A

Research Project Report

Titled

A Study of Financing Practices of MSME Sector in India

For partially fulfilling the requirement of the award of the degree MBA
Subject Research Project (IMS-1002)

Under the Supervision OfDr. JK Chandel

Assistant Professor

Submitted to-

Submitted by -

The Director

Narender
Class-MBA (10th sem)
Roll No. - 52
Reg.No. 11UD3025

Institute Of Management Studies

Kurukshetra University, Kurukshetra

(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

It is certified that Narender, student of Semester 10th bearing Roll No. 52

(exam: 905826), Batch: 2011-16, of Institute of Management Studies, Kurukshetra
University, Kurukshetra has completed her Research Project Report (IMS-1002)
on the topic: A Study of Financing Practices of MSME Sector in India under
my supervision. This is an original work and I find it complete for submission for
evaluation and for the partial fulfilment of the award of degree of Master of
Business Administration, MBA- 5Year (IPOP). It is further certified that no part of
this Report has been submitted by the student for the award of any degree/diploma
elsewhere (to the best of my knowledge and belief).
(Dr. J.K.Chandel)
Assistant Professor
Institute of Management Studies
MBA-5 Year (IPOP)
Kurukshetra University, Kurukshetra

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.

Title Of the Chapter

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

Analysis and Discussion

29-62

Findings of the Study

63

Suggestion and Conclusion

64

References

65

List of Figures

Sr. No

Figure

1
2.
3.
4.

No.
1.3
1.5
4.2
4.2B

Title of the Figure

Categories of MSME
Registration Types and Process
Organization Structure
Challenges Faced by MSME

Chapter: 1
Introduction to MSME sector

Page No.
5
8
30
32

1.1 Industrialisation in India

A leading, industrially advanced developing country, India has large, medium
and small industrial units of production in almost all branches of the industry.
Since the t i m e o f t h e independence in 1947, a significant feature of the Indian
economy has been the rapid growth of the small industry sector. The small
industry sector is considered to have a major role in the Indian
economy due to its 40 percent share in the national industrial output
along with an 80 percent share in industrial employment and nearly 35
percent share in exports. The small scale industries sector has been assigned
an important role in the industrialization of the country by the previous and current
governments of India.
1.2 Background of MSME sector industries
The organization of the Development Commissioner (Micro Small and
Medium Enterprises) [(earlier called Development Commissioner (Small Scale
Industries)] was established as Small Industries Development Organisation (SIDO)
in 1954 on the basis of the recommendations of the Ford Foundation. Over the
years, it has seen its role evolve into an agency for advocacy, hand holding and
facilitation for the small industries sector. With the enactment of the MSMED Act
2006, the organization has been renamed as Micro, Small and Medium
Enterprises-Development Organisation (MSME-DO) with the wider mandate of
promotion and development of MSME sector. It has over 60 offices and 21
autonomous bodies under its management. These autonomous bodies include Tool
Rooms, Training Institutions and Project-cum-Process Development Centres.
MSME-DO provides a wide spectrum of services to the small industries sector,
now enlarged to include all enterprises, excluding the larger ones.
These

include

facilities

for

testing,

tool

making,

training

for

entrepreneurship development, preparation of project and product profiles,

technical and managerial consultancy, assistance for exports, pollution and energy
audits etc. MSME-DO provides economic information services and advises
Government in policy formulation for the promotion and development of MSME
sector. The field offices also work as effective links between the Central and the
State Governments in the area of MSME development.
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly

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

about 73 mn people in more than 31 mn units spread across the country,

manufacture more than 6,000 products ranging from traditional to high tech items
(MSME report 2011). The report also projects the total production coming from
the MSME sector at 10,957.6 bn in FY11, an increase of more than 11% over the
previous year contribution.
Though, MSMEs contribution is phenomenal in the growth of Indian
economy, Simultaneously, MSMEs are facing intense pressure and constraints to
sustain their competitiveness in globalized world. Some other issues such as
recession, low demand, finance, heavy competition from MNCs etc. are becoming
conspicuous dilemma to MSMEs in India. In this competitive world, MSMEs need
to be able to confront the increasing competition from developed and emerging
economies and to plug into the new market opportunities, provided by these
countries.
There is a direct link between internationalization and increased MSMEs
performance. International activities reinforce growth, enhance competitiveness
and support the long term sustainability of companies. Yet Indian MSMEs still
depend largely on their domestic markets despite the opportunities brought by the
enlarged single market and by globalization at large. De-reservation of items
which were earlier reserved for MSMEs, increasing competition by liberalizing the
policies and allowing foreign companies to operate in Indian market are some of
the emerging challenges before MSMEs.
1.3 Conceptual Framework of MSME
The Ministry of Agro and Rural Industries and Ministry of Small Scale Industries
have been merged into a single Ministry, namely Ministry of Micro and Small
and Medium Enterprises
Definition of MSME is given by MSME Act, 2006In India, the enterprises have been classified broadly into two categories:
(i) Manufacturing Enterprises The enterprises engaged in the manufacture or
production of goods pertaining to any industry specified in the first schedule to the
industries (Development and regulation) Act, 1951) or employing plant and
machinery in the process of value addition to the final product having a distinct
name or character or use. The Manufacturing Enterprise are defined in terms of

investment in Plant & Machinery.

(ii) Service Enterprises The enterprises engaged in providing or rendering of
services and are defined in terms of investment in equipment.
Both categories of enterprises have been further classified into micro, small
and medium enterprises based on their investment in plant and machinery (for
manufacturing enterprises) or on equipments (in case of enterprises providing or
rendering services). The present ceiling on investment to be classified as micro,
small or medium enterprises is as under:
The limit for investment in plant and machinery / equipment for manufacturing /
service enterprises,
Manufacturing Sector
Micro Enterprises Does not exceed twenty five lakh rupees.
Small Enterprises More than twenty five lakh rupees but does not exceed five
crore rupees.
Medium Enterprises More than five crore rupees but does not exceed ten crore
rupees.
Service Sector
Micro Enterprises Does not exceed ten lakh rupees.
Small Enterprises - More than ten lakh rupees but does not exceed two crore
rupees.
Medium Enterprises More than two crore rupees but does not exceed five core
rupees.

