23 February 2020

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Brushing up Financial Know-How, Key to Success

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Despite the recession blues, Indian banks and financial institutions (FIs) are sitting on mountains of money. Yet they slam doors on majority of small and medium entrepreneurs. Shocking, but they cannot help it.

Professionalism is the success mantra in the present cut-throat market. Controlled by central bank – Reserve Bank of India (RBI) - and monitored by several agencies including the government, banks and FIs play in a place where world financial sharks, reached on the Indian shore along with the high tide of globalisation, are on prowl just to swallow both healthy and weak desi players and thus to bring the market under their control.

To survive in such a terrain, they continuously update their products, service and even organisational structure. This makes them more suitable to serve tech-savvy high-end customers than SMEs which are still in their shabby mould. Naturally, they lose the race for fund.

"It sounds incredible, but it is a fact that there are still people who approach banks for fund to set up ventures without even a project report worth the name. It happens because they are not financially literate. At a time when banks and FIs prune manpower and depend more and more on automation, they find it difficult to deal with such moron client. If SMEs are fine-tuned in the financial aspects, it improves entire gamut of their business and which in turn makes them more competitive," says Mohan, Chief Manager (SMEs), Federal Bank, the second largest player in SME market from Kerala with an exposure of over Rs.4000 crore in the sector and an amazing growth rate of 15 – 20 per cent annually.

Mohan adds further that since SMEs’ approach lacks professionalism, banks and FIs are viewing their projects’   financial viability with a suspicious eye. Worse, the market is moving southwards and they seek short-term loan. One can never expect a fund manager will take risk and part with fund for a project with uncertain financial future.

"The new RBI stipulation that the account which defaults for 90 days continuously be treated as non-performing assets (NPA) has forced the banks and lending agencies to further tighten the string,’’ he points out.

Against this backdrop, many banks and financial institution have initiated steps to brush up the financial understanding of entrepreneurs so that they can approach banks and FIs with confidence.

For instance, Federal Bank has decided to open "Trust’’ in Alappuzha and Wayanad districts to impart basics lessons on financial dealings and managerial aspects to potential entrepreneurs on free of cost. The Trust will comprise bankers, entrepreneurs, management experts and others in the allied fields. The training is given by consultants of the Trust, who will be mostly retired bankers.

Backing Mohan’s view, Manmadhan Nair, SIDBI Chief General Manager, Chennai, observes that rather than the lack of financial literacy, the attitude of the entrepreneurs blocks the fund. They beg to banks and FIs to give them the maximum benefits in the form of subsidy and other things from the capital they seek ignoring the fact that banks and FI can never yield to it as they have to adhere to the strict guidelines of the central bank and the government.

“The present practice is that an entrepreneur will demand Rs. one crore from a bank against his share of Rs. one lakh to start a venture. Such unprofessional attitude will mar the project in the beginning itself. Instead, he should go by the guideline and then he can bargain with the lending agencies. In fact, it is his rights and things will work,’’ Nair avers.

Underscoring the need of educating SM entrepreneurs on the changing market conditions so as to keep them afloat even in the high tide of unforeseen changes, he said that there was no dearth of information regarding banks and FIs’ stipulations for availing of fund and entrepreneurs had easy access to it. Many banks and financial institutions had joined hands with trade and business bodies to disseminate the information.

“SIDBI has tied up with CII (Confederation of Indian Industries) and Assocham (Associated Chamber of Commerce and Industry of India) to inculcate professionalism in entrepreneurs. We have brought out a book titled SIDBI guideline to approach banks’’ Nair said.

Arguing that professionalism is the key to success, Dr P.S. Mathew, chairman of Institute of Small Enterprises and Development (ISED) and a UN expert on SME said that the county had to walk miles to make SMEs in the country professional and competent.

He believes that a holistic approach rather than concentrating on a single factor of financial literacy is the need of the hour.

“First of all, all small and medium entrepreneurs should be ensured access to the banking system. At present, only 30 per cent of SMEs in the country have bank account. The lesson of financial literacy starts with an entrepreneur opening a bank account,” Mathew argues.

He is also of the view that the public sector banks have stepped in the shoe of the entrepreneurs and are dictating terms. It should be stopped and they should play the role of the funding agency and SMEs be given more freedom. The flow and utilisation of fund from the institutions created exclusively for promoting SME sector should be under government scanner. Sadly, now there is no effective evaluation of utilisation of fund disbursed by them.

Fund managers and academics are unanimous in their view that before seeking fund for their ventures, small and medium entrepreneurs, like their elder brothers, should equip themselves to withstand all challenges posed by unpredictable changes of the unbounded market spawned by globalization. There is no shortcut for it, but to be a thoroughbred professional.



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