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.

SMEs, a Key Component of ‘Make in India’

The Indian Prime Minister, Narendra Modi, launched his ‘Make in India’ campaign in September last year. He visualizes the transformation of India as a global manufacturing hub. This project has been rolled out with high expectations. But, it is not only the big corporates that will expedite the ‘Make in India’ process. The innumerable SMEs present across the country will also be significant contributors.

Contribution of the SMEs

The role of SMEs in development of India’s economy cannot be ignored. 45% of the industrial output is produced solely by SMEs. Their manufacturing base is strong enough and thus they contribute for more than 42% of exports from India. They produce over 8000 items in all.

40% of India’s workforce is associated with SMEs. They have employed 73 million people across the country. Besides, 1 million jobs are created by this industry on a yearly basis. As employment generation is a focus of ‘Make in India’ campaign, SMEs will play a vital role.

Encouragement from the government

The Centre is taking several measures to boost the SMEs. It has asked all the public sector companies to acquire a minimum of 20% of material from the SMEs. This will be effective for the companies from 1^st April 2015.The government had recognized 25 sectors for the ‘Make in India’ initiative. It later on added 5 more and SMEs is one of them.

Strength of SMEs

SMEs help to enhance the growth and development at thegrassroots level.  The key reasons why SMEs will act as a catalyst in the ‘Make in India’ campaign are:

• These industries adapt to new technologies easily and are swift in their decision-making process.
• With cheap labor and diminished overhead costs, SMEs are able to perform better than the big companies.
• The investment needs of SMEs are low.
• The worth of services and goods produced by SMEs is more than 4 times its investment.

SMEs have about 31 million units in India. This is 90% of the total industrial units in India. They account for 40% value addition in the manufacturing sector. Besides, they comprise over 80% of the total number of industrial set ups in the country.

Seeing their large volume and strengths, it is evident that they will play a vital role in the ‘Make in India’ initiative. Being the backbone of industrial development, SMEs are the best way to promote entrepreneurship and thus boosting manufacturing in the country. 

SEBI to ease SME Listing Norms

With an aim to promote the ever-growing three year old segment, the Securities and Exchange Board of India (SEBI) will soon review the norms related to trading and listing of SMEs.

Expected changes

As per stock exchange officials, this step is taken after the market participants demanded a reduction in the trading lot size of  Rs.100,000 after being listed. SMEs feel that the current amount discourages a lot of genuine investors and thus should be revised. They have also asked SEBI to review the listing requirement of 25% minimum equity dilution as there is a huge gap between the valuation of niche companies of SMEs and their urgent funding requirements. Merchant bankers want it to be reduced to 10%.They suggest that when SMEs wish to shift to the main board, 25% public float should be applicable.

After being listed for more than 2 years, companies can shift to the main board. It has been over 2 years that the SME segment was launched. Hence, companies like SRG Housing Finance Ltd., Bronze Infratech Ltd., Anshu Clothing Ltd., etc. have given an application to get on the main board of BSE.

SEBI wants the issuers and investors to greatly benefit from SME segment. At an investor seminar held in mid-January, whole-time member of SEBI Rajeev Agarwal informed that the regulator wants many SMEs to feature in the list and be able to explore the capital market for funding.

SME platform

SEBI has been dedicatedly working to assistthe SMEs. It had announced simpler norms for listing for the SMEs in the past too. Later, in March 2012, both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) rolled out distinct SME platforms. At present, there are 83 SMEs listed on BSE’s SME platform and 6 on NSE’s platform.

Stock Exchange suggestions

The stock exchanges are of the opinion that the investors’ class should be widened. It should include wealthy individuals, corporate bodies, non-institutional investors and merchant bankers unlike the current rule that allows only institutional investors to invest in companies listed on the SME platforms. 

Some experts suggest that SEBI should also consider lower underwriting levels, which are appropriate safeguard for liquidity and investor protection. SMEs are allowed to choose from BSE and NSE and be listed in either of the two. They should be able to choose both. Besides, BSE suggested that the current market making period of three years should be extended to 5-10 years.