Fig. 1.3
Categories of MSME

1.4

The Micro, Small & Medium Enterprises Act, 2006

An ACT to provide for facilitating the promotion and development and
enhancing the competitiveness of micro, small and medium enterprises and for
matters connected therewith or incidental thereto.
The Micro; Small and Medium Enterprises Development (MSMED) Act
was notified in 2006 to address policy issues affecting MSMEs as well as the
coverage and investment ceiling of the sector. The Act seeks to facilitate the
development of these enterprises as also enhance their competitiveness. It provides
the first-ever legal framework for recognition of the concept of "enterprise" which
comprises both manufacturing and service entities. It defines medium enterprises
for the first time and seeks to integrate the three tiers of these enterprises, namely,
micro, small and medium. The Act also provides for a statutory consultative
mechanism at the national level with balanced representation of all sections of
stakeholders, particularly the three classes of enterprises; and with a wide range of
advisory functions.
Establishment of specific funds for the promotion, development and
enhancing

competitiveness

of

these

enterprises,

notification

of

schemes/programmes for this purpose, progressive credit policies and practices,

preference in Government procurements to products and services of the micro and
small enterprises, more effective mechanisms for mitigating the problems of
delayed payments to micro and small enterprises and assurance of a scheme for
easing the closure of business by these enterprises are some of the other features of
the Act.
The conceptual and legal framework for small scale and ancillary industrial
undertakings is derived from the industries Development and Regulation Act,
1951. The Act provided the necessary powers to the central government to amend
the provisions of this act from time to time so as to encourage small scale and
ancillary undertakings. The Small and Medium Enterprises Development Bill,
2005 which was enacted in June 2006 was renamed as Micro, Small and Medium
Enterprises Development Act, 2006 aims at facilitating the promotion and
development of small and medium enterprises.
Various notifications issued by the Central Government from time to time
relating to increase in slap rate of investments in plant and machinery for
manufacturing enterprises and equipments in service enterprises provides a clear
cut proof that the economy of our country is striving towards achieving the
economies of scale by increasing the volume of production of goods. The Micro,
Small and Medium Enterprises Development Act, 2006 (MSMEDA) extends the
scope to accomplishes many long standing goals of the government and
stakeholders in the MSME sector including the service sector.
1.4(A) The Objective of the MSMED Act
To facilitate the promotion and development of and enhancing the competitiveness
of micro, small and medium, enterprises and for matters connected therewith or
incidental thereto.
(B) Main Features of the MSMED Act
B.1. Constitution of a National Board for Micro, Small and Medium Enterprises
to:
Examine the factors affecting the promotion and development of micro,
small and medium enterprises and review the policies and programmes of the
Central Government in this direction; Make recommendations for facilitating
promotion and development of and enhancing the competitiveness of the micro,

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

Level of employment in a class or classes of enterprises;

Level of investment in plant and machinery or equipments;
The need of higher investment in plant and machinery or equipment's for
technological

up

gradation,

employment

generation

and

enhanced

competitiveness;
The possibility of promoting and diffusing entrepreneurships;
The international standards for classification of small and medium enterprises.

1.5 MSME Registration

MSME stands for micro, small and medium enterprises and any enterprise
that falls under any of these three categories can apply for registration. MSME
registration that falls under the MSMED Act facilitates promotion and
development of enterprises and improves its functioning. Any type of enterprise
can apply for SME registration. These includes proprietorship enterprises,
enterprises managed by Hindu undivided family, enterprises run by association of
individuals, co-operative societies, partnership firms and enterprises managed by
companies or undertakings etc. After registration, an enterprise becomes eligible to
get the benefits under the MSMED Act. There are two stages of registrationprovincial and permanent (final). An enterprise is granted provincial registration
when it is at a pre-investment stage. After getting provincially registered, an
enterprise can apply for permanent registration just before launching its production
facilities. However, an enterprise that is already functioning need not have to apply
for provincial registration as it is eligible to apply for permanent registration.
Enterprises falling under the three categories (micro, small and medium)
are further categorized into two types of industries- manufacturing industry and
service industry. The status of an enterprise under the MSMED Act is determined
according to the investment slab under which an enterprise falls.
Types of Enterprises Eligible to be Registered under MSME Act, 2006
All classes of enterprises, whether Proprietorship, Hindu undivided family,

Association of Persons, cooperative society, Partnership firm, Company or

Undertaking, by whatever name called can apply for the registration and get
qualified for the benefits provided under the Act.
Registration of MSME:
1) Voluntary and not compulsory with respect to Micro and Small Enterprises.
2) DIC is the primary registering centre.
3) Two types:
Provisional Registration.
Permanent/Final Registration.
Registration Process
Fig.1.5
Registration Types and Process

Benefits of MSME Registration in India

The MSME registration process in India has been conceptualized to

provide maximum benefits to all types of enterprises. After registration, any

enterprise becomes qualified to reap the benefits offered under the MSMED Act.
For example, after provincial registration an enterprise can seek financial credit
and also other facilities like land, industrial set-up, and water/electricity/telephone
connections. After getting registered under a competent authority, an enterprise is
allotted a MSMED registration/entrepreneurs memorandum (EM) number. The
concerned enterprise should get the number printed on letter heads, invoices, bills,
supply order sheets and other necessary documents. The EM number helps in
identification of MSE suppliers and in this case an enterprise becomes an
authorized MSE supplier after registration.
The registration scheme has no statutory basis. Units would normally get
registered to avail some benefits, incentives or support given either by the Central
or State Govt. Benefits available under the MSMED Act Registration of Micro,
Small and Medium (MSM) Enterprises under MSMED Act is a very powerful
medium to enjoy the regime of incentives offered by the Centre generally contains
the following:
Micro and Small Enterprises:

Easy finance availability from Banks, without collateral requirement

Protection against delay in payment from Buyers and right of interest on

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

Registration with NSIC

Counter Guarantee from Govt. of India through CGSTI
Waiver in Earnest Money (Security Deposit) in Govt. tenders
Stamp duty and Octroi benefits,
15% weight age in price Preference.
Reduction in rate of Interest from banks (Subject to ratings)
Free of Cost Govt. tenders
(It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law

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:

Easy finance availability from Banks, without collateral requirement

Preference in procuring Government tenders
Reservation policies to manufacturing / production sector enterprises
Time-bound resolution of disputes with Buyers through conciliation and

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

registration of the suppliers under the MSMED Act.

The Buyer should ensure the payment before the end of credit period decided
else the interest would be payable.
In case of disputes, application to Micro and Small Enterprises Facilitation

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.

1.6 Organizational Structure

Organisational Set-up: The M/o MSME is having two Divisions called Small &
Medium Enterprises (SME) Division and Agro & Rural Industry (ARI) Division.
The SME Division is allocated the work, inter- alia, of administration, vigilance
and administrative supervision of the National Small Industries Corporation
(NSIC) Ltd., a public sector enterprise and the three autonomous national level
entrepreneurship development/training originations. The Division is also
responsible for implementation of the schemes relating to Performance and Credit
Rating and Assistance to Training Institution, among others. SME Division is also
responsible for preparation and monitoring of Results- Framework Document
(RFD) as introduced in 2009 by the Cabinet Secretariat under Performance
Monitoring and Evaluation System (PMES). The ARI Division looks after the
administration of two statutory bodies viz. the Khadi and Village Industries
Commission (KVIC), Coir Board and a newly created organization called
Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises
the implementation of the Prime Minister's Employment Generation Programme
(PMEGP).
The Implementation of policies and various programmes schemes for providing
infrastructure and support services to MSME's is undertaken through its attached
office, namely the Office of the Development Commissioner (010 DC (MSME)),
National Small Industries Corporation (NSIC), Khadi and Village Industries
Commission (KVIC); the Coir Board, and three training institutes viz., National
Institute for Entrepreneurship and Small Business Development (NIESBUD),
NOIDA, National Institute for Micro, Small and Medium Enterprises (NI-MSME),
Hyderabad, Indian Institute of Entrepreneurship (lIE), Guwahati and Mahatma
Gandhi Institute for Rural Industrialization (MGIRI), Wardha a society registered
under Societies Registration Act, 1860.
The National Board for Micro, Small and Medium Enterprises (NBMSME)
was established by the Government under the Micro, Small and Medium
Enterprises Development Act, 2006 and Rules made there under. It examines the
factors affecting promotion and development of MSME, reviews existing policies
and programmes and make recommendations to the Government in formulating
the policies and programmes for the growth of MSME.

