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Access to finance: A big problem for MSMEs
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Bikky Khosla | 10 Jan, 2012
Most current economic data are not comforting. There are downside risks aplenty, but one positive thing has gone for us recently: food inflation for the week to December 24 turned negative to (-)3.36 percent, offering a glimmer of hope that headline inflation may ease in the coming days. Also, it is widely expected that the RBI would soon start reversing the tight monetary stance, probably in its next policy review scheduled on January 24. The industry is eagerly waiting for such a move.
The rate hike cycle has already taken a toll on the economy with high cost of credit intensifying the strains on the industry. And needless to say, it's the small business guy who has suffered the most. In this scenario, the possibility of monetary easing by the apex bank is really something that should get our hopes up. If credit cost is lowered, it would greatly benefit the micro, small and medium enterprise (MSME) sector.
But statistics don't seem to agree much. According to the Fourth Census of MSME sector (September 2009), only 5.18 percent of the units had availed of finance through institutional sources while 2.05 percent of them had finance from non-institutional sources and the majority of units (92.77 percent) had no finance or depended on self-finance. Considering this extent of financial exclusion in the sector, I think that the problem of unavailability of finance is overshadowing the issue of high cost of credit.
When it comes to lending to small firms, we all know that bankers and business entrepreneurs usually take exception to each other. There is too much distrust in the relationship, which shouldn't be there. I think, banks need to change from mere lenders to business partners. They should start providing advisory and planning services actively, and their staff should be specially trained to help MSMEs in diverse areas, including marketing, technology and market access. Such an approach will help not only the small firms seeking loans but also the bankers in appropriate risk assessment and risk management.
Equally important is to boost the country's financial system to suit the needs of the MSME sector. The government should urgently focus on establishing mechanisms to improve the credit information infrastructure, strengthen creditors' rights, speed up payment by corporates, avail more alternative sources of capital, and ensure timely identification and prevention of sickness in MSMEs.
We are all aware of the importance of the MSME sector, which plays a pivotal role in our overall industrial economy owing to its contribution to production, exports and employment. That is why the government should immediately move to get round the lingering credit crunch faced by the sector. We need a well-nurtured MSME sector that can guide our economy where we want it to be in the future.
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Must have a Bank by engineers for engineers
Sandip | Fri Jan 20 07:37:47 2012
Maybe we must have a Bank by the engineers for the engineers.!! Also make it industry wise divided. For example, Civil engineer should not interfere into any production unit etc.
The Naik Commission
Ravi | Fri Jan 20 07:08:44 2012
This is a very valid article and it is true that these policies are killing the MSME's in India. The points that I would like to make are 1.We are at the mercy of big corporations who delay payments. ( Related article in this site) 2. Interest rates are not really the issue, although we would like them to be lower. 3. The real issue is getting the finance at the right time and the right amount. This is totally lacking. 4. All the Banks quote a Naik Commission report Made in 1980 as their guideline. Given the variations and nuances, I don't think this is valid at all in the current times. The Govt. must seriously look into it. 5. I do agree that the Banks must act as partners and help out the MSME's rather than treat them as thieves. There is a lot of mistrust and the Banks never try to understand the financial cycle of a particular type of industry. A 20% credit of the turnover is useless !! Engineering entrepreneurs particularly face the brunt of these unfriendly policies. Maybe we must have a Bank by the engineers for the engineers !!
For MSME loan=Failure of bussiness
Sandip | Thu Jan 19 07:36:47 2012
For MSME loan is starting of failure, and as per my experience is 70% correct up to today. May be this will change in future. We need to change our mentality first, we have to look at MSME to be as the role model which can start & survive in there worst conditions also, may be if they go successful will become big enterprise (even though this looks impossible(I--m--possible) we have to think positively). Only when they approach for loan they fails because of heavy management (only thinking issues) and not actual satisfying the needs of MSME. My suggestion is there must be a insurance policy in back of each loan released to the enterprise, so in case of failure the burden won't go to investor (BANK) or the enterprise (owner or management team).
