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Submitted to-
Submitted by -
The Director
Narender
Class-MBA (10th sem)
Roll No. - 52
Reg.No. 11UD3025
(April 2016)
DECLARATION
I, Narender here declare that the Research Project entitled A Study of Financing
practices of MSME Sector in India assigned to me by the Director of Institute
of Management Studies, Kurukshetra for the fulfilment of M.B.A. degree from
the Institute of Management Studies, Kurukshetra University, Kurukshetra is
the work done by me and the information provided in the study is authentic to the
best of my knowledge.
This study has not been submitted to any other institution or university for the
award of any other degree.
Narender
Certificate
ACKNOWLEDGEMENT
There is always a sense of gratitude which one express to other for the selfless
services they render during all phases of life. I have completed this project report
with the help of different personalities. I feel obliged to all of these.
First of all, I would like to thank the supreme power, the God and to my parents
provide me full cooperation for the successful completion of my project.
I would like to thank to the director Proff. Naresh kumar and to my project guide
Dr. JK Chandel (Assistant Professor) to provide the most valuable inputs in the
terms of experts guidance and moral support.
I am deeply indebted to all my faculty members of the institute for their valuable
contribution during the academic session.
Narender
Contents
Chapter No.
Page No.
Introduction
1-23
Review of Literature
24-26
Research Methodology
3.1 Type of Research
3.2 Objective of the Study
3.3 Data Collection Source
3.4 Scope of the Study
3.5 Limitations of the Study
27-28
29-62
63
64
References
65
List of Figures
Sr. No
Figure
1
2.
3.
4.
No.
1.3
1.5
4.2
4.2B
Chapter: 1
Introduction to MSME sector
Page No.
5
8
30
32
include
facilities
for
testing,
tool
making,
training
for
vibrant and dynamic sector of the Indian economy over the last five decades.
MSMEs not only play crucial role in providing large employment opportunities at
comparatively lower capital cost than large industries but also help in
industrialization of rural & backward areas, thereby, reducing regional imbalances,
assuring more equitable distribution of national income and wealth. MSMEs are
complementary to large industries as ancillary units and this sector contributes
enormously to the socio-economic development of the country.
The Micro, Small and Medium Enterprises Development Act, 2006, came
into force from 2nd October 2006.
The Micro, Small and Medium enterprises (MSMEs) have been accepted
as the engine of economic growth and for promoting equitable development in all
over the world. Let there be any category of countries (Developed, Developing and
Under Developed), the existence of MSMEs is inevitable. The major advantage of
the sector is its pivotal role through its contribution in Industrial output, Exports,
and majorly in Employment generation at low capital cost. The labour intensity of
the MSME sector is much higher than that of the large enterprises. The MSMEs
constitute over 90% of total enterprises in most of the economies and are credited
with generating the highest rates of employment growth and account for a major
share of industrial production and exports.
In India, the MSMEs contribution is highly remarkable in the overall
industrial economy of the country.
In recent years the MSME sector has consistently registered higher growth
rate compared to the overall industrial sector. With its agility and dynamism, the
sector has shown admirable innovativeness and adaptability to survive the recent
economic downturn and recession. In Indian market, MSMEs rapid growth could
be seen as Indian entrepreneurs are making remarkable progress in various
Industries like Manufacturing, Precision Engineering Design, Food Processing,
Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and Service sector.
The sector not only serves for urban market but also helps in industrialization of
rural and backward areas, reducing regional Imbalances and assuring more
equitable distribution of national income and wealth.
MSMEs complement large industries as ancillary units and contribute
enormously to the socioeconomic development of the country. MSMEs account for
45% of Indias manufacturing output, about 40% of Indias total exports; employ
Fig. 1.3
Categories of MSME
1.4
competitiveness
of
these
enterprises,
notification
of
small and medium enterprises. Advice the Central Government on use of the Fund
or Funds constituted under Section 12 of the Act.
B.2
Constitution
of Advisory
Committee
at
national
level
to
make
recommendations
up
gradation,
employment
generation
and
enhanced
competitiveness;
The possibility of promoting and diffusing entrepreneurships;
The international standards for classification of small and medium enterprises.
delayed payment
Preference in procuring Government tenders,
Stamp duty and Octroi benefits,
Concession in electricity bills
Reservation policies to manufacturing / production sector enterprises
Time-bound resolution of disputes with Buyers through conciliation and
arbitration
Reimbursement of ISO Certification Expenses
Credit prescription (Priority sector lending), differential rates of interest etc.
Excise Exemption Scheme
Exemption under Direct Tax Laws.
Stamp duty and Octroi benefits,
Statutory support such as reservation and the Interest on Delayed Payments
Act.
Subsidy on ISO Certifications
Subsidy on NSIC Performance and Credit ratings
Participation in Govt. Purchase registrations
have incorporated the word SSI in their exemption notifications. Though in many
cases they may define it differently. However, generally the registration certificate
issued by the registering authority is seen as proof of being SSI).
States/UTs have their own package of facilities and incentives for small scale.
They relate to development of industrial estates, tax subsidies, power tariff
subsidies, capital investment subsidies and other support. Both the Centre and the
State, whether under law or otherwise, target their incentives and support packages
generally to units registered with them.
Medium Enterprises:
arbitration
The Buyers have to ensure whether those suppliers of goods and services are
under the purview of MSMED Act i.e. the Buyers have to confirm the
Council (MSEFC) would trigger the conciliation and arbitration process. Once the
application is done under MSEFC, there is no provision to withdraw the
proceedings. Therefore, the Buyer should ensure the best ways to resolve the
disputes, if any, instead approaching to MSEFC in the initial stages of dispute.
The Buyers need to ensure that the Buyer does not owe any outstanding
amount including interest due to MSM Enterprises for more than 15 days.
Otherwise, the Buyer needs to disclose this non-payment in the Annual Financials
of the Buyer.
Entrepreneurship,
Management
and
Skill
Development
Programmes;
Assistance/Consultancy to prospective and existing Entrepreneurs
Preparation of State and District Industrial Profiles
Preparation of Project Profiles of Products / Industries feasible in the MSME
Sector;
Energy Conservation, Pollution Control, Quality Control & Technology
Upgradation;
Ancillary Development and
Providing Common Facility Services in Workshop/Lab Laboratories.