MSME-DO has a network of 30 MSME Development Institutes (MSME

DIs), 28 Branch MSME-Development Institutes (Br. MSME-DIs), 4 MSME
Testing Centres (MSME-TCs), 7 MSME Field Testing Stations (MSME-TSs), 18
Autonomous Bodies - which include 10 MSME Tool Rooms (MSME-TRs), 6
MSME Technology Development Centres (MSME-TDCs) 2 MSME Central
Footwear Training Institutes (MSME-TDC-CFTIs). There are also 2 MSME
Departmental Training Institutes (MSME-TIs) and one Departmental MSME Hand
Tools Development Centre (MSME-TDC-Hand Tools).
The network of 30 MSME Development Institutes (MSME DIs), and 28
Branch MSME Development Institutes has been set up in State capitals and other
industrial cities all over the country. The main activities of these institutions are as
follows:Conducting

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

workers with sector specific skills.

Favour the creation of providers of specialised technical, administrative and

financial services.
Create a conducive environment for the development of inter-firm co-operation

as well as of co-operation among public and private institutions to promote

local production, innovation and collective learning.
Clusters: Some Facts
Around 1157 SME (industrial) and approx. 6000 artisan/micro enterprises
clusters are estimated to exist in India.
The micro and SME clusters in India are estimated to have a significantly high
share in employment generation.
B. Development of MSMEs through cluster development approach
The Foundation for MSME Clusters (FMC) is an apex national body
known worldwide as a pioneer organization for the development of MSMEs
through cluster development approach. FMC has rich experience of working with
MSMEs and has provided services in the areas of advocacy, implementation and
coordination, training and research to more than 150 clusters nationally and
globally across 10 countries. FMC draws its technical roots from UNIDO that has
provided a broad range of project based services to the Micro, Small & Medium
Enterprises (MSMEs), their representative Business Membership Organisations
(BMOs), Technical agencies, Financial institutions and Government (both state
level and national level) in India since 1996. FMC was set up for conceptualisation
and implementation of such initiatives for MSME sector across various thematic
areas of specialisation that include productivity & competitiveness, energy
efficiency, business responsibility, policy & research, common infrastructure
development, training & capacity building, marketing and innovation.
Clusters of micro, small and medium enterprises (MSMEs) are found in
abundance across the globe. Since the early nineties, cluster based development of
MSMEs has been adopted in more than fifty countries. The Foundation for MSME
Clusters (FMC) was conceptualized to contribute towards this process of cluster
based development of MSMEs and thus enhance their competitiveness, generate
sustainable employment and alleviate poverty. The United Nations Industrial
Development Organisation (UNIDO) conceptualized and initiated the process of
creating the Foundation for MSME Clusters (FMC). FMC was legally constituted
as a non-government, non-for-profit registered trust, in the year 2005.
Various Boards under MSME sector

Office of the Development Commissioner [MSME]: The Micro, Small and

Medium Enterprises- Development Organisation (MSME-DO) is headed by the
Additional Secretary & Development Commissioner (MSME). The Office of the
Development Commissioner (Micro, Small & Medium Enterprises) assists the
Ministry in formulating, co-ordinating, implementing and monitoring different
policies and programmes for the promotion and development of MSMEs in the
country. In addition, it provides a comprehensive range of common facilities,
technology support services, marketing assistance, etc. through its network of 30
Micro, Small and Medium Enterprises-Development Institutes (MSME-Dls); 28
Branch MSME-Dls; 4 MSME Testing Centres (MSME-TCs); 7 MSME-Testing
Stations (MSME-TSs); 2 MSME-Training Institutes (MSME-Tls); and 1 MSMETechnology Development Center-Hand Tools (MSME-TDC-Hand Tools). The %
DC (MSME) also operates a network of Tool Rooms and Technology
Development Centres (including 2 Footwear Training Institutes) which are
autonomous bodies registered as Societies under the Societies Act. The Office
implements a number of schemes for the MSME sector, the details of which have
been duly incorporated in the booklet.
Khadi & Village Industries Commission: The Khadi & Village Industries
Commission (KVIC), established under the Khadi and Village Industries
Commission Act, 1956 (61 of 1956), is a statutory organization engaged in
promoting and developing khadi and village industries for providing employment
opportunities in rural areas, thereby strengthening the rural economy. The
Commission is headed by full time Chairman and consists of 10 part-time
Members. The KVIC has been identified as one of the major organizations in the
decentralized sector for generating sustainable rural non-farm employment
opportunities at a low per capita investment.
This also helps in checking migration of rural population to urban areas in search
of the employment opportunities. The main functions of the KVIC are to plan,
promote,

organize

and

assist

in

implementation

of

the

programmes/projects/schemes for generation of employment opportunities through

development of khadi and village industries. Towards this end, it undertakes
activities like skill improvement, transfer of technology, research & development,
marketing, etc. KVIC co-ordinates its activities through State KVI boards,

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

Government can be broadly grouped into the following three periods:

1948-1991: In all the Policy Resolutions from 1948 to 1991, recognition was
given to the micro and small enterprises, termed as an effective tool to expand
employment opportunities, help ensure equitable distribution of the national
income and facilitate effective mobilization of private sector resources of capital
and skills. The Micro, Small and Medium Enterprises Development Organisation
[earlier known as Small Industries Development Organization (SIDO)] was set up
in 1954 as an apex body for sustained and organized growth of micro, small and
medium enterprises. Within next two years, the National Small Industries
Corporation, the Khadi and Village Industries Commission and the Coir Board
were also set up.
The era provided the supportive measures that were required to nurture
MSEs, in the form of reservation of items for their exclusive manufacture, access
to bank credit on priority through the Priority Sector Lending Programme of
commercial banks, excise exemption, reservation under the Government Purchase
Programme and 15% price preference in purchases, infrastructure development
and establishment of institutes for entrepreneurial and skill development. MSME
Development Institutes [earlier known as Small Industries Service Institute (SISI)]
were set up all over India to train youth in skills/entrepreneurship. Tool Rooms
were established with German and Danish assistance for providing technical
services essential to MSEs as also for skill-training. At the State level, District
Industries Centres were set up all over the country.
1991-1999: The new Policy for Small, Tiny and Village Enterprises of August,
1991 laid the framework for government support in the context of liberalization,
which sought to replace protection with competitiveness to infuse more vitality
and growth to MSEs in the face of foreign competition and open market.
Supportive measures concentrated on improving infrastructure, technology and
quality. Testing Centres were set up for quality certification and new Tool Rooms
as well as Sub-contracting Exchanges were established. The Small Industries
Development Bank of India (SIDBI) and a Technology Development and
Modernization Fund were created to accelerate finance and technical services to
the sector. A Delayed Payment Act was enacted to facilitate prompt payment of
dues to MSEs and an Industrial Infrastructure Development (IID) scheme was

launched to set mini industrial estates for small industries.

