A

Research Project ReportTitled

‘A Study of Financing Practices of MSME Sector in India’For partially fulfilling the requirement of the award of the degree MBA

Subject – Research Project (IMS-1002)

Under the Supervision Of-Dr. JK Chandel

Assistant Professor

Submitted to- Submitted by -

The Director Narender

Class-MBA (10th sem)

Roll No. - 52

Reg.No. – 11UD3025

Institute Of Management Studies

Kurukshetra University, Kurukshetra

(April 2016)

DECLARATION

I, Narender here declare that the Research Project entitled A Study of Financing

practices of MSME Sector in India assigned to me by the Director of Institute

of Management Studies, Kurukshetra for the fulfilment of M.B.A. degree from

the Institute of Management Studies, Kurukshetra University, Kurukshetra is

the work done by me and the information provided in the study is authentic to the

best of my knowledge.

This study has not been submitted to any other institution or university for the

award of any other degree.

Narender

Certificate

It is certified that Narender, student of Semester 10th bearing Roll No. 52

(exam: 905826), Batch: 2011-16, of Institute of Management Studies, Kurukshetra

University, Kurukshetra has completed her Research Project Report (IMS-1002)

on the topic: ‘A Study of Financing Practices of MSME Sector in India’ under

my supervision. This is an original work and I find it complete for submission for

evaluation and for the partial fulfilment of the award of degree of Master of

Business Administration, MBA- 5Year (IPOP). It is further certified that no part of

this Report has been submitted by the student for the award of any degree/diploma

elsewhere (to the best of my knowledge and belief).

(Dr. J.K.Chandel)Assistant Professor

Institute of Management StudiesMBA-5 Year (IPOP)

Kurukshetra University, Kurukshetra

ACKNOWLEDGEMENT

There is always a sense of gratitude which one express to other for the selfless

services they render during all phases of life. I have completed this project report

with the help of different personalities. I feel obliged to all of these.

First of all, I would like to thank the supreme power, the God and to my parents

provide me full cooperation for the successful completion of my project.

I would like to thank to the director Proff. Naresh kumar and to my project guide

Dr. JK Chandel (Assistant Professor) to provide the most valuable inputs in the

terms of experts guidance and moral support.

I am deeply indebted to all my faculty members of the institute for their valuable

contribution during the academic session.

Narender

Contents

Chapter No. Title Of the Chapter Page No.

1 Introduction 1-23

2 Review of Literature 24-26

3 Research Methodology3.1 Type of Research3.2 Objective of the Study3.3 Data Collection Source3.4 Scope of the Study3.5 Limitations of the Study

27-28

4 Analysis and Discussion 29-62

5 Findings of the Study 63

6 Suggestion and Conclusion 64

References

65

List of Figures Sr. No Figure

No.

Title of the Figure Page No.

1

2.

3.

4.

1.3

1.5

4.2

4.2B

Categories of MSME

Registration Types and Process

Organization Structure

Challenges Faced by MSME

5

8

30

32

Chapter: 1

Introduction to MSME sector1.1 Industrialisation in India

A leading, industrially advanced developing country, India has large, medium

and small industrial units of production in almost all branches of the industry.

Since the t im e o f t he independence in 1947, a significant feature of the Indian

economy has been the rapid growth of the small industry sector. The small

industry sector is considered to have a major role in the Indian

economy due to its 40 percent share in the national industrial output

along with an 80 percent share in industrial employment and nearly 35

percent share in exports. The small scale industries sector has been assigned

an important role in the industrialization of the country by the previous and current

governments of India.

1.2 Background of MSME sector industries

The organization of the Development Commissioner (Micro Small and

Medium Enterprises) [(earlier called Development Commissioner (Small Scale

Industries)] was established as Small Industries Development Organisation (SIDO)

in 1954 on the basis of the recommendations of the Ford Foundation. Over the

years, it has seen its role evolve into an agency for advocacy, hand holding and

facilitation for the small industries sector. With the enactment of the MSMED Act

2006, the organization has been renamed as Micro, Small and Medium

Enterprises-Development Organisation (MSME-DO) with the wider mandate of

promotion and development of MSME sector. It has over 60 offices and 21

autonomous bodies under its management. These autonomous bodies include Tool

Rooms, Training Institutions and Project-cum-Process Development Centres.

MSME-DO provides a wide spectrum of services to the small industries sector,

now enlarged to include all enterprises, excluding the larger ones.

These include facilities for testing, tool making, training for

entrepreneurship development, preparation of project and product profiles,

technical and managerial consultancy, assistance for exports, pollution and energy

audits etc. MSME-DO provides economic information services and advises

Government in policy formulation for the promotion and development of MSME

sector. The field offices also work as effective links between the Central and the

State Governments in the area of MSME development.

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly

vibrant and dynamic sector of the Indian economy over the last five decades.

MSMEs not only play crucial role in providing large employment opportunities at

comparatively lower capital cost than large industries but also help in

industrialization of rural & backward areas, thereby, reducing regional imbalances,

assuring more equitable distribution of national income and wealth. MSMEs are

complementary to large industries as ancillary units and this sector contributes

enormously to the socio-economic development of the country.

The ‘Micro, Small and Medium Enterprises Development Act, 2006’, came

into force from 2nd October 2006.

The Micro, Small and Medium enterprises (MSMEs) have been accepted

as the engine of economic growth and for promoting equitable development in all

over the world. Let there be any category of countries (Developed, Developing and

Under Developed), the existence of MSMEs is inevitable. The major advantage of

the sector is its pivotal role through its contribution in Industrial output, Exports,

and majorly in Employment generation at low capital cost. The labour intensity of

the MSME sector is much higher than that of the large enterprises. The MSMEs

constitute over 90% of total enterprises in most of the economies and are credited

with generating the highest rates of employment growth and account for a major

share of industrial production and exports.

In India, the MSMEs contribution is highly remarkable in the overall

industrial economy of the country.

In recent years the MSME sector has consistently registered higher growth

rate compared to the overall industrial sector. With its agility and dynamism, the

sector has shown admirable innovativeness and adaptability to survive the recent

economic downturn and recession. In Indian market, MSMEs rapid growth could

be seen as Indian entrepreneurs are making remarkable progress in various

Industries like Manufacturing, Precision Engineering Design, Food Processing,

Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and Service

sector. The sector not only serves for urban market but also helps in

industrialization of rural and backward areas, reducing regional Imbalances and

assuring more equitable distribution of national income and wealth.