MSME Development Institutes (MSME DIs), also have common facility
workshops in various trades. There are at present 42 such common facility
workshops.
MSME Testing Centres (MSME-TCs) at Chennai, Delhi, Kolkata and Mumbai
have facilities for quality upgradation, training/consultancy in testing, quality
control, quality management, process quality control systems, etc. The 7 MSME
Field Testing Stations (MSME-FTSs) provide focused testing services in 7 cities
viz; Bangalore, Bhopal, Changanacherry, Jaipur, Hyderabad Kolhapur and
Puducherry having significant concentration of MSMEs.
1.7 MSME Clusters
A cluster is a sector targeted geographical concentration of micro and/ or
small & medium enterprises (MSMEs/MSMEs), service providers and institutions
faced with common opportunities and threats. In other words, a cluster of MSMEs
is a concentration of economic enterprises, producing a typical product/service or a
complementary range of products/services within a geographical area. The location
of such enterprises can span over a few villages, a town or a city and its
surrounding areas. Thus a cluster of MSMEs, hereafter referred to as cluster, is
identified by the product/service that the micro and small enterprises produce and
the place where the enterprises are located. Foundation for MSME Clusters
assists institutions in undertaking cluster based local area development, effectively
and inclusively in developing and transition economies.
A. Definition of Clusters
A cluster is defined as a concentration of enterprises producing same or
similar products or strategic services and is situated within a contiguous
geographical area spanning over a few villages, a town or a city and its
surrounding areas in a district and face common opportunities and threats.
Accordingly, we have not considered activities which are of daily use services
and/or where scope for joint action or passive cooperation is minimal or where the
product grouping is too wide for common threats/opportunities to emerge. Clusters
may be broadly divided into the following broad categories:
Industrial cluster: Having at least 100 enterprises and/or a minimum turnover of
Rs.100 million. Units in these clusters are functioning from factory premises with
hired workers. Such clusters have a mix of micro, small, medium, few large and at
times all micro units.
Micro-enterprise clusters: Such clusters are all micro units and are mostly done
by household based units by mostly utilising home based workers. These include
artisanal (handicrafts and handloom) and other micro enterprise clusters. A
handloom cluster has a minimum of about 500 looms and that of handicrafts and
other microenterprise clusters is estimated to have around 50 units.
Features of Cluster:
Give rise to collective benefits, for example through the spontaneous inflow of
suppliers of raw materials, components and machinery or the availability of
financial services.
Create a conducive environment for the development of inter-firm co-operation
organize
and
assist
in
implementation
of
the
registered societies and cooperatives. It has under its aegis a large number of
industry-specific institutions spread in various parts of the country.
Coir Board: The Coir Board is a statutory body established under the Coir Board
Industry Act, 1953 (NO. 45 of 1953) for promoting overall development of the coir
industry and improving the living conditions of the workers engaged in this
traditional industry. The Coir Board consists of a full-time Chairman and 39 parttime Members. The activities of the Board for development of coir industries,
inter-alia include undertaking scientific, technological and economic research and
development activities; collecting statistics relating to exports and internal
consumption of coir and coir products; developing new products and designs;
organizing publicity for promotion of exports and internal sales; marketing of coir
and coir products in India and abroad; preventing unfair competition between
producers and exporters; assisting the establishment of units for manufacture of the
products; promoting co-operative organization among producers of husks, coir
fibre, coir yarn and manufactures of coir products; ensuring remunerative returns
to producers and manufacturers, etc.
National Small Industries Corporation Limited (NSIC): NSIC, established in 1955,
is headed by Chairman-cum-Managing Director and managed by a Board of
Directors.
The main function of the Corporation is to promote, aid and foster the growth of
micro and small enterprises in the country, generally on commercial basis.
NSIC provides a variety of support services to micro and small enterprises catering
to their different requirements in the areas of raw material procurement; product
marketing; credit rating; acquisition of technologies; adoption of modern
management
practices,
etc.
NSIC implements its various programmes and projects throughout the country
through its 9 Zonal Offices, 39 Branch Offices, 12 Sub Offices, 5 Technical
Services Centres, 3 Technical Services Extension Centres, 2 Software Technology
Parks, 23 NSIC-Business Development Extension Offices and 1 Foreign Office.
1.9 Government Policies and Support Measures: Brief History
The evolution of the policy framework and support measures of the
enterprises,
Provision for Central funds.
development of MSME
sector.
Providing techno-economic and managerial consultancy, common facilities
and extension services to the MSME sector.
Rural industrialization
Rural development and decentralization of industries
Creation of employment opportunities and more equitable income distribution
Use of indigenous resources; earning of foreign exchange (FOREXs) resources
Creation of backward and forward linkages with existing industries
Entrepreneurial development
The development of MSMEs is one of the sustainable ways of reducing the
level of poverty and improving the quality of life in household through job and
wealth creation. According to the United Nation Development program (UNDP),
MSMEs have the highest capital, employment ratio and are a source of income for
a lot of people World over. The most important thing is that MSMEs also act as
safeguard in times of economic recessions.
The MSMEs constitute over 90% of total enterprises in most of the economies
and are credited with generating the highest rates of employment growth and
account for a major share of industrial production and exports. In India too, the
MSMEs play a pivotal role in the overall industrial economy of the country. In
recent years the MSME sector has consistently registered higher growth rate
compared to the overall industrial sector. With its agility and dynamism, the sector
has shown admirable innovativeness and adaptability to survive the recent
economic downturn and recession.
As per available statistics (4th Census of MSME Sector), this sector employs
an estimated 59.7 million persons spread over 26.1 million enterprises. It is
estimated that in terms of value, MSME sector accounts for about 45% of the
manufacturing output and around 40% of the total export of the country.
This sector contributes 8% of the countrys GDP and employs around 60
million people, through 26 million enterprises. MSMEs in the country manufacture
over 6,000 products.
The factors that have contributed to the growth of the MSME sector in India:
MSME units in India are being funded by foreign and local fund providers.
The advancement in technology has also contributed highly to the MSME
sector. There are numerous business directories and trade portals available
banks.