1999 onwards: The Ministry of MSME [earlier known as Ministry of Small Scale
Industries and Agro & Rural Industries (SSI & ARI)] came into being from 1999
to provide focused attention to the development and promotion of the sector.
The new Policy Package announced in August, 2000 sought to address the
persisting problems relating to credit, infrastructure, and technology and marketing
more effectively. A Credit Linked Capital Subsidy Scheme was launched to
encourage technology up gradation in the MSE sector and a Credit Guarantee
Scheme was started to provide collateral-free loans to micro and small
entrepreneurs, particularly the first generation entrepreneurs. The exemption limit
for relief from payment of Central Excise duty was raised to Rs.1 crore ($0.25
million) and a Market Development Assistance Scheme for MSEs was introduced.
At the same time, consultations were held with stakeholders and the list of
products reserved for production in the MSE sector was gradually reduced each
year. In 2006, the long-awaited enactment for this sector finally became a reality
with the passage of the Micro, Small and Medium Enterprises Act. In March,
2007, a third Package for the Promotion of Micro and Small Enterprises was
announced which comprises the proposals/schemes having direct impact on the
promotion and development of the micro and small enterprises, particularly in
view of the fast changing economic environment, wherein to be competitive is the
key of success.
Measures for promotion, development and enhancement of competitiveness of
micro, small and medium enterprises.

Extension of credit facility for micro, small and medium enterprises,

Preference policies in procurement of goods and services for micro and small

enterprises,
Provision for Central funds.

The main services rendered by MSME-DO are:

Advising the Government in policy formulation for the promotion and

development of MSME
sector.
Providing techno-economic and managerial consultancy, common facilities
and extension services to the MSME sector.

Extending facilities for technology upgradation, modernisation, quality

improvement and infrastructure.

Developing Human Resources through training and skill upgradation.
Making available economic information services.
Maintaining a close liaison with the Central Ministries, Planning
Commission, State Governments, Financial Institutions and other

Organisations concerned with development of MSME sector.

Evolving and coordinating Policies and Programmes for development of
MSME sector as ancillaries to large industries.

1.10 Importance and Contribution of MSME

The Micro Scale and Medium Enterprises (MSMEs) play an important role
in the economic development of any country. MSME enterprises can be rightly
called as the backbone of the GDP of India. The MSME sector in India is growing
at an exceptionally fast rate due to which it is proving to be beneficial to the Indian
Economy. However, there are some important points that need to be considered for
further development of the MSME sector.
MSME contributes in the following:

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

online that contains a rich database of manufacturers, sellers and buyers

To start and maintain these units, minimal investment is required.
These MSME units are now being funded by many government and private

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:

The MSME sector is often driven by individual creativity.

Its potential for greater innovation both in terms of products and processes.
Enterprises can be set up with very small amounts of investments.
Location flexibility to be located anywhere in the country. There is a wellspread network at the national, state and the local level for providing a
comprehensive range of support services under marketing, technology, finance,

and infrastructure and skill development.

Maximum potential for employment generation.
Lowest Administrative cost & risk is lesser.
Assist decentralization of power.
Induce growth of industrially backward regions ensuring balanced regional
development.

Weakness:

Small and Medium Enterprises (MSME), 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.

MSMEs face fragmented markets in respect of their inputs as well as products

are also vulnerable to market fluctuations.

MSMEs lack easy access to inter-state and international markets. There is lack

of awareness of global best practices.

The access of MSMEs to technology and product innovations is also limited.
MSMEs face considerable delays in the settlement of dues/payment of bills by
the large scale buyers. With the deregulation of the financial sector, the ability
of the banks to service the credit requirements of the MSME sector depends on
the underlying transaction costs, efficient recovery processes and available
security. There is an immediate need for the banking sector to focus on credit

and finance requirements of MSMEs.

Suffering from low technology base resulting in low productivity and poor

quality
Major weakness another weakness is absence of marketing channels and brand

building capacity f products.

The lack of reliable and updated data base is another area of concern as it

inhibits monitoring of development initiatives.

There is a lack of coordination among the various organizations involved in the
promotion of MSMEs, including organizations of the State Governments and
also there are poor linkages with the institutional stakeholders in the private
sector.

1.11 Challenges Faced by the MSME Sector

The challenges being faced by the small and medium scale sector may be briefly
set out as follows

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.

MSMEs face fragmented markets in respect of their inputs as well as products

and are vulnerable to market fluctuations.

MSMEs lack easy access to inter-state and international markets. There is lack

of awareness of global best practices.

The access of MSMEs to technology and product innovations is also limited.
In the competitive market, MSMEs need protection against market

manipulation and need to be given institutional support

MSMEs face considerable delays in the settlement of dues/payment of bills by
the large scale buyers. With the deregulation of the financial sector, the ability
of the banks to service the credit requirements of the MSME sector depends on
the underlying transaction costs, efficient recovery processes and available
security. There is an immediate need for the banking sector to focus on credit

and finance requirements of MSMEs.

There is need of high level research and development required to develop these

sectors in both the urban and rural areas

The MSME units are functioning efficiently and effectively, but even now
there is lack of information regarding the inputs of these industries, like the

raw materials, skills, machinery and equipment.

Though the MSME industries are spread all over the urban areas, proper
infrastructure needs to be developed in the rural areas to establish these
industries there.

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

3.3 Data Collection Sources

The descriptive study will be based on secondary data to be obtained from
various websites and books. This study is exclusively based on secondary data
which has been collected from the various issues of Annual Reports on MSMEs
and Handbook of Statistics on the Indian Economy published by Ministry of
MSMEs and Reserve Bank of India (RBI) respectively.
3.4 Scope of the Study

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

from past researches and comparisons made by experts in earlier times.

As the data is based on secondary sources, the authenticity of the data may be

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

traditionally one of the biggest hurdles.

4.2 Organisational Structure
The M/o MSME is having two Divisions called Small & Medium
Enterprises (SME) Division and Agro & Rural Industry (ARI) Division. The SME
Division is allocated the work, inter- alia, of administration, vigilance and
administrative supervision of the National Small Industries Corporation (NSIC)
Ltd., a public sector enterprise and the three autonomous national level
entrepreneurship development/training originations. The Division is also
responsible for implementation of the schemes relating to Performance and Credit
Rating and Assistance to Training Institution, among others. SME Division is also
responsible for preparation and monitoring of Results- Framework Document
(RFD) as introduced in 2009 by the Cabinet Secretariat under Performance
Monitoring and Evaluation System (PMES). The ARI Division looks after the
administration of two statutory bodies viz. the Khadi and Village Industries
Commission (KVIC), Coir Board and a newly created organization called
Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises
the implementation of the Prime Minister's Employment Generation Programme
(PMEGP)