MSMEs complement large industries as ancillary units and contribute

enormously to the socioeconomic development of the country. MSMEs account

for 45% of India’s manufacturing output, about 40% of India’s total exports;

employ about 73 mn people in more than 31 mn units spread across the country,

manufacture more than 6,000 products ranging from traditional to high tech items

(MSME report 2011). The report also projects the total production coming from

the MSME sector at 10,957.6 bn in FY11, an increase of more than 11% over the

previous year contribution.

Though, MSMEs contribution is phenomenal in the growth of Indian

economy, Simultaneously, MSMEs are facing intense pressure and constraints to

sustain their competitiveness in globalized world. Some other issues such as

recession, low demand, finance, heavy competition from MNCs etc. are becoming

conspicuous dilemma to MSMEs in India. In this competitive world, MSMEs need

to be able to confront the increasing competition from developed and emerging

economies and to plug into the new market opportunities, provided by these

countries.

There is a direct link between internationalization and increased MSMEs

performance. International activities reinforce growth, enhance competitiveness

and support the long term sustainability of companies. Yet Indian MSMEs still

depend largely on their domestic markets despite the opportunities brought by the

enlarged single market and by globalization at large. De-reservation of items

which were earlier reserved for MSMEs, increasing competition by liberalizing the

policies and allowing foreign companies to operate in Indian market are some of

the emerging challenges before MSMEs.

1.3 Conceptual Framework of MSME

The Ministry of Agro and Rural Industries and Ministry of Small Scale Industries

have been merged into a single Ministry, namely “Ministry of Micro and Small

and Medium Enterprises”

Definition of MSME is given by MSME Act, 2006-

In India, the enterprises have been classified broadly into two categories:

(i) Manufacturing  Enterprises – The enterprises engaged in the manufacture or

production of goods pertaining to any industry specified in the first schedule to the

industries (Development and regulation) Act, 1951) or employing plant and

machinery in the process of value addition to the final product having a distinct

name or character or use. The Manufacturing Enterprise are defined in terms of

investment in Plant & Machinery.

(ii) Service  Enterprises – The enterprises engaged in providing or rendering of

services and are defined in terms of investment in equipment.

Both categories of enterprises have been further classified into micro, small

and medium enterprises based on their investment in plant and machinery (for

manufacturing enterprises) or on equipments (in case of enterprises providing or

rendering services). The present ceiling on investment to be classified as micro,

small or medium enterprises is as under:

The limit for investment in plant and machinery / equipment for manufacturing /

service enterprises,

Manufacturing Sector

Micro Enterprises – Does not exceed twenty five lakh rupees.

Small Enterprises –More than twenty five lakh rupees but does not exceed five

crore rupees.

Medium Enterprises – More than five crore rupees but does not exceed ten crore

rupees.

Service Sector

Micro Enterprises – Does not exceed ten lakh rupees.

Small Enterprises - More than ten lakh rupees but does not exceed two crore

rupees.

Medium Enterprises – More than two crore rupees but does not exceed five core

rupees.

Fig. 1.3

Categories of MSME

1.4

The Micro, Small & Medium Enterprises Act, 2006

An ACT to provide for facilitating the promotion and development and

enhancing the competitiveness of micro, small and medium enterprises and for

matters connected therewith or incidental thereto.

The Micro; Small and Medium Enterprises Development (MSMED) Act

was notified in 2006 to address policy issues affecting MSMEs as well as the

coverage and investment ceiling of the sector. The Act seeks to facilitate the

development of these enterprises as also enhance their competitiveness. It provides

the first-ever legal framework for recognition of the concept of "enterprise" which

comprises both manufacturing and service entities. It defines medium enterprises

for the first time and seeks to integrate the three tiers of these enterprises, namely,

micro, small and medium. The Act also provides for a statutory consultative

mechanism at the national level with balanced representation of all sections of

stakeholders, particularly the three classes of enterprises; and with a wide range of

advisory functions.

Establishment of specific funds for the promotion, development and

enhancing competitiveness of these enterprises, notification of

schemes/programmes for this purpose, progressive credit policies and practices,

preference in Government procurements to products and services of the micro and

small enterprises, more effective mechanisms for mitigating the problems of

delayed payments to micro and small enterprises and assurance of a scheme for

easing the closure of business by these enterprises are some of the other features of

the Act.

The conceptual and legal framework for small scale and ancillary industrial

undertakings is derived from the industries Development and Regulation Act,

1951. The Act provided the necessary powers to the central government to amend

the provisions of this act from time to time so as to encourage small scale and

ancillary undertakings. The Small and Medium Enterprises Development Bill,

2005 which was enacted in June 2006 was renamed as “Micro, Small and Medium

Enterprises Development Act, 2006” aims at facilitating the promotion and

development of small and medium enterprises.

Various notifications issued by the Central Government from time to time

relating to increase in slap rate of investments in plant and machinery for

manufacturing enterprises and equipments in service enterprises provides a clear

cut proof that the economy of our country is striving towards achieving the

economies of scale by increasing the volume of production of goods. The Micro,

Small and Medium Enterprises Development Act, 2006 (MSMEDA) extends the

scope to accomplishes many long standing goals of the government and

stakeholders in the MSME sector including the service sector.

1.4(A) The Objective of the MSMED Act

To facilitate the promotion and development of and enhancing the competitiveness

of micro, small and medium, enterprises and for matters connected therewith or

incidental thereto.

(B) Main Features of the MSMED Act

B.1. Constitution of a National Board for Micro, Small and Medium Enterprises

to:—

Examine the factors affecting the promotion and development of micro,

small and medium enterprises and review the policies and programmes of the

Central Government in this direction; Make recommendations for facilitating

promotion and development of and enhancing the competitiveness of the micro,

small and medium enterprises. Advice the Central Government on use of the Fund

or Funds constituted under Section 12 of the Act.

B.2 Constitution of Advisory Committee at national level to make

recommendations-

Level of employment in a class or classes of enterprises;

Level of investment in plant and machinery or equipments;

The need of higher investment in plant and machinery or equipment's for

technological up gradation, employment generation and enhanced

competitiveness;

The possibility of promoting and diffusing entrepreneurships;

The international standards for classification of small and medium enterprises.