The MSME sector is one of the greatest contributors of domestic production as
well as the export earnings Many major mergers have taken place recently.
Strengths:
Weakness:
quality
Major weakness another weakness is absence of marketing channels and brand
Small and Medium Enterprises (MSME), particularly the tiny segment of the
small enterprises have inadequate access to finance due to lack of financial
information and non-formal business practices. MSMEs also lack access to
private equity and venture capital and have a very limited access to secondary
market instruments.
MSME's have to face the increased cost of raw materials.
Concluding Observation
From the above information of chapter 1, it can be concluded that how MSME
sector is beneficial for different kinds of enterprises i.e- micro, small and medium.
There are various institutions under MSME sector like COIR, KVIC, and NSIC
etc. which helps in the overall development of MSME sector. These institutions
provide various kinds of supportive services for its development and enhancement.
Apart from these institutions, government of India also providing some measures
for its development by implementing some policies, schemes.
CHAPTER: 2
Literature Review
A literature review is a description of the literature relevant to a particular
field or topic. Literature covers everything relevant that is written on a topic:
books, journal articles, newspaper articles, historical records, government reports,
theses and dissertations, etc. A literature review gives an overview of the field of
inquiry: what has already been said on the topic, by the key writers.
Srinivas (2005)
He found that MSMEs play a very significant role in the economy in terms
of balanced and sustainable growth, employment generation, development of
entrepreneurial skills and contribution to export earnings. However, despite their
importance to the economy, most SMEs are not able to stand up to the challenges
of globalisation, mainly because of difficulties in the area of financing. With the
opening up of the Indian economy, it has become necessary to consider measures
for smoothening the flow of credit to this sector.
Das (2007)
He found that despite an elaborate and dynamic policy framework, the
progress of Indian MSMEs continues to be hindered by some of the basic
constraints as poor credit availability, low levels of technology (hence, low product
quality and limited exportability) and inadequate or no basic infrastructure, both
physical and economic. It is too early to assess the impact and effectiveness of a
plethora of new policy measures, announced very recently. He says that much of
the potential of small firms to grow and nurture innovativeness is shaped by the
kind of infrastructure, both physical and economic, available and can be accessed
at reasonable costs.
Gupta (2008)
He founded that in India, the MSME sector is the second largest employer
after agriculture. With the growth in the Indian Economy it is of need for the
MSME to raise capital is becoming increasingly critical. He says that there is a
need for the dedicated stock Exchange for the MSME sector to cater to their needs
better which are different from the large industries.
Ravi (2009)
He concluded that the MSME sector has often been termed the engine of
growth for developing economies. Over the last few years, there have been major
policy changes at the federal and state level aimed at consolidating and developing
this sector. The MSME Development Act of 2006 is perhaps the most crucial of
these recent policy changes.
Penumaka (2009)
He concluded that it reflects that while the government can be a facilitator
of growth and promoter of equity, the role of the large enterprises is also critical,
The MSME could be the steroid the Indian economy needs at this juncture. The
SME provides not only the much needed boost for growth, employment and
exports but more significantly, contributes to geographical and social equity.
Raja, SME Times (2010)
The challenges that the SMEs face today seem to be primarily in the area
of ICT and to quote specifically, ERP. The SMEs lament that whenever they
approached the usual ERP firms, the first question they were faced with was that
of their turn-over as they are quoted based on their turnover. The question that
arises is does the Indian SME presents an opportunity for Technology Start-ups to
deliver smaller and much palatable solutions, which fit both the pocket and the
background of the SMEs.
Shah (2011)
He found that the major problem of inadequate financing to SMEs needs an
urgent attention amongst the others such as adequate credit delivery to SMEs,
better risk management, technological upgradation of Banks esp. Public Sector
Banks, and attitudinal change in Bankers. The SMEs sector is considered to be an
untapped market for financial institutions in India. The only way out of the mire is
that the Indian manufacturing sector could be strengthened by the existing rural
systems and making them self-sufficient. This could take place only by helping
Small and Medium Enterprises and the rural artisans (people with innate skills and
talents) in becoming effective and competitive enough to face the future. A number
of issues and business practices of global players and markets can be observed,
learnt and adapted for ensuring competitiveness of Indian SMEs.
Venkatesh and Muthiah (2012)
Found that the role of small & medium enterprises (SMEs) in the industrial
sector is growing rapidly and they have become a thrust area for future growth.
They emphasized that nurturing SME sector is essential for the economic wellbeing of the nation.
Singh et al. (2012)
He analyzed the performance of Small scale industry in India and focused
on policy changes which have opened new opportunities for this sector. This study
concluded that SSI sector has made good progress in terms of number of SSI units,
production & employment levels. The study recommended the emergence of
technology development and strengthening of financial infrastructure to boost SSI
and to achieve growth target.
Concluding Observation
After having a review of available literature it can be concluded that this
sector plays a crucial role for the economic growth of the country. It is visible that
a lot have been discussed about growth of the MSME, but very less number of
studies found about financing practices of MSME and from these available studies
about financing practices, it can be summarized that the one of the major problem
presently faced by MSME is of inadequate finance.
CHAPTER- 3
Research Methodology
INTRODUCTION
Research methodology is a way to systematically solve research problem. In
includes the study of various steps that are generally adopted by researcher in
studying his research problem along with the logic behind them. It is necessary for
a researcher to know not only the research methods/techniques but also the
methodology. It may be noted, in the context of planning & development that the
significance of research lays in its quality and not in quantity. Researchers should
know how to apply particular research techniques, but they also need to know
which of these methods or techniques, are relevant and which are not, and what
would they mean and indicate and why.
3.1 Type of Research I have used Descriptive Research as a tool to study the financing practices
of MSME. By using a descriptive study, the research will able to depict whether
MSME sector faces any problem during financing practices. Descriptive Research
Studies are those studies, which are concerned with specific predictions, with
narration of facts and characteristics concerning individual, group or situation.
3.2 Objectives of the Study 1) To understand the structure of MSME sector in India
2) To investigate into the financing practices of MSMEs in India
3) To explore the polices or initiatives taken by Government to finance MSME
sector
To understand a research project of this nature, the scope is normally defined with
respect to problems faced by MSME while taking finance from government,
institutions etc. The study helps to understand the conceptual framework of
contribution of MSME to countrys growth. Also Study the various government
policies and supporting measures for MSME. The report will help to know about
the historical background of the MSME, providing benefits to various kinds of
sectors like agriculture, technical, etc. This study also includes various schemes,
financial assistance provided by different financial institutions or government.