Fig. 4.2
Organisation Structure

4.3 MSMEs and their financing

a) Overview
The MSME sector in India is incredibly heterogeneous in terms of size of
the enterprises, variety of products and services produced and levels of technology
employed. As per the Micro, Small and Medium Enterprises Development Act of
2006, enterprises with the capital investment (plant, machinery and equipment)
levels within 10 crore INR (for services worth 5 crore INR) qualify as MSMEs.
The MSME sector contributes in a significant way to the growth of the
Indian economy with a vast network of over 32 million units, creating employment
of about 70 million, manufacturing more than 6000 products, contributing about
45% to manufacturing output and about 40% of exports, directly and indirectly.
It is an acknowledged fact that the MSME sector can help realise the target
of the proposed National Manufacturing Policy of raising the share of the
manufacturing sector in GDP from 16% at present to 25% by the end of 2022.
However, this sector has faced certain impediments to growth, owing to some
historical factors discussed below. Micro, Small and Medium Enterprises (MSME)
contribute nearly 8 percent of the countrys GDP, 45 percent of the manufacturing
output and 40 percent of the exports. They provide the largest share of

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:

Retained earnings, funding through sale of assets

Ancestral capital, personal savings, loans from relatives, loans from

unregulated market

Institutional financing from scheduled commercial banks

Venture capital funds/ seed funds

(i) Financial support from public sector banks

Public sector banks have been pioneers in providing financial assistance to
several MSMEs which can approach the banks for loans under various schemes.
The government of India has shown strong commitment to double the credit flow
to this sector in the next five years. Hence the RBI has mandated scheduled
commercial banks to achieve 20% year-on-year credit growth to the MSME sector.
MSMEs needing financial assistance can approach the banks for aid as per the
specific schemes constituted for different types of financial aid.
Public sector banks have been advised to open at least one specialized
branch in each district. The banks have been permitted to categorize their MSME
general banking branches having 60% or more of their advances to MSME sector,
as specialized MSME branches for providing better service to this sector as a
whole. As per the policy package announced by the Government of India for
stepping up credit to MSME sector, the public sector banks will ensure specialized
MSME branches in identified clusters/centres with preponderance of small
enterprises to enable the entrepreneurs to have easy access to the bank credit and
to equip bank personnel to develop requisite expertise. Though their core
competence will be utilized for extending finance and other services to MSME
sector, they will have operational flexibility to extend finance/render other services
to other sectors/borrowers.
As on March 2014 there are 2887 specialized branches for lending MSME.

A) State Bank of India

State Bank of India is a pioneer in SME financing in India. As a bank, it has been
playing a critical role in the overall growth and development of the SME sector.
The Bank has developed a wide array of products and services in order to cater to
the evolving needs of the SME sector. It has over 1.3 million SME loan accounts
with total exposure of Rs 1.63 lakh crore as on March 2012. Under Micro and
Small Enterprises segment, the Bank has extended credit facilities to the tune of Rs
78,170 Cr as on December 2011 which contributed 52% of its total SME advances.
Apart from a wide network of branches across the country, 579 specialized
SME branches across the country have been kept under special focus to develop an
effective platform for SME lending. Single point contact through dedicated
relationship managers have been put in place for medium as well as small
enterprises. Centralized Processing Cells have been created for quick turnaround
time in sanction & disbursal for loans upto Rs 1 crore.
For inclusive growth, a special scheme called 'SME Collateral Free Loan' for
Micro & Small Enterprises segment has been designed for lending under
CGTMSE guarantee coverage with liberalized terms upto a credit limit of Rs 1.00
crore.
Supply Chain Finance Unit of SME offers Electronic Vendor Financing
Scheme (e-VFS) and Electronic Dealer Financing Scheme (e-DFS). Both schemes
are fully automated and work on the Banks internet banking platform which is
robust and real time.
The Bank offers various deposit products like eight SME Power variants in
Current Accounts and transaction products like Power Jyoti, to suit every needs of
the SME sector.
The Bank has adopted Cluster approach as a strategy to improve the credit
flow to SME sector through industrial and artisan clusters across the country. It
seeks to extend techno-managerial assistance and counselling support to SMEs
through Consultancy Services Cell and Project Uptech. This initiative facilitates
technology

up-gradation

in

Industrial

Clusters.

The

bank

promotes

entrepreneurship through Entrepreneurship Development Programme (EDPs)

under tie-up with Entrepreneurship Development Institutes.
B) Punjab National Bank (PNB)

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.

The bank offers the following schemes.

1. Sarthak Udyami : Scheme for financing Micro and Small Enterprises

2. PNB Pragati Udyami: Scheme for financing industry related services/business
enterprises
3. PNB Kushal Udyami
4. PNB Garrage Yogana
5. Loans for setting up industrial estates
6. PNB Vikas Udyami: Scheme for loans acquisition of ISO 9000 Series
Certification
7. SME Sahayog Scheme
8. PNB Artisan Credit Card: Scheme to provide hassle-free financial support to
artisans
9. PNB Laghu Udyami Credit Card: A simplified loan delivery mechanism
10. Scheme for Advances to Small Road Transport Operators

11. Scheme for Advances to Owner-Drivers of Taxi Cars, Three Wheeler, Station
Wagons, Tempos.

C) IDBI Bank MSME Finance

Loan for Small Business-IDBI Bank MSME Finance
IDBI Bank not only offers finance to MSMEs but also takes care of their all
banking needs under one roof with full range of banking products and services.
The Bank is in constant endeavour to introduce new products with a view to offer
wide array of solutions to the MSME Entrepreneurs.

IDBI Bank MSME Finance Advantage

o Complete Banking Solutions at one place

o Attractive Rate of Interest
o Hassle Free Process
o Faster Credit Delivery

IDBI Bank MSME Finance Products

SulabhVyapar Loan (Loan for Traders/Service Sector)-Aims to provide

hassle free finance to traders and to meet their business needs at competitive
interest rates.

Dealer Finance/ Dealer Solutions- To provide Liquidity to the distribution

chain partners.

Vendor Finance/ Vendor Solutions- Provides Working Capital and Bills

discounting facility to the vendors supplying to large corporate.

Loans to Small Road & Water Transport Operators- This product enables
various transport operators to acquire a small fleet of vehicles/ vessels.

Finance to Medical Practitioners- Hassle-free credit to doctors/medical

practitioners for setting up clinic or purchase of medical equipments.

Loans to Professionals & Self-employed- Special scheme to take care of

financial needs of Professionals and Self employed segment.

Lending Against the Security of Future Credit Card Receivables- Provides

financial assistance to the business entity accepting payments through

credit/debit cards.

LaghuUdhyami Credit Cards (LUCC)Provides easy finance to existing

borrowers running Small business units, retail traders, artisans and other MSE
units.

Property Power (Loan against Property)-For unlocking the potential of

property and avail credit facility on easy terms for any business need.

SME Smart Line of Credit- Financial assistance available to the MSMEs in

the form of Pre-approved credit limits enabling them to grab unforeseen
business opportunities.

Funding under CGFMSE (Collateral Free Loans)-IDBI Bank offers Credit

facility upto Rs 1 Crore to Micro and Small Enterprises without insisting on
collateral and third party guarantee.

