Remedies for Tackling SME`s Difficulties in Accessing Finance

In the ball game of Business in the Indian perspective the need to acquire, invest and diversify funds meets a huge part of financing roles of the Management of any Business. Big tycoons and business giants tends to chuck out funds from diversified sources and also provide good support to the lenders in the long run of doing business. At this point the Small and Medium Enterprises (SME) and Small Scale Industries (SSI) find it difficult to curb out the funding or the minimum finances required for their various activities in the business and its operations. Many windows and developments have come up to help SME at their financial needs from both the Government and Private Sectors considering the importance of SME in a developing economy.

The ways of tackling finance and funding issues for SME are enumerated hereunder:

Government – Various Financial and Funding Schemes are developed and implemented by the Government to boost SME sector and its development. The process of implementation is mainly done through public sector Banks and Institutions. The Government and its Finance Department comes up with short term plans to inject funding to the SME and new Entrepreneurs which in turn helps the overall development of the country through business. The SME can turn up and opt for any Government Funding Schemes available and take the advantage of such funding to their business.

With globalization, liberalizations, financial policy reforms and change of frameworks by the Government the space and ease of doing Business by the SME has been always considered to be the potential developmental front and such activities have provided scope to the SME`s to work and develop their business through finance, technology and efficient work force. The pivotal role of Government being the implementation of SME funding through banking institutions and ease of regulation of through Industrial Policy for doing business.

Reserve Bank of India– The RBI implements and emphasizes on flow of bank credit to SME`s especially in rural and semi urban areas of the country.  The goal is to provide financial support to SME @40% of the funding by every bank on an approximate basis to support the SME in sustainability, funding, capacity building and asset creation. The RBI controlled by the Government Financial Policies implements the fund flow for SME developments contributing the overall growth of the economy.

The Government has also developed and implemented Credit Guarantee Schemes known as the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) for availability of collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The scheme is being implemented through banks and one can opt for the same with an application and prescribed procedure.

On recent developments the Pradhan Mantri MUDRA Yojana (PMMY) scheme launched by the Government on April 8, 2015 for providing loans up to 10 lakhs to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and NBFCs. The SME or borrower can approach any of the lending institutions mentioned above or can apply online through this portal.

Banks (Private and Public Sector)- As the backbone of the economy the Banks both in public and private sectors take an enormous role in financing the SME`s through money lending or credit in forms of Loans, Schemes, Bonds etc. The Banks provide tailor made schemes and loan facilities to SME`s which are guaranteed through Property, Business turnover, other assets or guarantee etc. On some prescribed paper works the banks process the same with background checks and provide the same to the SME with nominal interest rates and pay back schemes. The Public Sector Banks works upon Government backed schemes and pass on the benefits to the SME and SSI while the Private Banks come up with small funding sources and schemes which mutually helps the Banks and the SME to earn profits and run their business. Presently in the age of E-Banking the paper works and hassles have been considerable reduced and the ease of opting the funds have led to more SME funding with good returns. The tagging of Permanent Account Number (PAN), ADDHAR with Tax and all banking transactions have provided the banks with a clear picture of credibility of the person or the institution or business during processing of the funding. The risk factor or bad debts is catered through mortgages, assets etc. along with previous financial statements. With the emerging policies, merger of Banks and efforts to keep the money available with banking institutions rolling, the availability of funding for SME, Self Help Groups, Entrepreneurs, Agricultural Business have a greater chance of availability of funds with ease. The loans for the SME and SSI units have a controlled interest rates and repayment schemes which are less compared to the prevailing market rates.

Specialized banks for SME and SSI financing have been operational since long. The specialized financial institutions aim at providing tailor made solution to the SME functioning and funding with a hassle free process.  The principle Institution being “The Small Industries Development Bank of India (SIDBI)” was set up in April 1990 as a financial institution for promotion, financing and development of SME`s.  SIDBI also coordinates with other such institutions for uniform implementation of developments of SME and SSI.

Small private institutions and business are also providing credits to the SME against interests especially in short term for immediate needs of the SME. The process of obtaining such credits is very easy but the rate of interest is on the higher side.

Co-operative and Societies– These are small unified societies and cooperatives of SME and Business houses with industries having the same goal of providing developments to the SSI and SME through cooperation and alliances. Such cooperatives also help the SME in obtaining credits and the banks risk is lowered through the guarantee. 

The main problem of SME financing is the lack of information on present financing schemes and shortage of credentials for obtaining the credits. Government must ensure wide spread of information on the schemes and availability of financial helps to the SME and promote such implementation. With the increasing demand for credit, Credit Risk Databases, Credit Bureaus and SME Credit Ratings are being utilized by financial institutions to pass on risk free credits to the borrowers.

In the struggle for survival in the competitive market most of the SME perish in the long run due to want and dearth of funding. There are approximately 42.5 million registered and unregistered SME in India which is operational. Needless to say the contribution of the SME in development of the nation and also creating employment is an important factor for overall economic growth of the country. The ease of doing business and availability of funds through various sources has promoted the growth of the SME sector but still a lot of work is to be done to promote the SME and pull them to the heights to attain a developed economy.


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