1.5 MSME Registration

MSME stands for micro, small and medium enterprises and any enterprise

that falls under any of these three categories can apply for registration. MSME

registration that falls under the MSMED Act facilitates promotion and

development of enterprises and improves its functioning. Any type of enterprise

can apply for SME registration. These includes proprietorship enterprises,

enterprises managed by Hindu undivided family, enterprises run by association of

individuals, co-operative societies, partnership firms and enterprises managed by

companies or undertakings etc. After registration, an enterprise becomes eligible to

get the benefits under the MSMED Act. There are two stages of registration-

provincial and permanent (final). An enterprise is granted provincial registration

when it is at a pre-investment stage. After getting provincially registered, an

enterprise can apply for permanent registration just before launching its production

facilities. However, an enterprise that is already functioning need not have to apply

for provincial registration as it is eligible to apply for permanent registration.

Enterprises falling under the three categories (micro, small and medium)

are further categorized into two types of industries- manufacturing industry and

service industry. The status of an enterprise under the MSMED Act is determined

according to the investment slab under which an enterprise falls.

Types of Enterprises Eligible to be Registered under MSME Act, 2006

All classes of enterprises, whether Proprietorship, Hindu undivided family,

Association of Persons, cooperative society, Partnership firm, Company or

Undertaking, by whatever name called can apply for the registration and get

qualified for the benefits provided under the Act.

Registration of MSME:

1) Voluntary and not compulsory with respect to Micro and Small Enterprises.

2) DIC is the primary registering centre.

3) Two types:

Provisional Registration.

Permanent/Final Registration.

Registration Process

Fig.1.5

Registration Types and Process

Benefits of MSME Registration in India

The MSME registration process in India has been conceptualized to

provide maximum benefits to all types of enterprises. After registration, any

enterprise becomes qualified to reap the benefits offered under the MSMED Act.

For example, after provincial registration an enterprise can seek financial credit

and also other facilities like land, industrial set-up, and water/electricity/telephone

connections. After getting registered under a competent authority, an enterprise is

allotted a MSMED registration/entrepreneurs memorandum (EM) number. The

concerned enterprise should get the number printed on letter heads, invoices, bills,

supply order sheets and other necessary documents. The EM number helps in

identification of MSE suppliers and in this case an enterprise becomes an

authorized MSE supplier after registration.

The registration scheme has no statutory basis. Units would normally get

registered to avail some benefits, incentives or support given either by the Central

or State Govt. Benefits available under the MSMED Act Registration of Micro,

Small and Medium (MSM) Enterprises under MSMED Act is a very powerful

medium to enjoy the regime of incentives offered by the Centre generally contains

the following:

Micro and Small Enterprises:

Easy finance availability from Banks, without collateral requirement

Protection against delay in payment from Buyers and right of interest on

delayed payment

Preference in procuring Government tenders,

Stamp duty and Octroi benefits,

Concession in electricity bills

Reservation policies to manufacturing / production sector enterprises

Time-bound resolution of disputes with Buyers through conciliation and

arbitration

Reimbursement of ISO Certification Expenses

Credit prescription (Priority sector lending), differential rates of interest etc.

Excise Exemption Scheme

Exemption under Direct Tax Laws.

Stamp duty and Octroi benefits,

Statutory support such as reservation and the Interest on Delayed Payments

Act.

Subsidy on ISO Certifications

Subsidy on NSIC Performance and Credit ratings

Participation in Govt. Purchase registrations

Registration with NSIC

Counter Guarantee from Govt. of India through CGSTI

Waiver in Earnest Money (Security Deposit) in Govt. tenders

Stamp duty and Octroi benefits,

15% weight age in price Preference.

Reduction in rate of Interest from banks (Subject to ratings)

Free of Cost Govt. tenders

(It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law

have incorporated the word SSI in their exemption notifications. Though in many

cases they may define it differently. However, generally the registration certificate

issued by the registering authority is seen as proof of being SSI).

States/UTs have their own package of facilities and incentives for small scale.

They relate to development of industrial estates, tax subsidies, power tariff

subsidies, capital investment subsidies and other support. Both the Centre and the

State, whether under law or otherwise, target their incentives and support packages

generally to units registered with them.

Medium Enterprises:

Easy finance availability from Banks, without collateral requirement

Preference in procuring Government tenders

Reservation policies to manufacturing / production sector enterprises

Time-bound resolution of disputes with Buyers through conciliation and

arbitration

The Buyers have to ensure whether those suppliers of goods and services are

under the purview of MSMED Act i.e. the Buyers have to confirm the

registration of the suppliers under the MSMED Act.

The Buyer should ensure the payment before the end of credit period decided

else the interest would be payable.

In case of disputes, application to Micro and Small Enterprises Facilitation

Council (MSEFC) would trigger the conciliation and arbitration process. Once the

application is done under MSEFC, there is no provision to withdraw the

proceedings. Therefore, the Buyer should ensure the best ways to resolve the

disputes, if any, instead approaching to MSEFC in the initial stages of dispute.

The Buyers need to ensure that the Buyer does not owe any outstanding

amount including interest due to MSM Enterprises for more than 15 days.

Otherwise, the Buyer needs to disclose this non-payment in the Annual Financials

of the Buyer.

1.6 Organizational Structure

Organisational Set-up: The M/o MSME is having two Divisions called Small &

Medium Enterprises (SME) Division and Agro & Rural Industry (ARI) Division.

The SME Division is allocated the work, inter- alia, of administration, vigilance

and administrative supervision of the National Small Industries Corporation

(NSIC) Ltd., a public sector enterprise and the three autonomous national level

entrepreneurship development/training originations. The Division is also

responsible for implementation of the schemes relating to Performance and Credit

Rating and Assistance to Training Institution, among others. SME Division is also

responsible for preparation and monitoring of Results- Framework Document

(RFD) as introduced in 2009 by the Cabinet Secretariat under Performance

Monitoring and Evaluation System (PMES). The ARI Division looks after the

administration of two statutory bodies viz. the Khadi and Village Industries

Commission (KVIC), Coir Board and a newly created organization called

Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises

the implementation of the Prime Minister's Employment Generation Programme

(PMEGP). 