(ii) Government institutes and schemes

Central institutes and schemes
The following are the government bodies looking after MSME development and
some of the central government financing schemes available.
a) National Small Industries Corporation (NSIC)
Financial and marketing assistance to the small scale unit supplying requisite
machinery on hire purchase and leasehold basis.

b) Small Industries Development Agency (SIDA)

Single window service for SSI units
c) Credit Linked Capital Subsidy Scheme (CLCSS)
Facilitates technology upgradation of micro and small enterprises. The
scheme provides 15% capital subsidy on institutional finance availed by them
for induction of well-established and improved technology in approved sub
sector products. The maximum limit of loan for calculation of capital subsidy
under the scheme is 100 lakh INR with a maximum subsidy of 15 lakh INR.
d) PMEGP Training Programme
Beneficiaries can set up micro enterprises by availing of margin money

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

distribution, for making primary equity and equity related investments.

f) National Bank of Agriculture (NABARD)
Assistance and refinance to farm and rural development agro processing
sector
g) Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE)
CGTMSE, established jointly by SIDBI and the government of India, extends
credit facilities to the micro and small enterprises sector.
The mandate is:
Credit facilities, including term loans, fund and non-fund based working
capital facilities up to 1 crore INR extended to micro and small enterprises
are guaranteed up to 80% of the amount in default, subject to a maximum of
65 lakh INR. With regard to loans up to 5 lakh INR to micro units, the
coverage is 85%. Loans guaranteed under the scheme carry zero percent risk
weight and provision for the lending institution for the guaranteed portion.
The scheme also facilitates lending institutions by the evaluation of the credit
proposals on the basis of intrinsic merits of the projects, rather than merely
on adequacy of collaterals.
h) Reserve Bank of India Rural Planning and Credit Dept
Providing refinance to nationalised banks and financial institutions in the
industry sector and framing of policy decision in the working of banks.
i) Exim Bank
Credit facilities are available for financing all stages of the export cycle of
Indian firms. The banks lines of credit (LOC) extend to commercial banks,
financial institutions, regional development banks, and entities overseas serve
as a market entry mechanism to Indian exporters and provide a safe mode of
nonrecourse financing option to Indian exporters. The bank offers buyers
credit and suppliers credit for exports on deferred payment terms. These
facilities help SMEs, to offer competitive credit terms to the buyers and to
explore newer geographical markets.
j) TUF

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.

1) Schemes of the NABARD

SMEs and farm sectors. It will also step up its fiscal support for the
farming and agro sector as well as the rural India based MSMEs. Loan from banks
with refinance facility from NABARD is available for starting many of the
agricultural activities including dairy farming. The margin money depends on the
category of the borrowers and range from 5 to 25%. Banks are free to decide the
rates of interest within the overall guidelines. However, for working out the
financial viability and bankability of the model projects it has been assumed the
rate of interest would be 12 % p.a for ultimate borrowers.
Schemesa) Production Credit Nature of Assistance - This is a short-term refinance facility, aimed at
supporting agricultural production operations and marketing of crops by
farmers and farmers cooperatives marketing and distribution of inputs like
fertilisers, seeds and pesticides.
Production and marketing activities of village cottage industries, handicrafts,
handlooms, power looms, artisans, small scale and tiny industries and other
rural non-farm enterprises.
Amount- Eligible institutions for this facility are state cooperative banks
(SCBs) and regional rural banks (RRBs). The period of credit is 12 months.
b) Short Term Credit
Nature of Assistance - This is a short term financing facility for agricultural
operations, pisciculture activities and distribution of agricultural inputs.
Refinance is provided for production purposes at concessional rate of interest
to state cooperative banks (SCBs) and regional rural banks (RRBs) by way of
sanction of credit limits.
Amount- Each withdrawal against the sanctioned credit limit is repayable
within 12 months.
c) Direct Credit
Nature of Assistance - Supporting cooperatives in order to strengthen the
owned funds position of cooperative credit institutions and thereby increasing

their capacity to leverage larger resources, NABARD provides loans to state

governments to contribute to the share capital of these institutions.
Amount- Direct credit is provided by regional rural banks and government
banks.

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.

(iii) Financial support from venture capitals

SME private equity and venture capital funds
Venture capital is a means of equity financing for rapidly-growing MSMEs.
Venture capitalists provide funds after carefully scrutinising projects. Their main

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

Venture capital has a number of advantages over other forms of finance:

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.

Mode and criteria for investment

Venture capital provides financial assistance primarily by way of equity or
equity-linked capital investment. It also endeavours to provide mentoring support
and other value addition to enable funded companies to achieve rapid growth and
achieve and maintain their competitive edge in domestic and international markets.
The VC fund seeks a strategic stake in the funded companies with board
representation and other rights as venture capital investor.
Key criteria for SME project selection are as follows:

Strong and committed core team

Growth potential

Long-term competitive advantage

Viable business plan

A clear exit plan

Institutions offering VC/ PE

Some venture capital firms, institutional investors and banks who provide
venture capital to MSMEs are as follows:

SIDBI Venture Capital Limited (SVCL)

IFCI Venture Capital Funds Limited (IVCF)

Helion Venture Partners/ Erasmic Venture Fund

Accel India Venture Fund/ Seed Fund

Upstream Ventures

Aavishkaar India Micro Venture Capital Fund (AIMVCF)

IL&FS Trust Company Limited

Infinity Venture India Fund

Walden International Investment Group

SEAF India Investment and Growth Fund

BTS India Private Equity Fund Limited

Canbank Venture Capital Fund

SBI Capital Markets Limited

ICICI Banks SME venture capital fund

IDBI Banks SME venture capital fund

This is not an exhaustive list and there are many niche VC funds who actively
participate in providing financial assistance to SMEs.

(iv) Snapshot of bank-specific schemes

Some of the bank specific schemes are outlined below. The MSMEs can contact
the nearest regional branch of the following banks to get more details of the

schemes mentioned below.

1. State Bank of India
Commodity backed warehouse receipt financing, SSI loans, Traders easy loan
scheme, Open term loan, Business current accounts, Retail Trade, SBI Shoppe,
SME Petro Credit, Small business credit card, Paryatan Plus, Swarojgar credit
card, etc.
2. Bank of Baroda
Baroda SME Gold Card, Baroda Vidyasthali Loan, KVIC-ISEC, Scheme for
Financing Energy Efficiency Projects, Baroda Overdraft Against Land and
Building, Baroda SME Loan Pack, Baroda Arogyadham Loan etc.
3. Export-Import Bank of India
Agri Finance, Several Debt Restructuring schemes for Small and Medium
Enterprises (SMEs) etc.
4. United Bank of India
United Doctor Plus, United Medical Plus, United Mahila Udhyami Yojana, United
Shilpi Card, United UdyogshreeYojana etc.
5. Indian Bank
IND SME secures, IB Doctor Plus, IB BPO finance, IB Vidyamandir, IB
ayushman Scheme, IB my own shop etc.
6. Central Bank of India
Cent trade, Cent Doctor Scheme etc.
7. IDBI
Entrepreneurial development fund, Dealer finance program, SME
hosiery A/C etc.
8. Corporation Bank
One-Time Settlement Scheme for NPA under SME, Corp Kisan Vehicle Loan
Yojna, Corp Kisan Farm Mechanisation Scheme, Corp Kisan Tie-Up Loan
Scheme, Corp Gram Mitra Yojana etc.
9. Vijaya Bank
Liquidity Finance To MSEs, Technology Upgradation Fund Scheme For MSE,
VijayaKisan Card, Credit Guarantee Fund Scheme To MSE, etc.
10. Union Bank of India

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.

