Shriram City Union Finance Limited - Karvy

The size of the registered MSME sector is estimated to be 1,563,974 of the total working enterprises. The totalproportion by micro, small and medium enterprises were 94.94%, 4.89% and 0.17% respectively. About 45.23%(7.07 lakh) of the units were located in rural areas. 67.10 % of the enterprises in the registered MSME sector wereengaged in manufacturing/ assembling/processing, whereas 16.78 % of the units were engaged in services activities.The remaining 16.13 % of the enterprises were engaged in the repair and maintenance.Distribution by Nature of ActivityNo. in lakhManufacturing/ Assembling/ Processing 10.50 (67.10%)Services 2.62 (16.78%)Repairing & Maintenance 2.52 (16.13%)Total 15.64 (100%)The MSME industry envisions that the sector will have a healthy growth with a large number of enterprises beingset up and their upward graduation into small and medium enterprises. This would be accompanied by enhancementof their contribution to the GDP, manufacturing output, employment and exports.The economic externalities which affect the MSME sector are the following:(i)(ii)(iii)(iv)(v)(vi)(vii)(viii)Overall domestic and global growth trends;Domestic tax regime, particularly advent of Goods and Service Tax and Direct Tax Code;Policies governing the credit flow to the sector;Trade policies, including free trade agreements with other countries;Labour policies, particularly multiplicity of labour laws and procedures for compliance of various labourregulations;Availability of infrastructure facilities, including power, water, roads, etc.;Availability of critical raw material at competitive prices;Availability of skilled manpower for manufacturing, services, marketing, etc.Credit to the MSME sectorCredit availability to MSMEs remains one of the major concerns. Although, the Government of India has takenseveral steps to increase the lending of this Sector, this remains even now the most difficult problem faced by theMSME.There is a cyclical nature of availability of funds to the MSME sector. This is determined by larger issues ofinternational and domestic monetary policies, fiscal policies and other parameters beyond the pale of the sector. Intimes of a liquidity crunch, lack of liquidity in the financial system, even though caused by external factors, canquite dry up the flow of credit to the sector. The major dependence of the sector is working capital requirementwhich directly impacts the production cycle. As stated elsewhere, the tolerance threshold levels of this sector arevery low. Hence, any liquidity crunch has an immediate and disastrous impact. During the last global economiccrisis, this was seen to be a problem area, affecting the MSMEs for their day-today requirement of working capital.The MSME thus need to be insulated from such credit squeezes in times of adverse monetary conditions.Credit Guarantee Fund SchemeThe Government of India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises in August,2000, with the objective of making available credit to micro and small enterprises (MSEs), particularly microenterprises, for loans up to ` 100 lakh without collateral/third party guarantees. The Scheme is being operatedthrough the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) set up jointly by theGovernment of India and Small Industries Development Bank of India (SIDBI). The Scheme covers collateral freecredit facility (term loan and/ or working capital) extended by eligible member lending institutions (MLIs) to newand existing micro and small enterprises up to ` 100 lakh per borrowing unit. The guarantee cover provided is up to75% of the credit facility up to `50 lakh with an incremental guarantee of 50% of the credit facility above `50 lakhand up to `100 lakh (85% for loans up to ` 5 lakh provided to micro enterprises, 80% for MSEs owned/ operated by76