3.5 Limitations of the Study
The major limitation of the project is the time frame. The time period for this
project report is short.
Another limitation of the project is the secondary sources. The data is collected
less.
Certain conclusions are based on other researcher opinion and preference.
CHAPTER: 4
Analysis and Discussion
4.1 Introduction
The Micro, Small and Medium enterprises (MSMEs) are the backbone of
economic development in any country. They are the incubators for talent,
innovation and entrepreneurial spirit which is central to a countrys development.
Efficiently organized and innovative, MSMEs often exercise frugal management
skills and use local resources to create innovative products and services which
cater to any countrys growing needs.
There are about 30 million MSMEs in India accounting for 8% of Indias GDP,
45% of the total manufacturing output, and 40% of Indias exports. Employing
over 60 million, they churn out over 6000 products annually. The contribution of
Indian MSMEs to the GDP has been steadily growing over the years from about
5% in 2003 to 8.5% in 2011. However in order to continue scaling up, timely and
adequate access to financial services is an imperative, and this has been
Fig. 4.2
Organisation Structure
employment after agriculture. They are the nurseries for entrepreneurship and
innovation. They are widely dispersed across the country and produce a diverse
range of products and services to meet the needs of the local markets, the global
market and the national and international value chains.
The Ministry has a number of programmes to help and assist entrepreneurs
and small businesses. If you are planning to set up business, you may contact
National Institute for Entrepreneurship and Small Business Development
(NIESBUD), National Institute for Micro, Small and Medium Enterprises (NIMSME), Ia1ndian Institute of Entrepreneurship (IIE) or the Development
Commissioner (DCMSME) for details about their programmes. If you are an
existing entrepreneur and would like to improve your competitiveness, you may
contact DC, MSME who can be of assistance in various ways. If you are wanting
to set up a village industry or want to know more about Khadi or Coir Products,
you may contact KVIC or Coir Board. Ministry of MSME encourages and honors
innovation and enterprise.
B) Challenges
Despite showing a robust growth rate of over 10% over the last 5 years, the
MSME sector is beset with operational problems due to size and nature of
business. In 2010, the Prime Minister of India appointed a task force set up under
the chairmanship of the Principal Secretary, to consider various issues raised by
MSME associations, discuss with the stakeholders and chalk out an action agenda.
The key issues identified by the task force, and subsequently taken up by the
Planning Commission in the 12th plan are as follows:
Fig. 4.2B
Challenges faced by MSME
C) Financing of MSMEs
MSMEs require timely and adequate capital infusion through term loans and
working capital loans, particularly during the early and growth stages. Historically
the MSMEs have relied on following sources for financing their needs:
up-gradation
in
Industrial
Clusters.
The
bank
promotes
The Punjab National Bank (PNB) is one of the leading banks in India that offers
banking aids to various industry in India. Apart from offering banking products,
the bank has also forayed into the business of credit card/debit card, bullion, life
and non-life insurance, gold coins and asset management, etc. The PNB also has a
variety of offerings for the fastest developing MSME community in India.
MSME banking by PNB
Micro and small enterprises scheme
The PNB has realised the importance of the Micro and small sector which
contributes about 40 per cent of the gross turnover in the manufacturing sector,
generates around 308 lakh employments, produces 7500 products and contributes
more than 35 per cent of the countrys exports. So, the PNB has formulated a
number of schemes to provide an impetus to growth of this sector.
11. Scheme for Advances to Owner-Drivers of Taxi Cars, Three Wheeler, Station
Wagons, Tempos.
Loans to Small Road & Water Transport Operators- This product enables
various transport operators to acquire a small fleet of vehicles/ vessels.
credit/debit cards.
subsidy of 25% (35% for special categories) of the project cost in rural areas.
The maximum cost of the projects assisted under PMEGP is 25 lakh INR in
the manufacturing sector and 10 lakh INR in the service sector.
e) Small Industry Development Bank of India (SIDBI) (Eastern Regional
Office)
Promotion, financing and development of the small scale sector, and coordination of the functions of the institutions engaged in the promotion and
financing or developing industry in the small scale sector.
SIDBI also refinances institutions such as state financial corporations (SFCs),
state industrial development corporations (SIDCs), and commercial banks
against loans granted to the small-scale sector. SIDBI also acts as financer for
small-scale projects directly on a selective basis.
Products and services offered by SIDBI may be broadly classified:
Institutional: Focuses on refinance schemes, like MahilaUdyamNidhi, finance
to small transport operators, technology upgradation fund for textile units,
loans for acquisition of ISO certification, self-employment loan for exservicemen, single window finance for short term credit, all of them operated
through SFCs or SIDCs or primary lending institutions or Banks or other
microfinance institutions, depending upon the category of loans.
Promotional: SIDBI acts as a nodal agency for several Government schemes
such as Technology several Government schemes such as Technology
Upgradation Fund Scheme for the textile sector, Integrated Development of
Leather Sector Scheme for the leather sector and Modernization/Upgradation
of Food Processing Industry.
SIDBI Venture Capital Fund Ltd (SVCL) manages two funds set up by SIDBI
at the national level.
The National Venture Capital Fund for Software and IT Industry (NFSIT) is
worth 100 crore INR, established with the focus of supporting incubation
projects of small-scale units in the IT and related business.
The SME Growth Fund has a corpus of 500 crore INR which targets growthoriented businesses in the areas of life sciences, retailing, light engineering,
food processing, IT, infrastructure related services, healthcare, logistics and
TUF facilitates those SMEs that look to improvise their technological skills. It
provides 15% margin money subsidy for the SSI textile and jute sector in lieu
of 5% interest reimbursement on investment in TUF compatible specified
machinery subject to a capital ceiling of 200 lakh INR and ceiling on margin
money subsidy 15 lakh INR. A minimum of 15% equity contribution from
beneficiaries is ensured.
k) CLCSS
Under CLCSS, tiny units with investment in plant and machinery of less than
10 lakh INR are eligible for a loan support of upto 8 lakh INR.