D) General financing schemes

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.

E) Initiatives of the Ministry of Micro, Small and Medium Enterprises

(MSME) in recent years 1. Promulgation of MSMED Act, 2006
In a significant policy initiative, the Government has enacted Micro,
Small and Medium Enterprises Development Act, 2006, which aims to facilitate
the promotion and development and enhance the competitiveness of MSMEs. The
Act, which came into force from 2nd October 2006, fulfilled a long-cherished

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.

4. Procurement Policy for MSEs

A Public Procurement Policy for MSEs was notified in March 2012. The
policy envisages that every Central Ministry/PSU shall set an annual goal for
procurement from the MSE sector with the objective of achieving minimum 20%
of the total annual purchases from MSEs in a period of three years. Of this, 4%
will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
The policy will help to promote MSEs by improving their market access and
competitiveness through increased participation by MSEs in Government
purchases and encouraging linkages between MSEs and large enterprises.
5. Task Force on MSMEs
A Task Force under the chairmanship of the Principal Secretary to Prime
Minister was constituted to address the issues of MSME sector. The Task Force, in
its Report, has made recommendations in the areas of credit, marketing, labour,
rehabilitation and exit policy, infrastructure, technology, skill development,
taxation and development of MSMEs in the North-East and Jammu & Kashmir. A
large number of recommendations have been implemented. A Council on MSMEs
under the chairmanship of Honble Prime Minister has been constituted to lay
down the broad policy guidelines and review the development of the MSME
sector. For ensuring timely/speedy implementation of the recommendations of the
Task Force and follow-up on the decisions of the Prime Ministers Council on
MSMEs, a Steering Group under the chairmanship of Principal Secretary to the
Prime Minister has also been constituted.

6. 4th All India Census of MSMEs

The 4th All India Census of MSMEs (2006-07), which was launched in
May 2008, were released during 2011-12. The results reveal that there are 36.2
crore MSMEs in 2006-07, providing employment to over 80 crore persons. This is
the first Census after the enactment of the MSMED Act, 2006 and includes, for the
first time, medium enterprises also.
7. Enhanced Credit Flow to the MSE Sector
For strengthening the delivery of credit to the MSEs, the Government

announced a Policy Package for Stepping up Credit to Small and Medium

Enterprises (SME) in August 2005 for doubling the credit flow to this sector
within a period of five years. This has resulted in a significant increase in the
credit flow from Public Sector Banks (PSBs) to the micro and small enterprises
(MSE) sector with the outstanding credit of public sector banks increasing from
Rs.1,02,550 crore at the end of March 2007 to Rs.2,78,398 crore at the end of
March 2010. It has further enhanced to Rs.3, 96,343 crore at the end of March
2012. With constant monitoring and efforts made by the Government, the credit
flow from Public Sector Banks (PSBs) to the MSE sector has registered a growth
of 47.4%, 26.6% and 45.4% during 2007-08, 2008-09 and 2009-10 respectively
higher than the stipulated 20% in the Policy Package. The growth of credit during
2011-12 and 2012-13 has been 5% and 25% respectively.
8. Credit Guarantee Scheme
The Government has set up a Credit Guarantee Fund to provide relief to
those micro and small entrepreneurs who are unable to pledge collateral security in
order to obtain loans for the development of their enterprises. The guarantee cover
provided is upto 75% of the credit facility upto Rs. 50 lakh(85% for loans up to
Rs. 5 lakh provided to micro enterprises, 80% for MSEs owned/operated by
Women and all loans to NER)with a uniform guarantee at 50% of the credit
exposure above Rs. 50 lakh and upto Rs. 100 lakh.
A composite all-in annual guarantee fee of 1.0 % per annum of the credit
facility sanctioned (0.75% for credit facility upto Rs. 5 lakh and 0.85% for above
Rs.5 lakh and upto Rs.100 lakh for women, micro enterprises and units in NER
including Sikkim) is now being charged. As a result, the scheme has been able to
overcome the initial inhibition of bankers and is steadily gaining in acceptance.
Further, efforts made to enhance the awareness have led to the coverage of
14,19,807 proposals ( for guarantee cover for a sanctioned loan amount of Rs.
70026.28 crore) at the end of March 2014. The Government is making concerted
efforts to further enhance the awareness of the scheme throughout the country for
enhancing the coverage of the Scheme.
9. National Manufacturing Competitiveness Programme
Ensuring the growth of Small Scale Sector at a healthy rate is crucial for
the overall growth of Manufacturing Sector as also the National Economy. For this

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

Council (NMCP) has

Manufacturing

Competitiveness

finalized a five year National

Programme

(NMCP).

The

National

Manufacturing Competitiveness Programme (NMCP) highlights the needs for

enhancing the competitiveness of Indian Manufacturing sector. This is determined
by measuring the productivity vis--vis the use of its human capital and natural
resources.
The NMCP is the nodal programme of the Government to develop global
competitiveness among Indian MSMEs. The Programme was initiated in 2007-08.
The programme targets at enhancing the entire value chain of the MSME sector
through the following schemes:
(a) Lean Manufacturing Competitiveness Schemes for MSMEs;
(b) Promotion of Information & Communication Tools (ICT) in MSME sector;
(c) Technology and Quality Upgradation Support to MSMEs;
(d) Design Clinic scheme for MSMEs;
(e) Enabling Manufacturing Sector to be Competitive through Quality
Management
Standards (QMS) and Quality Technology Tools (QMSQTT);
(f) Marketing Assistance and Technology Upgradation Scheme for MSMEs; and
(g) National campaign for buildings awareness on Intellectual Property Rights
(IPR).
(h) Support for Entrepreneurial and Managerial Development of SMEs through
Incubators.
(i) Bar Code under Market Development Assistance (MDA) Scheme.
10. Micro & Small Enterprises Clusters Development Programme (MSECDP)
The Micro and Small Enterprises Cluster Development Programme

(MSE-CDP) is being implemented for holistic and integrated development of

micro and small enterprises in clusters through Soft Interventions (such as capacity
building,

marketing

development,

export

promotion,

skill

development,

technology upgradation, organizing workshops, seminars, training, study visits,

exposure visits, etc.), Hard Interventions (setting up of Common Facility Centers)
and Infrastructure Development (create/upgrade infrastructural facilities in the
new/existing industrial areas/ clusters of MSEs). Assistance is provided for the
following activities under the scheme(i)

Preparation of Diagnostic Study Report with Government of India (GoI)

grant of maximum Rs 2.50 lakh (Rs.1.00 lakh for filed offices of the
Ministry of MSME).

(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)

Hard Interventions in the form of tangible assets like Common Facility

Centre having machinery and equipment for critical processes, research
and development, testing, etc. with GoI grant upto 70% of the cost of
project of maximum Rs 15.00 crore. 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%.

(v)

Infrastructure Development with GoI grant of upto 60% of the cost of

project of Rs 10.00 crore, excluding cost of land. GoI grant will be 80% for
projects in NE & Hill States, industrial areas/ estates with more than 50%
(a) micro (b) women owned (c) SC/ST units.

