Government's Focus on Strengthening SME Financing

Small and medium-sized enterprises in India have grown to become the backbone of India’s economy. The government has recognized the contribution of such enterprises and plans to introduce initiatives and policies that help SMEs grow and overcome the challenges they face currently.

Indian SMEs are predicted to have unparalleled growth with efforts from the government to provide more credit and financing to the players of this industry.

SMEs have contributed significantly to the country’s economy by bringing more investment and providing ample employment opportunities to its people. They have brought about major changes in terms of economic and social development. The growth of SMEs will multiply these advantages and benefits tenfold. However, the sector still faces obstacles such as:

• Lack of finances for start-ups and established SMEs to run a business successfully.
• Limited regulated financial agencies to provide credit. Borrowing from the unregulated financial bodies involves high interest rates which lead to difficulty in sustaining the enterprise.
• A  large working capital gap due to the late payments from large corporate companies.
• Issues related to collateral assets are also an obstacle as most entrepreneurs looking forward to setting up their SME usually do not have the required assets or are unwilling to mortgage family owned collateral items.

Government’s Step to Eliminate the Financial Challenges faced by SMEs

1. RBI along with other skilled policy makers has already begun to bridge the gap between the SME professionals and the regulated financial bodies. A variety of schemes for debt solutions and lending have been introduced to fulfil even the smallest of financial demand by SME sector.
2. Many financiers  have introduced customised lending solution to reach to all the levels of entrepreneurs.
3. To tackle the issues arising out of collateral requirements, the government has introduced collateral free loans of up to Rs. 1 crore.
4. Introduction of the ‘Make in India’ initiative focuses on increasing the manufacturing capacity of the country. It also aims at increasing the contribution of the SMEs in the overall GDP of the country.
5. The working capital gap  of SMEs can be bridged through credit solutions such as  traditional bank overdraft, securitization of receivables, short term trade advance and working capital term loan
6. Programs such as “Digital India” and “Skill India” have also been introduced that will help the SME owners acquire the skills to go digital and find the required finances. 

SMEs are predicted to witness unmatched growth with the implementation of the new policies aimed at providing more finance and better credit solutions.

Positive Changes to Drive the Growth of SMEs in Future

Positive changes for SMEs are occurring at a slow pace. However, experts predict that few indicators show a brighter future for the SMEs. Several trends that have emerged with time show that a tremendous growth path for the SMEs is being laid out.

Increased spending

There are around 29 million small businesses in the U.S. They form an integral and vital part in shaping the economy. More than 99% of the total employer firms in the country are the SMEs. They are responsible of creating more than 60% of all the new jobs. However, this industry is blown by tight credit markets, limited spending and slow sales.

But things are changing now. Small enterprises have started to spend more on technological solutions. As per a recent report given by Wells Fargo/Gallup Small Business Index survey, around 71% of small businesses are anticipating that their financial position will strengthen in a year. Besides, 25% of the companies also agreed that new employees will be expanding their teams.  

Growing performance gap

It is also noticed that the performance gap is widening between the businesses that adopt modern technology and those which are reluctant towards it. The SMEs are making use of low cost, simple but impactful technological solutions to arrange their data in a systematic manner, become more efficient and lower the overheads. The widening performance gulf will create a strain on the businesses and will compel them to resort to technological solutions as much as possible.

Banks adopting innovations

These days, banks have started to lay focus on better consumer experience. They are adopting new solutions to enhance their connectivity with their customers. In the previous year, there was a boom of credit monitoring tools, personal investment services and spending trackers. Banking companies, these days, are in search of new innovative ways to apply financial technology for the market of SMEs.

The SME industry will greatly benefit from these solutions as they will find it simpler and safer to link real-time transaction data and third-party solutions such as QuickBooks, Xero and other applications. These new connections will give birth to quick decisions, wider opportunities and improved services for SMEs. As banks will apply new solutions along with their lending process, the SMEs associated with them will also adopt these greatly.

These latest trends clearly indicate that the small business sector is witnessing a lot of vital changes that will increase with time. The new opportunities will truly revitalize the way things are done in these businesses and thus expedite their growth process.