Tiny units with investment in plant and machinery between 10 lakh INR to 25
lakh INR are eligible for a loan support of upto 20 lakh INR.
Small units with investment in plant and machinery of above 25 lakh INR are
eligible for a loan support of upto 40 lakh INR.
l) Interest subsidy scheme of IPRIt works effectively with the active assistance of banks and financial
institutions - The interest subsidy scheme helps in dispensation for labourintensive industry by extending the facility of 2% interest subvention for
handlooms, handicrafts, carpets and small and medium enterprises (SMEs).
m) NEF
Under NEF, loans are given to firms with a project cost (including margin
money for working capital) not exceeding 50 lakh INR in case of new projects.
No interest is charged on the loan component except service charge of 5% p.a.
n) Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
Through Coir Board 75% for CFC, technology upgradation, product
development and 100% for capacity building, market development with
component-wise ceiling. The components of funding are technology
upgradation, setting-up of common facility centres (CFCs), development of
new products and designs, new and improved packaging, etc, market
promotion activities, capacity-building activities, other activities identified by
the implementing agency (IA) as necessary for the development of the cluster.
2) SIDBI
Small Industries Development Bank of India (SIDBI), set up on April 2, 1990
under an Act of Indian Parliament, presently acts as the Principle Financial
Institution for the Promotion, Financing and Development of the Micro, Small and
Medium Enterprise (MSME) sector and also co-ordinates the functions of the
institutions engaged in similar activities. As on March 31, 2012, the Authorised
Capital of SIDBI is ` 1000 crore and Paid Up Capital is ` 450 crore. Presently, the
Bank provides refinance support through a network of eligible member lending
institutions for onward lending to MSMEs and direct assistance is channelized
through the Banks branch offices. SIDBI also extends financial assistance in the
form of loans, grants, equity and quasi-equity to Non Government Organisations /
Micro Finance Institutions (MFIs) for on-lending to micro enterprises and
economically weaker sections of the society, enabling them to take up income
generating activities on a sustainable basis.
SIDBI has initiated various schemes for upliftment of MSME sector and
continues to be the prime lending institution for MSME sector. The necessity of
continuously providing low cost credit to MSEs through concessional resource
support to SIDBI has become more pronounced in the present scenario of recovery
of the Indian economy from the economic slowdown. As per the Union Budget
2011-12, SIDBI has been allocated ` 5000 crore to SIDBI for refinancing
Banks/SFCs at concessional rates, out of which SIDBI received ` 4,711 crore,
which has been channelized to banks/SFCs.
aim is to earn higher returns on their investments, but their methods are different
from traditional lenders. They take active part in the management of the company
as well as provide the expertise and qualities of good bankers, technologists,
planners and managers. As funds required by SMEs are too large for microfinance
institutions and too small or too risky for commercial banks, this is one of the
primal issues that the PE/VC component addresses as part of the investment
promotion of the consolidated project for SME development in India.
Advantages of VC funding
It injects long-term equity finance which provides a solid capital base for
future growth.
The venture capitalist is a business partner, sharing both the risks and rewards.
Venture capitalists are rewarded by business success and capital gain. The
venture capitalist is able to provide practical advice and assistance to the
company based on past experience.
The venture capitalist also has a network of contacts in many areas that can
add value to the company, such as in recruiting key personnel, providing
contacts in international markets, introductions to strategic partners, and if
needed, co-investments with other venture capital firms when additional
rounds of financing are required.
Growth potential
Some venture capital firms, institutional investors and banks who provide
venture capital to MSMEs are as follows:
Upstream Ventures
Union high pride, Union support, Union transport, Union Cyber etc.
11. PNB
PNB vikashudyami, PNB SME sahayog scheme etc.
12. Syndicate Bank
Synd Vyapar, Synd Udyog, Synd Swarozgar Credit Card, Synd Laghu Udhyami
Credit Card, Synd General Credit Card etc.
13. Dena Bank
Dena Shakti Scheme [for women entrepreneurs], Scheme for financing wind mills
Channel financing scheme for dealers / suppliers etc.
14. UCO bank
SME Medium Term Loans, Scheme for Financing Energy Efficiency Projects etc.
15. Allahabad Bank
Micro, Small & Medium Enterprises (MSME) Advances etc.
16. Andhra Bank
Composite loan scheme, Composite loan scheme, Term Finance, Open cash credit
(OCC), AB Power Tools (Shakti) etc.
17. ICICI Bank Ltd.
The ICICI bank edge, vendor bill discounting, SME dialogue etc.
18. HDFC Bank LTD.
Working capital finance, construction equipment loan, commercial vehicle finance,
Credit substitute, Export credit etc.
19. Yes Bank
Working capital loans, Term loans, Export finance etc.
20. Axis Bank
Financing to Non-Priority Sector Entities, Overdraft against Property, Financing to
Priority Sector Entities, Term Loan against Property, Lease Rent Discounting, Business
Loan for Property (BLFP) etc.
21. Kotak Mahindra Bank
Kotak Business Loan, Working Capital Finance, International Import Finance,
International export Finance.
These are few financing schemes drafted for the MSMEs, which the industry could
approach for (depending on their requirement). Almost all the public sector banks do
provide the following schemes. The MSMEs are advised to visit the Banks with
their requirement to get more detailed information.
a) SME Credit Card (upto 10 lakh INR)
Loans are for the micro enterprises including SSI units, small business enterprises,
professional and self employed persons, small retail traders, transport operators etc for
meeting any kind of credit requirement including purchase of shops, maximum limit
being 10 lakh INR including term loan and working capital loan. The loan will be
sanctioned for three years with an annual review.
b) SME Smart Score(upto 50 lakh INR)
The loan product is for manufacturing trade and services segments to meet working
capital needs and for acquisition of fixed assets. A simplified appraisal model has been
developed to standardise the appraisal process for loans up to 50 lakhs INR in SSI sector
and up to 25 lakh INR for trade and services sector available with attractive interest
rates. The loan will be sanctioned for two years with an annual review.
c) SBI SMILE (interest free loan as equity)
The scheme provides interest free loan as equity assistance towards part of margin
requirements of the project, to assist eligible professional and technically qualified
entrepreneurs setting up new micro and small enterprises and units covered under the
banks project uptake for technology upgradation. Equity assistance is up to a maximum
of 10 lakh INR. The interest free loan is repayable in three years with a moratorium
period of 5-7 years.
d) General Purpose Term Loan for SSI sector (up to 50 lakh INR)
This product is for existing borrowers for any general commercial purpose such as
shoring up of net working capital, substitution of high cost debt, R&D, ISO certification,
etc. subject to disbursement being made in line with the specific purpose approved. The
maximum loan available is 50 lakh INR repayable in maximum period of five years.
e) Open Term Loan (up to2.5 crore INR)
A pre-sanctioned term loan with limit up to 2.5 crore INR for existing or new corporate
or non-corporate customers in manufacturing sector and up to 1 crore INR for hotels,
hospitals, educational institutions in service sector.