The Implementation of policies and various programmes schemes for providing

infrastructure and support services to MSME's is undertaken through its attached

office, namely the Office of the Development Commissioner (010 DC (MSME)),

National Small Industries Corporation (NSIC), Khadi and Village Industries

Commission (KVIC); the Coir Board, and three training institutes viz., National

Institute for Entrepreneurship and Small Business Development (NIESBUD),

NOIDA, National Institute for Micro, Small and Medium Enterprises (NI-MSME),

Hyderabad, Indian Institute of Entrepreneurship (lIE), Guwahati and Mahatma

Gandhi Institute for Rural Industrialization (MGIRI), Wardha a society registered

under Societies Registration Act, 1860. 

The National Board for Micro, Small and Medium Enterprises (NBMSME)

was established by the Government under the Micro, Small and Medium

Enterprises Development Act, 2006 and Rules made there under. It examines the

factors affecting promotion and development of MSME, reviews existing policies

and programmes and make recommendations to the Government in formulating

the policies and programmes for the growth of MSME.

MSME-DO has a network of 30 MSME Development Institutes (MSME –

DIs), 28 Branch MSME-Development Institutes (Br. MSME-DIs), 4 MSME

Testing Centres (MSME-TCs), 7 MSME Field Testing Stations (MSME-TSs), 18

Autonomous Bodies - which include 10 MSME Tool Rooms (MSME-TRs), 6

MSME Technology Development Centres (MSME-TDCs) 2 MSME Central

Footwear Training Institutes (MSME-TDC-CFTIs). There are also 2 MSME

Departmental Training Institutes (MSME-TIs) and one Departmental MSME Hand

Tools Development Centre (MSME-TDC-Hand Tools).

The network of 30 MSME Development Institutes (MSME – DIs), and 28

Branch MSME Development Institutes has been set up in State capitals and other

industrial cities all over the country. The main activities of these institutions are as

follows:-

Conducting Entrepreneurship, Management and Skill Development

Programmes;

Assistance/Consultancy to prospective and existing Entrepreneurs

Preparation of State and District Industrial Profiles

Preparation of Project Profiles of Products / Industries feasible in the MSME

Sector;

Energy Conservation, Pollution Control, Quality Control & Technology

Upgradation;

Ancillary Development and

Providing Common Facility Services in Workshop/Lab Laboratories.

MSME Development Institutes (MSME – DIs), also have common facility

workshops in various trades. There are at present 42 such common facility

workshops.

MSME Testing Centres (MSME-TCs) at Chennai, Delhi, Kolkata and Mumbai

have facilities for quality upgradation, training/consultancy in testing, quality

control, quality management, process quality control systems, etc. The 7 MSME

Field Testing Stations (MSME-FTSs) provide focused testing services in 7 cities

viz; Bangalore, Bhopal, Changanacherry, Jaipur, Hyderabad Kolhapur and

Puducherry having significant concentration of MSMEs.

1.7 MSME Clusters

A cluster is a sector targeted geographical concentration of micro and/ or

small & medium enterprises (MSMEs/MSMEs), service providers and institutions

faced with common opportunities and threats. In other words, a cluster of MSMEs

is a concentration of economic enterprises, producing a typical product/service or a

complementary range of products/services within a geographical area. The

location of such enterprises can span over a few villages, a town or a city and its

surrounding areas. Thus a cluster of MSMEs, hereafter referred to as “cluster”, is

identified by the ‘product/service’ that the micro and small enterprises produce and

the ‘place’ where the enterprises are located. Foundation for MSME Clusters

assists institutions in undertaking cluster based local area development, effectively

and inclusively in developing and transition economies.

A. Definition of Clusters

A cluster is defined as a concentration of enterprises producing same or

similar products or strategic services and is situated within a contiguous

geographical area spanning over a few villages, a town or a city and its

surrounding areas in a district and face common opportunities and threats.

Accordingly, we have not considered activities which are of daily use services

and/or where scope for joint action or passive cooperation is minimal or where the

product grouping is too wide for common threats/opportunities to emerge. Clusters

may be broadly divided into the following broad categories:

Industrial cluster: Having at least 100 enterprises and/or a minimum turnover of

Rs.100 million. Units in these clusters are functioning from factory premises with

hired workers. Such clusters have a mix of micro, small, medium, few large and at

times all micro units. 

Micro-enterprise clusters: Such clusters are all micro units and are mostly done

by household based units by mostly utilising home based workers. These include

artisanal (handicrafts and handloom) and other micro enterprise clusters. A

handloom cluster has a minimum of about 500 looms and that of handicrafts and

other microenterprise clusters is estimated to have around 50 units. 

Features of Cluster:  

Give rise to collective benefits, for example through the spontaneous inflow of

suppliers of raw materials, components and machinery or the availability of

workers with sector specific skills.

Favour the creation of providers of specialised technical, administrative and

financial services.

Create a conducive environment for the development of inter-firm co-operation

as well as of co-operation among public and private institutions to promote

local production, innovation and collective learning.

Clusters: Some Facts

Around 1157 SME (industrial) and approx. 6000 artisan/micro enterprises

clusters are estimated to exist in India.

The micro and SME clusters in India are estimated to have a significantly high

share in employment generation.

B. Development of MSMEs through cluster development approach

The Foundation for MSME Clusters (FMC) is an apex national body

known worldwide as a pioneer organization for the development of MSMEs

through cluster development approach. FMC has rich experience of working with

MSMEs and has provided services in the areas of advocacy, implementation and

coordination, training and research to more than 150 clusters nationally and

globally across 10 countries. FMC draws its technical roots from UNIDO that has

provided a broad range of project based services to the ‘Micro, Small & Medium

Enterprises’ (MSMEs), their representative ‘Business Membership Organisations’

(BMOs), Technical agencies, Financial institutions and Government (both state

level and national level) in India since 1996. FMC was set up for conceptualisation

and implementation of such initiatives for MSME sector across various thematic

areas of specialisation that include productivity & competitiveness, energy

efficiency, business responsibility, policy & research, common infrastructure

development, training & capacity building, marketing and innovation.

Clusters of micro, small and medium enterprises (MSMEs) are found in

abundance across the globe. Since the early nineties, cluster based development of

MSMEs has been adopted in more than fifty countries. The Foundation for MSME

Clusters (FMC) was conceptualized to contribute towards this process of cluster

based development of MSMEs and thus enhance their competitiveness, generate

sustainable employment and alleviate poverty. The United Nations Industrial

Development Organisation (UNIDO) conceptualized and initiated the process of

creating the Foundation for MSME Clusters (FMC). FMC was legally constituted

as a non-government, non-for-profit registered trust, in the year 2005.

