of Activity and Marketing and Packaging Problems
Sum of Squares F Mean p-value Significance
Between Groups 2.130 .863 3.20 .467 Accepted
Competitors reaction Within Groups 37.870
Total 40.000
Between Groups 3.901 1.119 3.18 .351 Accepted
Lack of order Within Groups 53.479
Total 57.380
Between Groups 1.812 .720 3.54 .545 Accepted
In-efficient sales force Within Groups 38.608
Total 40.420
Between Groups 3.668 1.451 3.46 .240 Accepted
High cost of marketing Within Groups 38.752
Total 42.420
Between Groups 4.080 1.406 3.22 .253 Accepted
Inadequate sales promotion Within Groups 44.500
Total 48.580
Between Groups 6.664 1.547 2.84 .215 Accepted
Customer resistance Within Groups 66.056
Total 72.720
Between Groups 1.924 .926 2.62 .436 Accepted
Inferior quality Within Groups 31.856
Total 33.780
Between Groups 6.057 3.211 2.98 .032 Accepted
Untimely introduction of
Within Groups 28.923
product
Total 34.980
Between Groups .993 .367 3.50 .777 Accepted
Governmental regulations Within Groups 41.507
Total 42.500
Between Groups 7.074 3.090 3.42 .036 Accepted
High cost of Advertisement Within Groups 35.106
Total 42.180
Between Groups 1.142 .501 3.28 .683 Accepted
Lack of finance Within Groups 34.938
Total 36.080
Between Groups 1.198 .400 3.28 .754 Accepted
Material shortage Within Groups 45.922
Total 47.120
Between Groups 6.501 2.099 3.20 .113 Accepted
Locally unavailability of
Within Groups 47.499
packaging
Total 54.000
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Between Groups 1.350 .530 3.54 .664 Accepted

Poor quality Within Groups 39.070
Total 40.420
Between Groups 2.872 1.758 4.04 .168 Accepted
High cost Within Groups 25.048
Total 27.920

The ANOVA table 4 revealed that all the components of the marketing and packaging p- value is greater
than significance value (0.05), Therefore it is rejected Null Hypothesis and accepted alternative hypothesis.
Hence it is concluded that there is relationship between marketing and packaging problem with all type of
business activities.
Relationship between Nature of Activity and Financial Obstacle
The availability of timely and adequate finance at reasonable rate is an essential pre requisite for the
development of MSME units. They do not have sufficient funds of their own to invest on fixed and working
capital. The availability of funds often makes it difficult for them to install modern machinery and tools and
to maintain them properly. Hence different financial related questions are asked to the entrepreneurs.
The result revealed that the MSMEs are facing problem related to the finance and mean of all
components mentioned in table 5 are more than 3.
Table 5: Relationship Between Nature of Activity and Financial Obstacle
Sum of
F Mean p-value Significance
Squares
Between Groups 1.514 1.090 3.94 .363 Accepted
Shortage of fixed capital Within Groups 21.306
Total 22.820
Between Groups 5.196 3.506 4.04 .023 Accepted
Shortage of working
Within Groups 22.724
capital
Total 27.920
Between Groups .353 .178 3.84 .911 Accepted
Increase in product cost Within Groups 30.367
Total 30.720
Between Groups 3.768 1.520 3.38 .222 Accepted
Delays in realization of
Within Groups 38.012
bills
Total 41.780
Between Groups .516 .231 3.94 .874 Accepted
Sanctioning of the loan Within Groups 34.304
Total 34.820
Between Groups 7.424 3.247 3.52 .030 Accepted
Under financing Within Groups 35.056
Total 42.480

The ANOVA table reveled that all the components of the financial obstacles p- value are greater than
significance value (0.05), Therefore it is rejected Null Hypothesis and accepted alternative hypothesis. Hence
it is concluded that there is relationship between financial obstacles with all type of business activities.
Barriers Faced by Entrepreneurs of Micro, Small and Medium Enterprises in Bihar 515

Finding
 Most of the respondents were aged between 30 to 50 years.
 Most of the respondents were running the business as a sole proprietorship.
 Most of the respondents start their enterprises with the help of bank loan
 Most of the respondents were invest their capital amount of Rs. below 500000.
 Most of the enterprises were involved in agriculture and allied business activity.
 it was found that financial resources is consider as the major problems for entrepreneurs while labour
problem is the least problem while setup the organization.
 The study revealed that marketing, packaging and financial problem is major obstacle for the growth
and development of the MSMEs in Bihar.
Suggestion
 Government should setup single window system where entrepreneurs are easily access the facilities
of the government policies.
 Government should provide easy access of finance, guarantee free loan up to certain limit.
 Training and research development should be facilitates by government.
 Easy access of the electricity to all enterprises must be provided by the government.
 Cheap, easy access of marketing initiative must take in to consideration.
 The Lack of awareness about finance schemes shows that enterprise does not understand how they
can benefit out of them.
 Government should take initiative with help of banks to facilitate small enterprises.
Limitation and Future Research
 Study sample is not representing the whole MSMEs sector of Bihar.
 It is mostly confined to the five major districts of the state
 The study is limited in terms of its generalizability to the total MSMEs in Bihar because the sample
under study may not represent whole population. While the proposed study sample is quite diverse,
the fact remains that certain segments of the MSMEs in Bihar have not been included.
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