SME WORLD Bureau
MSME Funding Ecosystem
Small and Medium Enterprises (SMEs) sector is critical to the nation's economy. In India, the sector contributes over 40 per cent of India's domestic production, over 50 per cent of total exports and 45 percent of industrial employment. What is significant is that the sector is the second largest employer of manpower after agriculture. The SMEs sector in India is largely unorganized but remains a source of livelihood for millions of people.
The sector is beset with a variety of problems like technology up-gradation, lack of corporate governance, quality issues, marketing etc. However, the main obstacles coming in the way to the next level or the growth path is the finance crunch. The role of NBFCs, private equity, angel finance etc. has been insignificant. The cumbersome procedures of attractive external finance through banks have been a discouraging factor. Moreover, banks, so much used to asset based and fixed-assets lending, leasing, etc. often resort to arms-length lending ways for the SMEs and remain focused on corporate lending by large enterprises.
Of late, credit flow to the SMEs in India has attracted great interest to both policy makers and research professionals. SMEs finance is being hotly debated on national platforms, mandates, meetings, seminars etc. Globally, it has been recognized that the SMEs sector is the prime source of employment and economic growth.
Reams can be dedicated to the prickly topic of SMEs credit availability, business expansion/ scaling up financing, working capital limits apart from simple factors like short period business term loans to fund incremental projects like automation, refurbishment, lifecycle extension initiatives. Many think – tanks and experts have been mulling over how to create a potent ecosystem to support these promising enterprises to grow. Often the enterprises themselves are blamed for their sketchy operations, lack of transparency and uneven exposure to risk elements and even the leadership is questioned.
However, a positive move by our ex-Finance Minister and incumbent President of India Pranab Mukherjee paved the way for SMEs and even startups to get listed in the stock markets without pursuing the financially, legally and logistically taxing IPO route. SEBI was also proactive in creating the necessary framework to deliver the platform and today Indian SMEs can opt for the “Go to Market” route through BSE – SME. The criteria to get listed are fairly relaxed and conformable for companies who are being regularly audited and are not entangled in any legal intricacies like BIFR or CIBIL related irregularities. One other requirement is stability of top management so that the company fundamentals are stable and reliable. The highlight is the level of transparency expected from companies that wish to be listed as it helps alleviate common fears of investors. Information like list of orders, contracts in hand, received or executed is definitely necessary to establish credibility.
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