FINANCING MICRO AND SMALL ENTERPRISES

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FINANCING MICRO AND SMALL ENTERPRISES

• -PROBLEMS AND PROSPECTS
• By
• Mr. Vilas More, Mr. Madan,
• Mr. Murthy Mr. Pradeep

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Introduction

• MSME stands for Micro, Small and Medium
  Enterprises also known as Town and Village
  Enterprises.
• SMEs are mainly skill oriented.
• This sector contains an element of Welfare of
  Masses.
• Different parameters in Different countries, like
  Man power, Turn over, Working Hours.etc.

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Definition of MSMEs

• Type Mfg.Enterprise Service Enterprise
• Micro Up to Rs.25 lakh Up to Rs.10
  lakh
• Small Rs.25 lakh to Rs.10
  lakh to
• Rs.5.0 cr.
  Rs.2.0 cr.
• Medium Rs.5.0 cr. to Rs.2.0 cr.
  to
• Rs.10.0 cr.
  Rs.5.0 cr.

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MSMED Act 2006

• In India, the MSMED Act 2006 has come into force
  on 02nd Oct. 2006 which facilitates
• Promotion and Development of SMEs
• Enhancing their competitiveness.
• Generation of Employment.
• Generation of income/profit to boost GDP.
• Increasing Exports.

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Overview

• The world over there has been a significant
  thrust for growth of Micro and Small Enterprises
  mainly due to sectors ability to deliver quality
  products /services at cheaper and to provide
  large scale employment.

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ACTIVITIES OF SMEs

• Any commercial activity permissible under law
  i.e. any type of manufacturing, processing or
  industrial activity or trading or allied
  operations.
• Some of few are
• Servicing repairing machinery and equipment,
  including agro service units
• Village and cottage industries
• Computer software development and computer
  services

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• Medical /Legal transcription activities
• Call Centers
• Event development and animation
• Video film making
• Marketing consultancy.
• Equipment rental leasing.
• Laundry/X-rays/ pathology/ Tailoring/Studios/Cable
  TV network.

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SMEs Financing Features

• Involvement of lesser amount of financial
  resources.
• Lower gestation period.
• Wide scope of marketing.
• They are mostly run by promoters /Owners.
• They are operated mainly in Rural and Semi Urban
  areas showing their national presence.

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Importance of SMEs

• Large-scale generation of wage employment.
• Growth in GDP. MSMEs not only account for 80 of
  the total number of Industrial Enterprises in the
  country but are also the second largest
  employment providing sectors in the country after
  agriculture.

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• This sector is a growth-driver in the economy.
• It is possible to set up SMEs in large numbers in
  a country in order to usher in rapid progress and
  growth.
• 40/50 of output/services originated from this
  sector.
• 30 of Indian Exports are on account of SMEs.

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Ganguly Committee

• The Ganguly Committee has thoroughly examined
  the issues confronting SMEs and suggested the
  following
• Institutional Finance should be made available on
  suitable terms.
• Units having linkages with large corporate as
  vendors/suppliers should be extended credit, with
  an appropriate tie up to facilitate recovery.

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• Cluster of SMES based on Trade record.
• SIDBI/Banks to promote national level SME
  development fund.
• SIDBI to provide technical support.
• To promote a specific SME Rating Agency to
  provide comfort to the banks financing SMES
• Setting up of Micro Finance Intermediaries to
  accelerate the growth of SMEs.

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Govt. Initiatives

• Government of India has initiated the following
  steps for the speedy growth of SMEs.
• Ministry of Finance has announced a policy for
  doubling of outstanding credit to Micro and Small
  Enterprise Sector by the year 2009-10.
• A minimum of year-to-year growth of 20 is to be
  achieved under outstanding in this sector.

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• Introduced credit linked capital subsidy scheme
  for SME sector
• In lines with SME sector introduced various
  employment generation schemes to cater to the
  needy people from Rural and Urban.
• A Technology bureau for SMEs has been set up as a
  starting process for promoting SMEs.

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• Provision for composite Loan limit.
• Ensuring that banks extend loan at a lower rate
  of interest as against Benchmark rate.
• Opening of specialized SME Branches.
• Introduced LUCC (Laghu Udyami Credit Card)
• A credit guarantee fund trust (CGFT) has been
  promoted

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Concessions to SMEs

• Delayed payments to micro and small enterprises
• Where Micro and Small Ent. supply goods or render
  services, the buyer shall make payment on or
  before the date agreed upon between them in
  writing (where not agreed in writing with in 45
  days), else should pay compound interest with
  monthly rests from the due date at 3 times the
  Bank rate.
• Where the buyer contravenes the provision, he
  shall be punishable with a fine of not less than
  Rs.10,000/-

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PNB Schemes in SMEs

• In PNB there is 20 discount in
  processing/upfront fee in case of applications
  received on-line in respect of SME borrowers.
• Introduced simplified common loan application
  forms
• PNB SME Sahayog Scheme
• SME borrowers Employees accounts.

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• Under PNB Mahila Sashtikaran Yojana, bank is
  providing loans to women for their upliftment.
• PNB Green Card Facility.
• Small Road Transport Operations Scheme (SRTO).
• Credit Linked Capital Subsidy Scheme for
  Technology Up-Gradations (CLCSS).
• Prime Minister Rural Employment Generation
  Programme (PMEGP).

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• BCSBI (Banking Codes and Standards Board of
  India) has introduced Code of Banks Commitment
  to SME in short as SME Code.
• Bank has adopted SME code to give a positive
  trust to the SME sector by providing easy access
  to banking services promote good and fair
  banking practices by setting minimum standards
  and increase transparency.

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• Besides the above promoters of MSMEs may be
  provided necessary training or awareness
  programmes on business measurement on an ongoing
  basis at industrial training institute of the
  government or at the training centres of public
  sector banks.

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Problem for SME Sector

• Low capital base and inadequate availability of
  institutional funds.
• Low technology base.
• Absence / Inadequacy of quality control
  assessment
• Weak/ ineffective management.
• Unable to cope with contemporary business
  requirements.
• Higher NPAs of Banks in SME sector creates risk
  aversion in lending.
• Competition from large sized units.
• Unable to providing documents required for bank
  finance due to lack of awareness.

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• THANK YOU