Journal of Small Business and Enterprise - March, 2013 - CII

Financefrom investing in India, particularin the small sector because ofprocedural complexities.Talking about access to corpus ofinstitutional funds for MSMEs, Mr Satish KKaura, Co-Chairman, CII Defence Council,and Chairman & Managing Director,Samtel Colour Ltd, said that IndianMSMEs singularly depend on lendingbanks, and the key constraints for theMSME growth are huge dependenceon banks, absence of institutionalmechanism for raising risk capital andno alternative financing options.Mr Kaura said financing ecosystemfor MSME in India is lagging behindglobal financial market. Global trendsindicate that banks are generallyunimpressed by the MSME growth andits profit potential so it is futile to expectrisk capital from the banks. However,globally capital markets are very welldesigned to meet the risk capital needsof the small business sector.He suggested that exploring thepossibility of alternative financingoptions is needed to solve the riskcapital requirements of the MSME sectorin quicker terms and help the small unitsstay competitive.Talking about the issue of delay inpayments, he said the CII is in the processof proposing a Governance Code whichwill set a standard for procurementsand payments. The Governance Codewill encourage all players in the supplychain system to voluntarily adopt timelysettlement of payments and improve thecredit management system for creatingan effective market.Mr Kaura said the SME exchangeplatform will help small business unitsin rural areas in generating equity fundsfor expansion. It would eventually helpthe sector grow at a faster rate andthe multiplier of that would be hugeemployment generation in rural areas andnational wealth creation. For sustainabledouble digit growth, he said innovativefinancing mechanisms are required,particularly for MSMEs in the country.Mr NK Maini, Deputy ManagingDirector, Small Industries DevelopmentBank of India (SIDBI), said debt creditand equity gap is huge in the MSMEsector. The credit gap is around Rs 4.8trillion and the equity gap is estimatedat Rs 2.5 trillion. And, from the formalsources the equity available is only Rs10,000 crore.He said the SIDBI was primarily set upfor refinancing banks and other lendinginstitutions. However, over the years theSIDBI has gotten into direct financing inMSME sector. The SIDBI has repositionedits business model to fill the financialand non-financial gaps in the smallsector and for the overall developmentof the sector. The institution has beenfocusing on four niche areas includingrisk capital; receivable financing andfactoring; sustainable financing andfinancing of service sector.Mr Maini said there is a requirementof Rs 75,000 crore for fulfilling energyefficient equipment needs of MSMEsector. The need based financial productswill help MSME units in adopting energyefficient equipment and greenerproduction models. ``The lendingbanks are not in a position to fulfill thisrequirement, so Line of Credits (LoCs)are arranged from multilateral agenciesand routed through the SIDBI,'' he said.Regarding financing of servicesector, he said lending banks generallygive credits based on tangible collateralsecurity. However, the service sectorproducts are intangible and returnsare cash flow based. He said the wayforward is cash flow based financing anddevelop specialized need based financialproducts for each sector.Mr Maini said,``We realise thatfinancial health of a MSME unit dependssignificantly upon the speed at whichtheir receivables are realised. We have,therefore, devised a scheme to mitigatethe receivables problem of suppliersbelonging to MSMEs and improve thecash flow. However, he said it is importantto have more equity investment fortaking forward the factoring business.''About the risk capital, Mr Maini saidboth the new units as well as growingsmall units face scarcity of funds, so theSIDBI provides a certain percentage ofrisk capital and remaining amount canbe raised as debt fund from lendingbanks against the risk capital given bythe SIDBI. Besides, SIDBI Venture CapitalLimited, a wholly-owned subsidiary ofthe SIDBI provides growth capital in theform of equity through its MSME focusedventure capital funds.Mr Gurpal Singh, Principal Advisor& Head MSMEs, Confederation of IndianIndustry (CII), said CII is committed tosolving the financial problems faced bythe small sector in the country. He saidto take the small sector into next level aclose cooperation of all stakeholders inthe ecosystem is required. He said thesituation is a bit dicey as MSMEs are toosmall for big institutional investors toconsider and big for not in the ambit ofmicro financing.The concept of banking hasundergone enormous changes, he saidas the bank are much more proactivein developing need based financialproducts and schemes for MSMEs.The lending banks are in a position tosupport many small units that havegrowth potential.MSME Business March 201317Emerge offers opportunities to informed investorsMr Ravi Tyagi,Head of SME Project,National StockExchange IndiaTalking about the SME platform ofNational Stock Exchange he said Emergeoffers opportunities to informed investors toinvest in emerging businesses with excitinggrowth plans, innovative business models andcommitment towards good governance andinvestor interest.This platform will provide capital raisingopportunities to credible and fast growingbusinesses with good governance standards.It will be an ideal platform to raise funds forcompanies on a growth path, but not largeenough to list on the main board.The government, the market regulator(Sebi), the RBI, the SIDBI, insurance companies,the VCs and lending banks should cometogether and create an ecosystem for creatinga MSME success story.