The sanctioned limit is valid for a year. Margin requirement is 10%. The borrower can
utilise pre-approved sanction to plan capital expenditure and negotiate with suppliers of
machinery and finalize best possible contract.
f) Corporate Loan (from 25 lakh INR up to 10 crore INR)
The scheme provides term loan for all existing customers and established non customers
(subject to takeover norms of the bank) in manufacturing sector. Quantum of finance is
minimum 25 lakh INR and maximum 10 crore INR for non-corporate and no cap for
corporate borrowers. No margins are required under the scheme. A maximum of three
corporate loans can be outstanding per borrower at any point of time.
g) SME Credit Plus
For existing and new borrowers this scheme provides a clean cash credit facility to meet
contingencies. Under the scheme 20% of aggregate WC or max 25 lakh INR fund based
limit can be availed. Margins are not required and interest rate will be same as
applicable to cash credit limit. The facility is repayable in two months and can be
availed for 12 times a year.
h) Standby Line of Credit
For existing units including export units, an additional working capital(fund based and
non-fund based) limit by way of cash credit, packing credit and bills discounting against
stock, receivables to meet contingencies such as bunching of orders, delay in shipment,
sudden increase in raw material prices, mismatch in cash flows. Under this 15% of
aggregate working capital or max 5 crore INR can be availed. Margins as applicable to
original limit.
i) Rice Mill Plus
Term loan for acquisition of machinery, factory building for modernisation, expansion
and working capital needs of rice mills engaged in milling, sorting, grading and
polishing. No upper ceiling on loan amount.
j) SME Collateral Free Loan (SMECFL)
Collateral free loan for viable projects of micro and small enterprises in manufacturing
and service sector with maximum guarantee cover up to1 crore INR under the CGTMSE
guarantee scheme for working capital and term loan (FB+NFB) facilities.
k) Traders Easy Loan
Easy loan for specific business needs of traders, self-employed, small business
enterprises, agents engaged in purchase and sale of food grains etc. Loan can be availed
for normal day to day business requirements or for purchase of equipment/ fixed assets.
Loan is available up to 5 crore INR with very competitive rate of interest.
l) Dal Mill Plus
Term loan for dal mill owners for acquisition of machinery, factory building,
modernization and all working capital needs.
m) Artisan Credit Card
Maximum loan under the scheme is 2 lakh INR. The scheme provides loans to Artisans
to meet their credit requirements both for investments as well as working capital in a
flexible manner at liberal rates of interest.
n) SME Construction Equipment Loan
Maximum loan available is up to 25 crore INR with minimum margin applicable up to
15%. Tenure of loan can be extended up to maximum of four years. Term loan for
purchase of construction equipments viz. loaders, excavators, cranes etc., for contractors
and firms engaged in construction activity
o) SME Car Loan
Loans for purchase of passenger cars, jeeps, multi utility vehicles, etc., to the
promoter/partner/senior executives of the SME units having borrowing arrangements
with the bank.
demand of this sector. Apart from giving legal strength to the definitions of micro,
small and medium enterprises, this Act also contains penal provisions relating to
the delayed payment to these enterprises.
2. Khadi and Village Industries Commission Act, 1956
The Khadi and Village Industries Commission Act, 1956 has been
comprehensively amended in 2006, introducing several new features to facilitate
professionalism in the operations of the Commission as well as field-level formal
and structured consultations with all segments of stakeholders. A new Commission
has also been constituted in Nov. 2011.
Khadi is the proud legacy of our national freedom movement and the father
of the nation. Khadi and Village Industries (KVI) are two national heritages of
India. One of the most significant aspects of KVI in Indian economy is that it
creates employment at a very low per capita investment. The KVI Sector not only
serves the basic needs of processed goods of the vast rural sector of the country,
but also provides sustainable employment to rural artisans. KVI today represent an
exquisite, heritage product, which is 'ethnic' as well as ethical. It has a potentially
strong clientele among the middle and upper echelons of the society.
3. Prime Ministers Employment Generation Programme
A national level credit linked subsidy scheme, namely, Prime Ministers
Employment Generation Programme (PMEGP) was introduced in August 2008
by merging erstwhile PMRY and REGP schemes of this Ministry. Under this
programme, financial assistance is provided for setting up of micro enterprises
each costing upto Rs.10 lakh in service sector and Rs.25 lakh in manufacturing
sector. The assistance is provided in the form of subsidy upto 25 per cent (35 per
cent for Special category including weaker sections) of the project cost in rural
areas while it is 15 per cent (25 per cent for Special category including weaker
sections) for urban areas.
During 2012-13, disbursements were made in 56,997 cases utilizing
Rs.1078.61 crore as margin money subsidy. The estimated employment generation
is 4.28 lakh persons. An amount of Rs.1418.28 crore including Rs.1380 crore
margin money subsidy has been provided in BE 2013-14.
to happen the small scale sector has to become competitive. In the 2005-06
Budget, the Government announced formulation of a National Competitiveness
Programme, particularly to support the Small and Medium Enterprises (SMEs) in
their endeavour to become competitive. Accordingly, the National Manufacturing
Competitiveness
Manufacturing
Competitiveness
Programme
(NMCP).