Not sufficient finance
Alok | Wed Jan 18 08:29:23 2012
Dear Sir, You are correct that finance availability is too scarce for SMEs, but the data you provided is alarming. I must add that whatever finance is given to the SMEs, it is actually not sufficient to run the business or industry as per the projection of the entrepreneur. Finance is provided on the basis of silly calculation of Bank officers, their whims and attitude and heavy mistrust (means the borrower is “chor” or incompetent to run the business). This result in UNDER-FINANCING OF THE PROJECT and the entrepreneur is entangled in the vicious cycle of debt, interest, loss of business, mistrust of supplier and customer and ultimately he looses everything. This UNDER-FINANCING IS THE MAIN CULPRIT FOR HIGH NPAs OF THE BANKS. Ultimate result is meager finance to the SMEs.
Promises end up on paper only
Ajay GV | Sat Jan 14 12:13:29 2012
You are correct. The Banks in India is only for financially sounded people or corporate. They never back up a new comer with his idea. All they need is security. Time to time all govt.'s are introducing new schemes but that never come to the small MSME. All govt. promises end up on paper only.
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Re: Promises end up on paper only
KOOL | Tue Jan 17 19:57:25 2012
YA DATS RIGHT...I TRULY AGREE TO DIS,GOVT PROMISES END UP ON PAPERS ONLY
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They only love Big Boys of this Country!
Bakul Valambhiya | Thu Jan 12 13:43:13 2012
You have rightly said that the Banks are over looking the requirement of MSME. It clearly shows that we MSME are totally alien to them, if they want to provide finance, then in the exchange of some property, asset, etc. But a small entrepreneur is of no important for them. In India Banks are performing a role of Safe Deposit vault. If you have money, give it to us. We will keep them, Tax them and survive on your money management. But when you need money in the form of finance, then we do not know you! They are ready to lend Big Boys of the corporate sector but not the MSME! We really need to do something to come out of this situation.
That is an amazing idea
Aditya Menon | Thu Jan 12 10:09:28 2012
The article is correct in every point it has raised, and there is nothing I would oppose there. The one suggestion that caught my eye was:
"I think, banks need to change from mere lenders to business partners. They should start providing advisory and planning services actively, and their staff should be specially trained to help MSMEs in diverse areas, including marketing, technology and market access. "
That is an amazing idea! Imagine if banks begin to take interest in the modernization of Micro and Small operations, encouraging them to adopt new age marketing practices like creating their own Websites. And automating routine tasks like accounting and customer relationship management, etc. Currently, such practices are restricted to a few inspired individuals in the Small and Micro business environments, or followed exclusively by the bigger behemoths (even these entities invest quite reluctantly in newer methods). Technology companies like ourselves (www.adbhuth.in), and our peers, would be more than gladdened by such a move to educate a wider audience to the benefits of our services. This may even become an income stream for banks, where they earn a percentage of sales when they encourage a business to invest in relevant technology to boost their profits... here's to hoping that bankers are listening!
Really hard to get bank loans
Milind Deshpande | Thu Jan 12 04:58:33 2012
I fully agree with the views expressed in the articles about the hardships faced by MSME sector in availing finance. My own experience made me realize a three truths about this.
1. Bank personnel who deal with MSMEs are mostly unaware of many business segments. Neither they have any inclination to check about the industry in which their clients operate.
2. The bankers approach is more of a money lender than the financial institution. They are more eager to secure their money rather than backing up a worth MSME.
3. Venture Capitalists exists in India but there is no eagerness to make finance available other than sunshine sectors of economy. So ultimately most of the MSMEs have to look internally for finance to survive or shut down.
Promises are on paper only
Paul Ponniah | Thu Jan 12 03:50:18 2012
The issues stated in the article is excellent.
I simple state that the media and the promises are only in ON Paper and virtual not real.
finance
Er. B.C.Pant | Wed Jan 11 18:01:11 2012
I agree. Basically You can have one or the other. Either an Industrialist or a politician. In India politician has nothing to lose then Why a MSME industrialist, who has all reasons to fail , SHAME as priminister agrees shame for the country. See CHINA
Manufacturing Policy measures
Rama Mohanan Nair | Wed Jan 11 15:46:35 2012
These facts regarding MSME finance is well known in business circles. Govt also is aware of this situation. That is why some relief measures are being brought out in the new Manufacturing Policy. I am afraid whether these too become old wine in a new bottle when it comes to implementation.
