SME Times News Bureau | 25 Jun, 2018
Indian Micro, Small
and Medium Enterprises (MSMEs) are facing a number of roadblocks, and
one of the most challenging one is difficulty in raising capital both
via debt and equity, said Kshitij Singh Yadav, Director, Plutus
Business Advisory, in an exclusive interview with SME Times.
of the interviewâ¦
Please let our
readers know about Plutus Business Advisory and its entrepreneurial
Kshitij Singh Yadav: I was working with a
global leader in financial consulting when I observed that the
majority of the clientele of consulting firms are mid to large size
companies. This is not because the SMEs do not require consulting
services but it is because of two main reasons- First, they operate
as traditional family businesses. Second, the financial constraints
make it difficult for them to approach leading consulting services.
After identifying this need, we brought together a team which has the
competency of the leading consultancy services and can work while
keeping in the financial constraints of the SMEs. This team acts as a
catalyst for their growth.
What are the
products and services you offer?
Kshitij Singh Yadav: After the starting
the company, we realized that unlike the big companies, SMEs cannot
approach different service providers for different requirements.
Thus, we decided to consolidate the services based on the following
logic- For any business it is important to understand its target
customers, so we provide an industry/market research service. Now,
once there is clarity on the market, there is a need to understand
the feasibility of the project to cater to the identified customers,
so we provide an investment research service. Now, after identifying
the project feasibility, there will be a need to execute the project
for which funds will be needed. This could be short term or long term
and debt based or equity-based- One size fits all approach will not
work, thus we provide assistance to businesses in raising funds.
Letâs say everything is there in a business- it is making revenue
and generating profits, but is it managing its treasure in the best
possible manner? Our treasury advisory service can come in handy.
How can SMEs benefit
from your services?
Kshitij Singh Yadav: It is often
considered that a question may arise- that taking advisory suits big
businesses only, not mid to small size businesses. Irrespective of
the size, one fact should be always kept in mind that the cost of
taking a wrong or no decision is very high and has a long-term
What are the issues
faced by the SMEs today?
Kshitij Singh Yadav: According to various
reports by the Ministry of Micro, Small and Medium Enterprises
(MSME), the SME sector has emerged as one of the most vital parts of
the Indian economy- be its contribution to the GDP, or to the exports
or for generating employment opportunities. However, they face
several roadblocks in realizing their full potential- lack of proper
infrastructure, sub skilled workforce, limited access to the latest
technology and inadequate government backing. Except for the last
one, all other problems stem from weak funding access for SMEs as
they face difficulty in raising capital both via debt and equity.
Can you please shed
some light on the credit scenario in India as far as SMEs are
Kshitij Singh Yadav: The poor access to
the credit could be attributed to the fact that the banks perceive
high credit risk associated with financing SMEs, as they face several
internal and external issues including weak management capability,
low skilled employees, the concentration of customers and small
margins. The banks look for collateral, which many businesses cannot
provide either due to their small size or due to the business model.
In addition, the bad loan problem with banks (especially the PSBs)
has further made it difficult for SMEs to get credit. Of late there
has been a rise of several NBFCs including many Fintech companies
which have more flexible appraisal processes, however, they charge
much higher interest rates in comparison to the banks. Thus, the SMEs
are left with two choices- either borrow at a higher cost or grow
slowly without external funding.
I would like to
further explain why SMEs find it difficult to look at private funds,
while the private funds are more inclined to invest in startups.
At this stage, it is important to differentiate between startups and
SMEs as they have radically different business models and funding
arrangements. While startups are pursuing answers to a problem, SMEs
already have a proven business model. It is generally observed that
many startups are not profitable while SMEs are profitable and
intend to secure a financially sustainable spot in a local market for
the long run. That means the SMEs should have a higher probability
of raising funds. The reason SMEs find it
difficult to raise private capital is that the potential upside
associated with any private investment in SMEs is lower in comparison
to that with startups- When an investor can easily get a return of
10-12% from mutual funds, stocks, why would he invest in a SME for
the same return but much higher risk?
Please give some
advice to our SMEs on how to handle the above issues.
Kshitij Singh Yadav: Of late, the government has worked upon improving the fund access for
SMEs by relaxing the regulations. The most significant being
improving access to the public markets. It is often considered that
tapping the public money for growth is only for the large companies
but with dedicated platforms by BSE and NSE, SMEs can also raise
money. The requirements and compliance associated with listing on the
SME platforms are much lower in comparison to that on the Main Board
of either exchange. This is a funding source the SMEs should
definitely look at.
Another exciting avenue for the funds is to tap the foreign capital-
The cost of raising capital from an international market is much
lower than that in India. Since the cost of raising capital for a
foreign investor/lender is lower, the charges are also much lower
than what is charged by the Indian banks or the return expected by
the private investors in India. While it is true that there are few
restrictions and compliance requirement which need to be followed
while raising funds from the international market, the low cost and
flexibility clearly offset the difficulty. The SMEs must look at it
Please share your
future plans with our readers?
Kshitij Singh Yadav: It will be correct to say that the SMEs are the âgrowth engineâ
of our economy. We recommend the SMEs to adopt a new approach and
look at different avenues for funding to capitalize the
numerous available opportunities to fuel their growth, which will not
only help your organization to reach its true potential but will also
have huge benefits for the overall economy