Various Boards under MSME sector

Office of the Development Commissioner [MSME]: The Micro, Small and

Medium Enterprises- Development Organisation (MSME-DO) is headed by the

Additional Secretary & Development Commissioner (MSME). The Office of the

Development Commissioner (Micro, Small & Medium Enterprises) assists the

Ministry in formulating, co-ordinating, implementing and monitoring different

policies and programmes for the promotion and development of MSMEs in the

country. In addition, it provides a comprehensive range of common facilities,

technology support services, marketing assistance, etc. through its network of 30

Micro, Small and Medium Enterprises-Development Institutes (MSME-Dls); 28

Branch MSME-Dls; 4 MSME Testing Centres (MSME-TCs); 7 MSME-Testing

Stations (MSME-TSs); 2 MSME-Training Institutes (MSME-Tls); and 1 MSME-

Technology Development Center-Hand Tools (MSME-TDC-Hand Tools). The %

DC (MSME) also operates a network of Tool Rooms and Technology

Development Centres (including 2 Footwear Training Institutes) which are

autonomous bodies registered as Societies under the Societies Act. The Office

implements a number of schemes for the MSME sector, the details of which have

been duly incorporated in the booklet.

Khadi & Village Industries Commission: The Khadi & Village Industries

Commission (KVIC), established under the Khadi and Village Industries

Commission Act, 1956 (61 of 1956), is a statutory organization engaged in

promoting and developing khadi and village industries for providing employment

opportunities in rural areas, thereby strengthening the rural economy. The

Commission is headed by full time Chairman and consists of 10 part-time

Members. The KVIC has been identified as one of the major organizations in the

decentralized sector for generating sustainable rural non-farm employment

opportunities at a low per capita investment.

This also helps in checking migration of rural population to urban areas in search

of the employment opportunities. The main functions of the KVIC are to plan,

promote, organize and assist in implementation of the

programmes/projects/schemes for generation of employment opportunities through

development of khadi and village industries. Towards this end, it undertakes

activities like skill improvement, transfer of technology, research & development,

marketing, etc. KVIC co-ordinates its activities through State KVI boards,

registered societies and cooperatives. It has under its aegis a large number of

industry-specific institutions spread in various parts of the country.

Coir Board: The Coir Board is a statutory body established under the Coir Board

Industry Act, 1953 (NO. 45 of 1953) for promoting overall development of the

coir industry and improving the living conditions of the workers engaged in this

traditional industry. The Coir Board consists of a full-time Chairman and 39 part-

time Members. The activities of the Board for development of coir industries,

inter-alia include undertaking scientific, technological and economic research and

development activities; collecting statistics relating to exports and internal

consumption of coir and coir products; developing new products and designs;

organizing publicity for promotion of exports and internal sales; marketing of coir

and coir products in India and abroad; preventing unfair competition between

producers and exporters; assisting the establishment of units for manufacture of the

products; promoting co-operative organization among producers of husks, coir

fibre, coir yarn and manufactures of coir products; ensuring remunerative returns

to producers and manufacturers, etc.

National Small Industries Corporation Limited (NSIC): NSIC, established in 1955,

is headed by Chairman-cum-Managing Director and managed by a Board of

Directors. 

The main function of the Corporation is to promote, aid and foster the growth of

micro and small enterprises in the country, generally on commercial basis. 

NSIC provides a variety of support services to micro and small enterprises catering

to their different requirements in the areas of raw material procurement; product

marketing; credit rating; acquisition of technologies; adoption of modern

management practices, etc. 

NSIC implements its various programmes and projects throughout the country

through its 9 Zonal Offices, 39 Branch Offices, 12 Sub Offices, 5 Technical

Services Centres, 3 Technical Services Extension Centres, 2 Software Technology

Parks, 23 NSIC-Business Development Extension Offices and 1 Foreign Office.

1.9 Government Policies and Support Measures: Brief History

The evolution of the policy framework and support measures of the

Government can be broadly grouped into the following three periods:

1948-1991: In all the Policy Resolutions from 1948 to 1991, recognition was

given to the micro and small enterprises, termed as an effective tool to expand

employment opportunities, help ensure equitable distribution of the national

income and facilitate effective mobilization of private sector resources of capital

and skills. The Micro, Small and Medium Enterprises Development Organisation

[earlier known as Small Industries Development Organization (SIDO)] was set up

in 1954 as an apex body for sustained and organized growth of micro, small and

medium enterprises. Within next two years, the National Small Industries

Corporation, the Khadi and Village Industries Commission and the Coir Board

were also set up.

The era provided the supportive measures that were required to nurture

MSEs, in the form of reservation of items for their exclusive manufacture, access

to bank credit on priority through the Priority Sector Lending Programme of

commercial banks, excise exemption, reservation under the Government Purchase

Programme and 15% price preference in purchases, infrastructure development

and establishment of institutes for entrepreneurial and skill development. MSME –

Development Institutes [earlier known as Small Industries Service Institute (SISI)]

were set up all over India to train youth in skills/entrepreneurship. Tool Rooms

were established with German and Danish assistance for providing technical

services essential to MSEs as also for skill-training. At the State level, District

Industries Centres were set up all over the country.

1991-1999: The new Policy for Small, Tiny and Village Enterprises of August,

1991 laid the framework for government support in the context of liberalization,

which sought to replace protection with competitiveness to infuse more vitality

and growth to MSEs in the face of foreign competition and open market.

Supportive measures concentrated on improving infrastructure, technology and

quality. Testing Centres were set up for quality certification and new Tool Rooms

as well as Sub-contracting Exchanges were established. The Small Industries

Development Bank of India (SIDBI) and a Technology Development and

Modernization Fund were created to accelerate finance and technical services to

the sector. A Delayed Payment Act was enacted to facilitate prompt payment of

dues to MSEs and an Industrial Infrastructure Development (IID) scheme was

launched to set mini industrial estates for small industries.

1999 onwards: The Ministry of MSME [earlier known as Ministry of Small Scale

Industries and Agro & Rural Industries (SSI & ARI)] came into being from 1999

to provide focused attention to the development and promotion of the sector.