(vi)

The GoI assistance shall also be available to Associations of Women

Entrepreneurs for establishing exhibition centres at central places for
display and sale of products of women owned micro and small enterprises
@ 40% of the project cost.

Progress under the components of MSE-CDP Cluster Development:

A total of 921 interventions in various clusters spread over 28 States and 1
UTs in the country have so far been taken under the programme for Diagnostic

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.

12. Credit Linked Capital Subsidy Scheme

The Ministry of Micro, Small and Medium Enterprises is operating a
Scheme, namely, Credit Linked Subsidy Scheme (CLCSS) for technology
upgradation of Micro and Small Enterprises (MSEs). The Scheme aims at
facilitating technology upgradation of Micro and Small Enterprises by providing

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)

Entrepreneurship-cum-Skill Development Programme (ESDP) of at least two

weeks duration, or have undergone vocational training (VT) from ITIs. One of the
main objectives of handholding is to guide and facilitate the potential
entrepreneurs in dealing with various procedural and legal hurdles and completion
of various formalities which are required for setting up and running of enterprise
successfully and to save them from harassment at the hands of various regulatory
agencies for want of required compliances. It will not only increase the proportion
of potential entrepreneurs trained under various EDPs/ SDPs/ESDPs/ VT in setting
up their enterprises, more importantly, it will also enhance survival / success rate
of newly set up enterprises.
As a component of this scheme, the Ministry has launched a MSME Call
Centre (known as Udyami Helpline) with a toll-free number 1800-180-6763.
The Udyami Helpline, inter alia, provides basic information on how to set up an
enterprise, various schemes being implemented for the promotion of MSMEs,
accessing loans from banks and further contacts for obtaining detailed information.

15. Performance and Credit Rating Scheme

To sensitize the MSE sector on the need for credit rating and encourage the
MSEs to maintain good financial track record enabling them to earn higher rating
for their credit requirements, the Government in April 2005 launched the
Performance and Credit Rating Scheme. The implementation of the scheme is
through National Small Industries Corporation (NSIC). Reputed Rating Agencies
have been empanelled by NSIC from which the MSEs can select the one to be
engaged by it for obtaining the rating. The Ministry of MSME subsidises the cost
of rating by sharing 75% of the fee charged by the Rating Agency, subject to a
ceiling of Rs.40,000.
16. National Small Industries Corporation (NSIC)
National Small Industries Corporation Ltd. (NSIC), is an ISO 9001:2008
certified Government of India Enterprise under Ministry of Micro, Small and
Medium Enterprises (MSME).
NSIC has been working to fulfil its mission of promoting, aiding and
fostering the growth of small industries and industry related Micro, Small and
Medium Enterprises in the country. Over a period of five decades of transition,
growth and development, NSIC has proved its strength within the country and
abroad by promoting modernization, upgradation of technology, quality
consciousness, strengthening linkages with large medium enterprises and
enhancing exports projects and products from small enterprises. NSIC operates
through countrywide network of offices and Technical Centres in the country. To
manage operations in African countries, NSIC operates from its office in
Johannesburg, South Africa. In addition, NSIC has set up Training cum Incubation
Centre & with a large professional man power; NSIC provides a package of
services as per the needs of MSME sector.
NSIC carries forward its mission to assist small enterprises with a set of
specially tailored schemes designed to put them in a competitive and advantageous
position. The schemes comprise of facilitating marketing support, credit support,
technology support and other support services.
17. Khadi Reform Development Programme (KRDP)

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.

24. Mahatma Gandhi Institute for Rural Industrialization (MGIRI)

A national level institute named MGIRI has been established at Wardha,
Maharashtra as a society under Societies Registration Act, 1860 by revamping
Jamnalal Bajaj Central Research Institute has in association with IIT, Delhi for
strengthening the R& D activities in khadi and village industry sectors. The main
objectives of the institute are as under:

To accelerate rural industrialization for sustainable village economy so that

KVI sector co-exists with the main stream.

Attract professionals and experts to Gram Swaraj

Empower traditional artisans

Innovation through pilot study/field trials

R&D for alternative technology using local resources

24. National Board for MSMEs

The Government has set up for the first time, a statutory National Board for
Micro, Small and Medium Enterprises so as to bring together the representatives of
different sub-sectors of MSMEs, along with policy-makers, bankers, trade unions
and others in order to move towards cohesive development of the sector. The
Board has been meeting periodically. The Board has recently been re-constituted
on 27th May 2013.The deliberations and directions of the National Board pave the
way to guide and develop enterprises in this sector to become more competitive
and self-reliant.
25. Announcements for MSME sector in Union Budget, 2013-14
Honble Union Finance Minister, while presenting Union Budget 2013-14
to the Parliament, made various announcements specifically for MSME sector, as
under:
Micro, small and medium enterprises (MSME) have a large share of jobs,
production and exports. Too many of them do not grow because of the fear of
losing the benefits associated with staying small or medium. To encourage them to

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

Clusters during the Presentation Ceremony of National Awards to Micro, Small

and Medium Enterprises at a function organized in Vigyan Bhavan, New Delhi. An
Initiative of Ministry of Micro, Small and Medium Enterprises, virtual Clusters
conceived as supplementing Physical Clusters, is a dedicated Web-portal which
will enable the small businesses located anywhere in the country as well as the
other stakeholders; Banks and other financial institutions; Central State and other
Government bodies; NGO, Industry Experts, Consultants and trainers; Academia;
Research & Technical Institutions etc. to register instantly thereon and avail
prompt linkages with each other. This Web-platform would facilitate the
stakeholders to leverage the expertise of each other for their mutual growth and
benefit. The web portal would be administered by the National Institute for
Entrepreneurship and Small Business Development (NIESBUD), an organization
of the Ministry of MSME.
27. Inter-Ministerial Committee for Accelerating Manufacturing in MSME
An Inter-Ministerial Committee for Accelerating Manufacturing in MSME
was set up under the Chairmanship of Secretary (MSME). The Committee
submitted its report in September 2013. The Committee has made a number of
recommendations covering issues of regulation, finance, infrastructure, technology
and market through the different stage of the life cycles of MSMEs.
Concluding ObservationFinancial assistance is given to micro, small and medium enterprises
including first generation entrepreneurs under various schemes for availing
different services to solve the current/upcoming issues in the enterprise as well as
to enhance the efficiency and effectiveness of its operations.
Fast changing global economic scenario has thrown up various
opportunities and challenges to the MSMEs in India. While on the one hand, many
opportunities have opened up for this sector to enhance productivity and look for
new markets at national and international level, it has also, on the other hand, put
an obligation to upgrade their competencies in various fields like marketing,
finance, business development, operations, technology etc. For this purpose,
MSMEs are required to make use of various services.

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:

Availability of timely and affordable credit

Inadequate capital infusion and delayed payments from large corporate and
PSUs leading to working capital gaps

Restricted access to organized finance.

Traditionally banks have been the largest source of funds for the SMEs. Banks
in India have had a conservative ecosystem, being risk averse and credit has
primarily been extended against collateral.

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.

The procedure of providing financial support should be made simple,

transparent and less time consuming.

The government should encourage industry association and various private

organizations to play role in the financing of small scale units.

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

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2) http://www.dcmsme.gov.in/MSME-DO/sido.htm
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