FINANCING MICRO AND

SMALL ENTERPRISES
-PROBLEMS AND
PROSPECTS
By
Mr. Vilas More, Mr. Madan,
Mr. Murthy & Mr. Pradeep
 Introduction
• MSME stands for Micro, Small and Medium
Enterprises also known as ‘Town and Village’
Enterprises.

• SME’s 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.
 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.
 MSMED Act 2006

• In India, the MSMED Act 2006 has come into

force on 02nd Oct. 2006 which facilitates:

(i) Promotion and Development of SMEs

(ii) Enhancing their competitiveness.
(iii) Generation of Employment.
(iv) Generation of income/profit to boost GDP.
(v) Increasing Exports.
 Overview

• The world over there has been a

significant thrust for growth of Micro
and Small Enterprises mainly due to
sector’s ability to deliver quality
products /services at cheaper and to
provide large scale employment.
 ACTIVITIES OF SME’s
• 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:

1. Servicing & repairing machinery and
equipment, including agro service units
2. Village and cottage industries
3. Computer software development and
computer services
• 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.
 SME’s 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.
 Importance of SME’s

• Large-scale generation of wage

employment.

• Growth in GDP. MSME’s 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.
• 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.
 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.
• 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.
 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.
• 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.
• 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
 Concessions to SME’s
• 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/-
 PNB Schemes in SME’s

• 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.

• 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).
• BCSBI (Banking Codes and Standards Board
of India) has introduced ‘Code of Bank’s
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.
• 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.
 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 NPA’s 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.
THANK YOU