The
National
marketing
development,
export
promotion,
skill
development,
(ii)
Soft Interventions with GoI grant of 75% of the sanctioned amount of the
maximum project cost of Rs 25.00 lakh per cluster. For NE & Hill States,
Clusters with more than 50% (a) micro/ village (b) women owned (c)
SC/ST units, the GoI grant will be 90%.
(iii)
Detailed Project Report (DPR) with GoI grant of maximum Rs 5.00 lakh
for preparation of a technical feasible and financially viable project report.
(iv)
(v)
(vi)
Study, Soft Interventions and Hard Interventions (CFCs). Further, 170 projects
have been taken up for infrastructure development under the scheme.
11. Technology Centre Systems Programme (TCSP)
Ministry of Micro, Small and Medium Enterprises, Government of India
have established 18 Technology Centres (TCs) earlier known as Tool Rooms (10
Nos) and Technology Development Centres (8 Nos) spread across the country. The
Technology Centres primary focus is to support industries particularly MSMEs in
the country through access to advanced technologies & providing technical
advisory support as well as skilled manpower by offering opportunities for
technical skill development to the youth at varying levels ranging from School
Drop-outs to Graduate Engineers.
Recent evaluation studies of TCs have found a strong need to replicate
them at more places. In view of important role played by these Centres for
providing thrust to manufacturing sector, Government is considering to upgrade
and expand network of MSME Technology Centres at an estimated cost of Rs.
2200 crore with World Bank funding.
Towards achieving this objective, Ministry of MSME, Government of India
is in the process of establishing 15 Technology Centres (TCs) and upgrading /
modernizing the existing TCs under Technology Centre Systems Programme
(TCSP). The Programme is expected to improve the competitiveness of Micro,
Small and Medium Enterprises (MSMEs) in key manufacturing industries across
India by facilitating improved access to technology and business advisory services
as well as skilled workers through systems of financially sustainable Technology
Centres. The Proposed Program will reinforce the technical capability of the
Technology Centres as well as industry sector to perform well at both National and
International levels.
15% Capital Subsidy (limited to maximum Rs. 15.00 lakh) for purchase of plant
and machinery. Maximum limit of eligible loan for calculation of subsidy under
Scheme is Rs. 100.00 lakh. Presently, 51 well established and improved
technologies/Sub-Sectors have been approved under the Scheme. For effective and
transparent implementation of the Scheme, Ministry has started online
Application and Tracking system w.e.f 01.10.2013 for online lodgement of subsidy
claims by nodal banks. Since inception of the Scheme, 28,287 units have availed
subsidy of Rs. 1,619.33 crore upto 31.03.2014.
13. Entrepreneurship and Skill Development
In todays fast paced economic and industrial scenario, technology has
become more vital than ever before. Its development and absorption are key
ingredients for the overall economic development of a nation. This is even more
relevant in the context of developing countries like India where technological
development and employment generation have to go hand to hand. Thus the
Ministry of MSME, which has the overall mandate for the development of
MSMEs, has been undertaking a number of programmes for encouraging
entrepreneurship and skill development amongst youth to fulfill the need of skilled
manpower by the industry. These programmes are conducted through a nationwide
network of establishments under office of Development Commissioner (MSME),
Khadi and village Industries Commission (KVIC), National Small Industries
Corporation (NSIC), Coir Board and various other organizations under the
Ministry.
The training programmes conducted by various organizations of the
Ministry cater to all strata of the society as per their need, covering traditional
/rural industries based programmes for the lower rung of the society, to the high
end, high tech training programmes, such as conventional manufacturing, CAD
/CAM, Tool design, CNC, Mechatronics etc., conducted by Technology Centres of
the office of Development Commissioner, MSME, catering to the need of highly
skilled people in present day modern Industries.
Apart from other programmes, Ministry is also promoting self
entrepreneurship by providing training on entrepreneurship and subsidy on loan to
the unemployed youth in the country under Prime Ministers Employment
Generation Programme (PMEGP) creating lakhs of employment opportunities. In
its efforts to provide integrated solution to the industry in the form of producing
well trained , skilled and innovative manpower through technology Centres (Tool
Rooms), one of the mile stone achieved by the Ministry was Finance Ministers
announcement in his Budget speech in February 2013, regarding setting up of 15
new Tool Rooms with World Bank Assistance. The work of establishing these
Technology centres is on fast track. To improve the quality of training, strategies
like, real time online monitoring, standardization of course curriculum, up
gradation of workshops and focus on workshop based courses have been adopted
by the Ministry. Through Entrepreneurship / Skill Development programmes
conducted by various organizations of this Ministry, about 16.87 lakh persons were
trained during the XIth Plan period. The Ministry has fixed a target to train 42.65
lakh persons during XIIth Plan period through various schemes being implemented
by various organizations under the Ministry.
14. Rajiv Gandhi Udyami Mitra Yojana
The scheme aims to promote and support establishment of new micro and
small enterprises through handholding of potential first generation entrepreneurs,
who have already successfully completed Entrepreneurship Development
Programme
(EDP)/
Skill
Development
Programme
(SDP)
In order to revitalize and reform the traditional khadi sector with enhanced
sustainability of khadi, increased artisans welfare, increased incomes and
employment opportunities for spinners and weavers with lesser dependence on
Government grants, a Khadi Reform and Development Programme was
formulated by the Ministry of MSME in consultation with Khadi and Village
Industries Commission (KVIC), Asian Development Bank (ADB), Department of
Economic Affairs (DEA) and M/s Price Waterhouse Coopers (PWC). This
programme is proposed to be implemented in 300 selected khadi institutions
willing to undertake the identified reforms. The DEA has arranged a sum of US$
150 million equivalent to Rs.717 crore (approx.) from ADB to be given to KVIC
as grant in four tranches over a period of 36 months. After completion of
procedural formalities, and signing of necessary agreement and announcement by
ADB, the first tranche of Rs.96 crore was released to KVIC in February, 2010.
Khadi Mark, a mark to establish genuineness of Khadi was launched in
September 2013 under the KRDP.