Finance available only for successful MSMEs
Sanjay Rastogi | Wed Jan 11 12:18:11 2012
Finance is available only for successful MSMEs, but a successful MSME,actually does not require that. As the need of this unit is already identified & as such industry already requires it hence clears all its hurdles if any.
Thank you for the article
Hulsbergen | Wed Jan 11 11:21:46 2012
Dear Sir,
Thank you for the article.
Let me address a note on the completeness of it - that is from my background in policy making and cross-border natural gas.
In the current discussions on: a) an Indian supra-government institute expected to be directed by world's few wealthiest banking families
b) the related pressure on entry for super-size retail and agribusiness conglomerates, and
c) improved entry for foreign banking and energy,
it is appropriate to summarize historical effects that commercial strategies of large agribusiness, pharma, banking and energy have on health, personal development and decision-making capabilities of society. For example, agribusiness' contamination of world's soils with poisonous DNA is an unforgiving disturbance of our natural environment that has developed since the carboniferous.
India is fortunate it can halt the entry for the world's largest conglomerates, to prevent it from being stripped of its resources and social health.
Because of India's multilateral roles, its geographical position and its economic growth it can play an unprecedented role in the global balance of powers (US - RF - China). In particular when acting in combination with countries from the Caspian to Bangladesh. Issues with Pakistan hamper such development, which is desired according to the hegemony striving for world dominance - solve it.
Development of India as a sovereign depends on its global power position. Maintain it!
Bank Advisory Panel
Balakrishna Nuthakki. | Wed Jan 11 10:55:59 2012
I liked the point of Banks being partners than mere lenders. By this we can have more access to the market and quick project cycle time. This would be a great thing if it can be started.
Can I get some loan ?
Mohammed Salim | Wed Jan 11 06:15:24 2012
I need a micro loan for some vital expenses. if anybody wants to help me in this regard, than do send your assistance at
savingdoctor@Hotmail.com
Trust prevailing is on decrease
ASHOK GAUTAM | Wed Jan 11 06:08:29 2012
Trust prevailing is on decrease, because it is byproduct of honesty. This is due to Govt Of India is headless.
Honesty is most important in put in every walk of life. Longest ruling political party has compelled to make us corrupt.
Jai Hind
ASHOK GAUTAM 099 205 98 898
Lower down interest rates for MSMEs
Vishal Garg | Wed Jan 11 05:22:19 2012
For the survival of small scale industry this is the high time when govt. should take proper steps to lower down the heavy interest rates charged by the banks. looking at the market scenario it is not possible to compete the market without the help of financing institutions but this is for sure in these conditions small scale industries are heading for disaster.
Therefore, govt. should take necessary actions for the survival of MSME sector.
Experienced the same problem just yesterday
Shivsubramanian | Wed Jan 11 04:37:17 2012
We are a SME from Hyd and experienced the same problem just yesterday. With professional backgrounds and a good track record Banks are acting exactly as you mentioned " There is too much distrust in the relationship, which shouldn't be there". Moreover the concept of small scale Industries registration and the big talk given out by the govt is all nonsense as nothing works.
Banks need to be partners for start ups
Prakash Dangar | Wed Jan 11 03:17:46 2012
If banks become partners for the start up entrepreneur, than it would be a huge contribution in terms of employment generation as many entrepreneurs will have more access to resources.
I believe bank should offer specially scheme for the students of post graduation and who intend to start their business.
BYST provides financial assistance upto Rs. 50 lakhs
dkraju | Wed Jan 11 02:30:36 2012
BYST- BHARATHIYA YUVA SHAKTHI TRUST supported by CII is promoting entrepreneurship by helping youth below 35 years old in starting new ventures or expanding the present activity. Financial assistance up to rs. 50 lakh is organized through banks without any collateral for a viable business idea. Also help the entrepreneur with a Mentor to guide him. Contact 42444555 to get an appointment for counseling.
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