The new Policy Package announced in August, 2000 sought to address the

persisting problems relating to credit, infrastructure, and technology and marketing

more effectively. A Credit Linked Capital Subsidy Scheme was launched to

encourage technology up gradation in the MSE sector and a Credit Guarantee

Scheme was started to provide collateral-free loans to micro and small

entrepreneurs, particularly the first generation entrepreneurs. The exemption limit

for relief from payment of Central Excise duty was raised to Rs.1 crore ($0.25

million) and a Market Development Assistance Scheme for MSEs was introduced.

At the same time, consultations were held with stakeholders and the list of

products reserved for production in the MSE sector was gradually reduced each

year. In 2006, the long-awaited enactment for this sector finally became a reality

with the passage of the Micro, Small and Medium Enterprises Act. In March,

2007, a third Package for the Promotion of Micro and Small Enterprises was

announced which comprises the proposals/schemes having direct impact on the

promotion and development of the micro and small enterprises, particularly in

view of the fast changing economic environment, wherein to be competitive is the

key of success.

Measures for promotion, development and enhancement of competitiveness of

micro, small and medium enterprises.

Extension of credit facility for micro, small and medium enterprises,

Preference policies in procurement of goods and services for micro and small

enterprises,

Provision for Central funds.

The main services rendered by MSME-DO are:

Advising the Government in policy formulation for the promotion and

development of MSME sector.

Providing techno-economic and managerial consultancy, common facilities

and extension services to the MSME sector.

Extending facilities for technology upgradation, modernisation, quality

improvement and infrastructure.

Developing Human Resources through training and skill upgradation.

Making available economic information services.

Maintaining a close liaison with the Central Ministries, Planning

Commission, State Governments, Financial Institutions and other

Organisations concerned with development of MSME sector.

Evolving and coordinating Policies and Programmes for development of

MSME sector as ancillaries to large industries.

1.10 Importance and Contribution of MSME

The Micro Scale and Medium Enterprises (MSMEs) play an important role

in the economic development of any country. MSME enterprises can be rightly

called as the backbone of the GDP of India. The MSME sector in India is growing

at an exceptionally fast rate due to which it is proving to be beneficial to the Indian

Economy. However, there are some important points that need to be considered for

further development of the MSME sector.

MSME contributes in the following:

Rural industrialization

Rural development and decentralization of industries

Creation of employment opportunities and more equitable income distribution

Use of indigenous resources; earning of foreign exchange (FOREXs) resources

Creation of backward and forward linkages with existing industries

Entrepreneurial development

The development of MSMEs is one of the sustainable ways of reducing the

level of poverty and improving the quality of life in household through job and

wealth creation. According to the United Nation Development program (UNDP),

MSMEs have the highest capital, employment ratio and are a source of income for

a lot of people World over. The most important thing is that MSMEs also act as

safeguard in times of economic recessions.

The MSMEs constitute over 90% of total enterprises in most of the economies

and are credited with generating the highest rates of employment growth and

account for a major share of industrial production and exports. In India too, the

MSMEs play a pivotal role in the overall industrial economy of the country. In

recent years the MSME sector has consistently registered higher growth rate

compared to the overall industrial sector. With its agility and dynamism, the sector

has shown admirable innovativeness and adaptability to survive the recent

economic downturn and recession.

As per available statistics (4th Census of MSME Sector), this sector employs

an estimated 59.7 million persons spread over 26.1 million enterprises. It is

estimated that in terms of value, MSME sector accounts for about 45% of the

manufacturing output and around 40% of the total export of the country.

This sector contributes 8% of the country’s GDP and employs around 60

million people, through 26 million enterprises. MSMEs in the country manufacture

over 6,000 products.

The factors that have contributed to the growth of the MSME sector in India:

MSME units in India are being funded by foreign and local fund providers.

The advancement in technology has also contributed highly to the MSME

sector. There are numerous business directories and trade portals available

online that contains a rich database of manufacturers, sellers and buyers

To start and maintain these units, minimal investment is required.

These MSME units are now being funded by many government and private

banks.

The MSME sector is one of the greatest contributors of domestic production as

well as the export earnings· Many major mergers have taken place recently.

Strengths:

The MSME sector is often driven by individual creativity.

It’s potential for greater innovation both in terms of products and processes.

Enterprises can be set up with very small amounts of investments.

Location flexibility to be located anywhere in the country. There is a well-

spread network at the national, state and the local level for providing a

comprehensive range of support services under marketing, technology, finance,

and infrastructure and skill development.

Maximum potential for employment generation.

Lowest Administrative cost & risk is lesser.

Assist decentralization of power.

Induce growth of industrially backward regions ensuring balanced regional

development.

Weakness:

Small and Medium Enterprises (MSME), have inadequate access to finance

due to lack of financial information and non-formal business practices.

MSME’s also lack access to private equity and venture capital and have a very

limited access to secondary market instruments.

MSME’s face fragmented markets in respect of their inputs as well as products

are also vulnerable to market fluctuations.

MSME’s lack easy access to inter-state and international markets. There is lack

of awareness of global best practices.

The access of MSME’s to technology and product innovations is also limited.

MSME’s face considerable delays in the settlement of dues/payment of bills by

the large scale buyers. With the deregulation of the financial sector, the ability

of the banks to service the credit requirements of the MSME sector depends on

the underlying transaction costs, efficient recovery processes and available

security. There is an immediate need for the banking sector to focus on credit

and finance requirements of MSME’s.

Suffering from low technology base resulting in low productivity and poor

quality

Major weakness another weakness is absence of marketing channels and brand

building capacity f products.

The lack of reliable and updated data base is another area of concern as it

inhibits monitoring of development initiatives.

There is a lack of coordination among the various organizations involved in the

promotion of MSMEs, including organizations of the State Governments and

also there are poor linkages with the institutional stakeholders in the private

sector.

1.11 Challenges Faced by the MSME Sector

The challenges being faced by the small and medium scale sector may be briefly

set out as follows-

Small and Medium Enterprises (MSME), particularly the tiny segment of the

small enterprises have inadequate access to finance due to lack of financial

information and non-formal business practices. MSME’s also lack access to

private equity and venture capital and have a very limited access to secondary

market instruments.

MSME's have to face the increased cost of raw materials.

MSME’s face fragmented markets in respect of their inputs as well as products

and are vulnerable to market fluctuations.

MSME’s lack easy access to inter-state and international markets. There is lack

of awareness of global best practices.

The access of MSME’s to technology and product innovations is also limited.