Growing SMEs in India

The United States of America has shown great interest in encouraging small and medium businesses across India. During his visit on India’s 64^th Republic Day, Barack Obama, the US President, announced OPIC’s support for the growth of SME’s in India. OPIC or, Overseas Private Investment Corporation is the United States’ government's development finance institution.

OPIC will be issuing loans over USD 1 billion in underserved rural and urban markets. The U.S. Trade and Development Agency has also set a target to leverage around USD 2 billion and invest it for renewable energy in India. OPIC is known to work for the development of varied sections across the globe. It boosts revenues, provides employment and offers many growth opportunities through its activities. Its initiative in India will earn around USD 4 billion. Besides, it will also give rise to many jobs in the two countries.

Contribution of SMEs

SMEs in India have a great share in the national economy. 40% of India’s workforce is engaged in the 48 million SMEs across the country. SMEs generate 45% of the industrial output and manufacture over 8000 high quality products. In international trade, 42% export is courtesy the SMEs. They also work to increase the employability. 42 million people are employed by the SMEs. Besides, they also generate 1 million jobs every year.

SMEcorner

SMEs have a wide market that is open for expansion and development. The diverse sectors present for the SMEs are manufacturing, food processing, agriculture, textiles, engineering, pharmaceuticals and retail. Technological advancement is greatly needed in this sector. The use of the internet can benefit the SMEs in a big way.

SMEcorner uses the online world to foster the growth of SMEs in India. It has a strong network with banks and NBFCs (Non-Banking Financial Companies) and assists SMEs to get easy access to loans through an online platform. Being first of its kind, this web portal encourages transparency and minimizes the risks for the SMEs.

What makes SMEcorner.com a reliable source is the expertise of its  founder and CEO, Samir Bhatia. He is a qualified Chartered Accountant and has great experience in working with leading banking companies of India. With 28 years spent in this industry, he has a great relationship with senior professionals and thus helps the SMEs in an efficient way.

SMEs Hold a Key Position in the Advancement of India's Economy

The SME sector in India is growing at an exceptional rate and has the potential to be one of the key drivers of the Indian economy. The sector is expected to outgrow as the largest employment generator in the country. It represents the true entrepreneurial spirit in the Indian business market.

Contribution of SMEs in Nation’s Economy

Small and Medium Enterprises play a vital role in the growth of Indian economy. They make up for about 45% of the industrial output, 40% of exports, and create one million jobs every year. SMEs also produce over 8000 quality products for the Indian and overseas markets. Therefore, SMEs are open to bigger challenges and better opportunities for expansion and variegation across different sectors.

The Indian economy has been witnessing a rapid growth. It is making remarkable progress in different sectors including industries like Engineering, Manufacturing, Textile, Food Processing, Pharmaceuticals, Retail, IT, and Agro sectors. SMEs are making the most of the increasing opportunities to give a boost to their business activities in these core sectors.

Potential for Growth

The SME sector is also the future of entrepreneurship development amongst the youth in India. It helps create ample job opportunities for the growing population. The Small and Medium Enterprises sector is emerging emerge as a critical tool for exploiting the demographic dividend present in this country. Owing to its underlying characteristics and strengths, the SME sector is also set to play an important role in the further growth of Indian economy.

In order to progress further, SMEs intend to go head-to-head with larger firms as far as technology is concerned. Some of the SMEs lack on the technology front in comparison to larger competitors, while other SMEs find it difficult to calculate how technology can create benefits for their firm. Even despite all these difficulties, even the smallest of companies are hopeful that they will be able to handle technology and realize its importance in profit earnings.

Central Government intends to nurture Small and Medium Enterprises to make the ‘Make in India’ a successful programmme. The government has the right intention, the right drive and the right vision to carry forward this cause. However, this transition will take some more time to reach fruition, the impact of which would be visible by 2016. Along with government initiatives, and funding by local and foreign investors, online financing platforms can further give a boost to SMEs. Free online financing platforms like SMEcorner.com are designed to make borrowing hassle-free for SMEs. Samir Bhatia, Founder and CEO, SMEcorner.com intends to assist SME companies by providing them with an easy capital raising platform that further boosts the chances of their growth and expansion.