Technology up-gradation is a big concern for MSMEs, need to adopt latest technology to compete with rest of the world, the awareness and affordability of Information and communication technology (ICT) tools is relatively low, said Mr Shripad Yesso Naik, Minister of State (I/C) for AYUSH & MoS, Ministry of Health and Family Welfare at an ASSOCHAM event held in New Delhi .
The government has been striving to provide a sustainable platform to MSMEs to grow and develop in terms of productivity, better availability to finance, wider product range, world class marketing strategies and international competitiveness, said Naik while inaugurating a national summit on ‘Financial Inclusion for Entrepreneurship and Innovation & 3rd SMEs Excellence Award-2015,’ organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
He said, “working capital management is a segment where ample amount of attention should be given by the small entrepreneurs. Ineffective working capital management causes the sickness amongst the MSMEs. Moreover, payment delays by corporations raise the transaction cost of MSMEs, which eventually bring these to verge of sickness. So, therefore it is important for MSMEs to adopt the working capital management effectively.
Mr. Naik further said that MSMEs hold enormous opportunities for growing faster provided they are facilitated with sustainable finance, latest technology and suitable marketing strategies including the branding of their product.
It is well known that MSMEs have been lagging behind because of lack of financial assistance but the scenario is changing since financial institutions have been focusing towards the sector. Banks have established the dedicated cells & braches to cater the needs of this segment. MSMEs should get the credit rating from the reliable and trust worthy credit rating agencies, said the Minister.
The government is committed to provide all possible support to promote and encourage the MSMEs in the country. The primary responsibility of promotion and development of MSMEs is one of the state governments. However, the government of India, supplements the efforts of the state governments through various initiatives
Mr. V Srinivasan, business head, SME Ratings, CRISIL said, “the time has come for concerted efforts by the government, financial institutions and other stakeholders to improve the financial inclusion of micro enterprises by not just formulating the right policies and processes, but also ensuring relentless implementation. What also needs to be enhanced is the soft power potential of the sector to propagate financial literacy, awareness of government schemes and benefits, and technological skills.”
A joint study by CRISIL and ASSOCHAM found that access to institutional finance remains the biggest hurdle to growth for this segment. “With access to institutional finance for meeting working capital needs as low as 15%, a good 59% of the promoters relied heavily on own contribution and 26% on supplier credit”, the study found.
Institutional finance accounted for only 7% of the working capital needs of those with a turnover of less than Rs 0.5 crore, which is the lowest in the entire micro and small enterprise (MSE) category, adds the study.
All of this impacts the working capital cycle and profitability of micro enterprises, impacting their ability to upgrade infrastructure and technology, expand, or hire skilled workforce.
To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs.To be sure, schemes propagating financial inclusion have been implemented, such as the Pradhan Mantri Jan Dhan Yojana, which facilitates financial mainstreaming of individuals from low-income groups. The Pradhan Mantri Mudra Yojana and the Mudra Bank, too, make way for institutional financing of MSEs, adds the study.
The study showed that credit flow to MSEs in 2014-15 was Rs 11.37 trillion, of which a lion’s share of Rs 9.66 trillion was through scheduled commercial banks. The study estimates the Rs 11.37 trillion is only a quarter of the total funding demand of MSEs. The rest is met through informal sources, self-financing or remains unmet.
It means Rs 45 trillion would be the total credit demand in the MSE sector over the medium term, including Rs 5.15 trillion in the near-term. The calculation considers three major categories – term-finance, working capital finance, and non-fund limits for enterprises into manufacturing and trading, highlighted the study.
MSEs, together with medium-sized enterprises, form the backbone of Indian industry, employing nearly 80 million people – the most after agriculture. In the study sample of micro enterprises, the average number of employees per enterprise with less than Rs 0.5 crore turnover was 17, compared with 20 for an enterprise with turnover Rs 0.5-1 crore and it points to the large scope for employment in the sector.
It has been wonderful of late to see the sector driving innovation and process/product development in this age of e-commerce. Yet, MSEs tend to be overlooked by institutional finance, for reasons such as information asymmetry, lack of awareness and adequate financial infrastructure, adds the joint study.