In the competitive market, MSMEs need protection against market

manipulation and need to be given institutional support

MSME’s face considerable delays in the settlement of dues/payment of bills by

the large scale buyers. With the deregulation of the financial sector, the ability

of the banks to service the credit requirements of the MSME sector depends on

the underlying transaction costs, efficient recovery processes and available

security. There is an immediate need for the banking sector to focus on credit

and finance requirements of MSME’s.

There is need of high level research and development required to develop these

sectors in both the urban and rural areas

The MSME units are functioning efficiently and effectively, but even now

there is lack of information regarding the inputs of these industries, like the

raw materials, skills, machinery and equipment.

Though the MSME industries are spread all over the urban areas, proper

infrastructure needs to be developed in the rural areas to establish these

industries there.

Concluding Observation

From the above information of chapter 1, it can be concluded that how MSME

sector is beneficial for different kinds of enterprises i.e- micro, small and medium.

There are various institutions under MSME sector like COIR, KVIC, and NSIC

etc. which helps in the overall development of MSME sector. These institutions

provide various kinds of supportive services for its development and enhancement.

Apart from these institutions, government of India also providing some measures

for its development by implementing some policies, schemes.

CHAPTER: 2

Literature ReviewA literature review is a description of the literature relevant to a particular

field or topic. Literature covers everything relevant that is written on a topic:

books, journal articles, newspaper articles, historical records, government reports,

theses and dissertations, etc. A literature review gives an overview of the field of

inquiry: what has already been said on the topic, by the key writers.

Srinivas (2005)

He found that MSMEs play a very significant role in the economy in terms

of balanced and sustainable growth, employment generation, development of

entrepreneurial skills and contribution to export earnings. However, despite their

importance to the economy, most SMEs are not able to stand up to the challenges

of globalisation, mainly because of difficulties in the area of financing. With the

opening up of the Indian economy, it has become necessary to consider measures

for smoothening the flow of credit to this sector.

Das (2007)

He found that despite an elaborate and dynamic policy framework, the

progress of Indian MSMEs continues to be hindered by some of the basic

constraints as poor credit availability, low levels of technology (hence, low

product quality and limited exportability) and inadequate or no basic

infrastructure, both physical and economic. It is too early to assess the impact and

effectiveness of a plethora of new policy measures, announced very recently. He

says that much of the potential of small firms to grow and nurture innovativeness

is shaped by the kind of infrastructure, both physical and economic, available and

can be accessed at reasonable costs.

Gupta (2008)

He founded that in India, the MSME sector is the second largest employer

after agriculture. With the growth in the Indian Economy it is of need for the

MSME to raise capital is becoming increasingly critical. He says that there is a

need for the dedicated stock Exchange for the MSME sector to cater to their needs

better which are different from the large industries.

Ravi (2009)

He concluded that the MSME sector has often been termed the ‘engine of

growth’ for developing economies. Over the last few years, there have been major

policy changes at the federal and state level aimed at consolidating and developing

this sector. The MSME Development Act of 2006 is perhaps the most crucial of

these recent policy changes.

Penumaka (2009)

He concluded that it reflects that while the government can be a facilitator

of growth and promoter of equity, the role of the large enterprises is also critical,

The MSME could be the steroid the Indian economy needs at this juncture. The

SME provides not only the much needed boost for growth, employment and

exports but more significantly, contributes to geographical and social equity.

Raja, SME Times (2010)

The challenges that the SMEs face today seem to be primarily in the area

of ICT and to quote specifically, ERP. The SMEs lament that whenever they

approached the usual ERP firms, the first question they were faced with was that

of their turn-over as they are quoted based on their turnover. The question that

arises is does the Indian SME presents an opportunity for Technology Start-ups to

deliver smaller and much palatable solutions, which fit both the pocket and the

background of the SMEs.

Shah (2011)

He found that the major problem of inadequate financing to SMEs needs an

urgent attention amongst the others such as adequate credit delivery to SMEs,

better risk management, technological upgradation of Banks esp. Public Sector

Banks, and attitudinal change in Bankers. The SMEs sector is considered to be an

untapped market for financial institutions in India. The only way out of the mire is

that the Indian manufacturing sector could be strengthened by the existing rural

systems and making them self-sufficient. This could take place only by helping

Small and Medium Enterprises and the rural artisans (people with innate skills and

talents) in becoming effective and competitive enough to face the future. A

number of issues and business practices of global players and markets can be

observed, learnt and adapted for ensuring competitiveness of Indian SMEs.

Venkatesh and Muthiah (2012)

Found that the role of small & medium enterprises (SMEs) in the industrial

sector is growing rapidly and they have become a thrust area for future growth.

They emphasized that nurturing SME sector is essential for the economic well-

being of the nation.

Singh et al. (2012)

He analyzed the performance of Small scale industry in India and focused

on policy changes which have opened new opportunities for this sector. This study

concluded that SSI sector has made good progress in terms of number of SSI units,

production & employment levels. The study recommended the emergence of

technology development and strengthening of financial infrastructure to boost SSI

and to achieve growth target.

Concluding Observation

After having a review of available literature it can be concluded that this

sector plays a crucial role for the economic growth of the country. It is visible that

a lot have been discussed about growth of the MSME, but very less number of

studies found about financing practices of MSME and from these available studies

about financing practices, it can be summarized that the one of the major problem

presently faced by MSME is of inadequate finance.

CHAPTER- 3

Research Methodology

INTRODUCTION

Research methodology is a way to systematically solve research problem. In

includes the study of various steps that are generally adopted by researcher in

studying his research problem along with the logic behind them. It is necessary for

a researcher to know not only the research methods/techniques but also the

methodology. It may be noted, in the context of planning & development that the

significance of research lays in its quality and not in quantity. Researchers should

know how to apply particular research techniques, but they also need to know

which of these methods or techniques, are relevant and which are not, and what

would they mean and indicate and why.

3.1 Type of Research -

I have used Descriptive Research as a tool to study the financing practices

of MSME. By using a descriptive study, the research will able to depict whether

MSME sector faces any problem during financing practices. Descriptive Research

Studies are those studies, which are concerned with specific predictions, with

narration of facts and characteristics concerning individual, group or situation.