18. Market Development Assistance (MDA) Scheme
The scheme has been introduced w.e.f. 01.04.2010 and envisages financial
assistance @ 20% on value of production of khadi and polyvastra which will be
shared among artisans, producing institutions and selling institutions in the ratio
25:30:45. The scheme has been introduced on the basis of recommendations of
several committees constituted during the past few decades and after running
several pilot projects in the past. The need had arisen because Khadi production so
far was not based on market demand or performance and the rebate system did not
benefit the spinners and weavers. Also KVIC was constrained to devote most of its
resources for administration of rebate; to the detriment of its remaining
responsibilities regarding development of the sector.
MDA seeks to rectify this imbalance and provide flexibility/ freedom to the
khadi institutions to take innovative measures to improve its marketing
infrastructure such as renovation of outlets, training sales persons, computerization
of sales, design improvement, publicity, discount to customers, improved
equipments of production, training of artisans and capacity building so that khadi
can attract more customers not just because of discount, but because of its quality
design and appeal. Most importantly, for the first time a definite share of 25% of
MDA has been earmarked for spinners and weavers which will give them a
prominent role in the entire khadi chain of activities. An amount of Rs.126.94
crore has been released to KVIC during 2013-14 towards MDA.
19. Workshed Scheme for Khadi Artisans
Under this scheme, assistance is provided for construction of Worksheds
for Khadi artisans for better work environment. Financial assistance of Rs.8.23
crore for establishment of workshed has been provided to 4444 artisans in 201314.
20. Scheme for Enhancing Productivity & Competitiveness of Khadi Industry
and Artisans
The scheme aims to provide financial assistance to 200 of the A+ and A
category khadi institutions of which 50 institutions would be those which are
managed exclusively by beneficiaries belonging to Scheduled Castes/Scheduled
Tribes to make them competitive with more market driven and profitable
production by replacement of obsolete and old machinery and equipment.
22. Scheme for Rejuvenation, Modernisation and Technological Upgradation
of Coir Industry
Under the scheme being implemented since 2007-08, assistance is provided to
spinners and tiny household sector for replacement of outdated ratts/looms and for
constructing worksheds so as to increase production and earnings of workers.
23. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
This Scheme was launched in 2005 for regeneration of traditional industries
identified clusters in khadi, village industries and coir sectors with a view to make
these industries more productive and competitive and increase the employment
opportunities in rural and semi-urban areas. The objective of the Scheme is to
establish a regenerated, holistic, sustainable and replicable model of integrated
cluster-based development of traditional industries in khadi, village and coir
sectors. So far 96 clusters (khadi 29, Village Industries 47 and Coir - 20) have
been developed under SFURTI.
It is proposed to develop 800 clusters during the XII Plan.
grow, the benefits or preferences enjoyed by them will now stay with them for
upto three years after they grow out of the category in which they obtained the
benefit. To begin with, the non-tax benefits would be made available to an MSME
unit for three years after it graduates to a higher category.
To provide greater support to MSMEs, the refinancing capability of SIDBI
has been enhanced from the current level of Rs.5,000crore to Rs.10,000 crore per
year.
SIDBI set up the India Microfinance Equity Fund in 2011-12 with
budgetary support of Rs.100 crore to provide equity and quasi-equity to Micro
Finance Institutions (MFI). An amount of Rs.104 crore has been committed to 37
MFIs. Earlier Rs.100 crore were allocated to the IME Fund in the budget and now
another sum of Rs.100 crore has been provided in present budget for the Fund.
The Factoring Act 2011 has been passed by Parliament. A provision of a
corpus of Rs.500 crore to SIDBI has been made in the present budget to set up a
Credit Guarantee Fund for factoring.
Tool Rooms and Technology Development Centres set up by the Ministry of
Micro, Small and Medium Enterprises have done well in extending technology and
design support to small businesses. Finance Minister has proposed to provide, with
World Bank assistance, a sum of Rs.2, 200crore during the 12th Plan period to set
up 15 additional Centres.
Incubators play an important role in mentoring new businesses which start
as a small or medium business. The new Companies Bill obliges companies to
spend 2 percent of average net profits under Corporate Social Responsibility
(CSR). The Ministry of Corporate Affairs will notify that funds provided to
technology incubators located within academic institutions and approved by the
Ministry of Science and Technology or Ministry of MSME will qualify as CSR
expenditure.
Appropriate action has been initiated by the concerned Govt. agencies for
implementation of these announcements.
26. Launch of MSME Virtual Clusters
An initiative of Ministry of Micro, small and Medium Enterprise, Virtual
CHAPTER: 5
Findings of the Study
SMEs are facing problems which are quite unique in nature such as access to
capital, technology, skill, market, awareness etc. Among all the problems access, to
adequate and timely credit at reasonable cost is the most critical problems for
MSME. The major reason for this has been the high risk perception among
bankers about the sector and the high transaction costs for loan appraisal.
With the strong focus on promoting the MSME sector and supporting their
functioning by timely capital infusion, easy access to credit, providing necessary
advisory assistance and technology infrastructure, the MSMEs are slated for an
unprecedented growth in the years to come.
SMEs are the engine of India's economy. They are a central part of the economic
development model in the emerging economies like India, and they play a
significant part in fuelling growth, innovation and prosperity. Despite all the
positive development happening in this sector, there is still a huge demand supply
gap and the sector is plagued by numerous challenges, such as:
Inadequate capital infusion and delayed payments from large corporate and
PSUs leading to working capital gaps
CHAPTER: 6
Suggestion and Conclusion
6.1 Suggestions
There should be proper coordination among various institutions i.e. MSMEDC-DI, MSME-DI, NSIC, NIESBUD, DSIIDC, KVIC, COIR for the various
categories of assistance on time.
6.2 Conclusion
The present study focuses on the existing financial support provided by different
institutions, banks, government to MSME sector. The largest institute being Office
of Development Commissioner- Micro, Small and Medium Enterprises (MSMEDC). It functions as the nodal Development Agency under the Ministry of Micro,
Small and Medium Enterprises. The MSME sector plays a significant role in the
Indian economy. A catalyst for socio-economic transformation of the country, the
sector is critical in meeting the national objectives of generating employment,
reducing poverty, and discouraging rural-urban migration. This sector facing many
challenges due to inefficient resource utilization. Of the many challenges impeding
the growth and development of MSMEs, inadequate access to financial resources
is one of the key bottlenecks that make these enterprises vulnerable, particularly in
periods of economic downturn.
References