3.2 Objectives of the Study -

1) To understand the structure of MSME sector in India

2) To investigate into the financing practices of MSMEs in India

3) To explore the polices or initiatives taken by Government to finance MSME

sector

3.3 Data Collection Sources –

The descriptive study will be based on secondary data to be obtained from

various websites and books. This study is exclusively based on secondary data

which has been collected from the various issues of Annual Reports on MSMEs

and Handbook of Statistics on the Indian Economy published by Ministry of

MSMEs and Reserve Bank of India (RBI) respectively.

3.4 Scope of the Study -

To understand a research project of this nature, the scope is normally defined with

respect to problems faced by MSME while taking finance from government,

institutions etc. The study helps to understand the conceptual framework of

contribution of MSME to country’s growth. Also Study the various government

policies and supporting measures for MSME. The report will help to know about

the historical background of the MSME, providing benefits to various kinds of

sectors like agriculture, technical, etc. This study also includes various schemes,

financial assistance provided by different financial institutions or government.

3.5 Limitations of the Study –

The major limitation of the project is the time frame. The time period for this

project report is short.

Another limitation of the project is the secondary sources. The data is collected

from past researches and comparisons made by experts in earlier times.

As the data is based on secondary sources, the authenticity of the data may be

less.

Certain conclusions are based on other researcher opinion and preference.

CHAPTER: 4

Analysis and Discussion

4.1 Introduction

The Micro, Small and Medium enterprises (MSMEs) are the backbone of

economic development in any country. They are the incubators for talent, innova-

tion and entrepreneurial spirit which is central to a country’s development. Effi-

ciently organized and innovative, MSMEs often exercise frugal management skills

and use local resources to create innovative products and services which cater to

any country’s growing needs.

There are about 30 million MSMEs in India accounting for 8% of India’s GDP,

45% of the total manufacturing output, and 40% of India’s exports. Employing

over 60 million, they churn out over 6000 products annually. The contribution of

Indian MSMEs to the GDP has been steadily growing over the years from about

5% in 2003 to 8.5% in 2011. However in order to continue scaling up, timely and

adequate access to financial services is an imperative, and this has been tradition-

ally one of the biggest hurdles.

4.2 Organisational Structure

The M/o MSME is having two Divisions called Small & Medium

Enterprises (SME) Division and Agro & Rural Industry (ARI) Division. The SME

Division is allocated the work, inter- alia, of administration, vigilance and

administrative supervision of the National Small Industries Corporation (NSIC)

Ltd., a public sector enterprise and the three autonomous national level

entrepreneurship development/training originations. The Division is also

responsible for implementation of the schemes relating to Performance and Credit

Rating and Assistance to Training Institution, among others. SME Division is also

responsible for preparation and monitoring of Results- Framework Document

(RFD) as introduced in 2009 by the Cabinet Secretariat under Performance

Monitoring and Evaluation System (PMES). The ARI Division looks after the

administration of two statutory bodies viz. the Khadi and Village Industries

Commission (KVIC), Coir Board and a newly created organization called

Mahatma Gandhi Institute for Rural Industrialization (MGIRI). It also supervises

the implementation of the Prime Minister's Employment Generation Programme

(PMEGP)

Fig. 4.2

Organisation Structure

4.3 MSMEs and their financing

a) Overview

The MSME sector in India is incredibly heterogeneous in terms of size of

the enterprises, variety of products and services produced and levels of technology

employed. As per the Micro, Small and Medium Enterprises Development Act of

2006, enterprises with the capital investment (plant, machinery and equipment)

levels within 10 crore INR (for services worth 5 crore INR) qualify as MSMEs.

The MSME sector contributes in a significant way to the growth of the

Indian economy with a vast network of over 32 million units, creating employment

of about 70 million, manufacturing more than 6000 products, contributing about

45% to manufacturing output and about 40% of exports, directly and indirectly.

It is an acknowledged fact that the MSME sector can help realise the target

of the proposed National Manufacturing Policy of raising the share of the

manufacturing sector in GDP from 16% at present to 25% by the end of 2022.

However, this sector has faced certain impediments to growth, owing to some

historical factors discussed below. Micro, Small and Medium Enterprises

(MSME) contribute nearly 8 percent of the country’s GDP, 45 percent of the

manufacturing output and 40 percent of the exports. They provide the largest share

of employment after agriculture. They are the nurseries for entrepreneurship and

innovation. They are widely dispersed across the country and produce a diverse

range of products and services to meet the needs of the local markets, the global

market and the national and international value chains.

The Ministry has a number of programmes to help and assist entrepreneurs

and small businesses. If you are planning to set up business, you may contact

National Institute for Entrepreneurship and Small Business Development

(NIESBUD), National Institute for Micro, Small and Medium Enterprises (NI-

MSME), Ia1ndian Institute of Entrepreneurship (IIE) or the Development

Commissioner (DCMSME) for details about their programmes. If you are an

existing entrepreneur and would like to improve your competitiveness, you may

contact DC, MSME who can be of assistance in various ways. If you are wanting

to set up a village industry or want to know more about Khadi or Coir Products,

you may contact KVIC or Coir Board. Ministry of MSME encourages and honors

innovation and enterprise.

B) Challenges

Despite showing a robust growth rate of over 10% over the last 5 years, the

MSME sector is beset with operational problems due to size and nature of

business. In 2010, the Prime Minister of India appointed a task force set up under

the chairmanship of the Principal Secretary, to consider various issues raised by

MSME associations, discuss with the stakeholders and chalk out an action agenda.

The key issues identified by the task force, and subsequently taken up by the

Planning Commission in the 12th plan are as follows:

Fig. 4.2B

Challenges faced by MSME

C) Financing of MSMEs

MSMEs require timely and adequate capital infusion through term loans and

working capital loans, particularly during the early and growth stages. Historically

the MSMEs have relied on following sources for financing their needs:

Retained earnings, funding through sale of assets

Ancestral capital, personal savings, loans from relatives, loans from

unregulated market

Institutional financing from scheduled commercial banks

Venture capital funds/ seed funds

(i) Financial support from public sector banks

Public sector banks have been pioneers in providing financial assistance to

several MSMEs which can approach the banks for loans under various schemes.

The government of India has shown strong commitment to double the credit flow

to this sector in the next five years. Hence the RBI has mandated scheduled

commercial banks to achieve 20% year-on-year credit growth to the MSME sector.

MSMEs needing financial assistance can approach the banks for aid as per the

specific schemes constituted for different types of financial aid.

Public sector banks have been advised to open at least one specialized

branch in each district. The banks have been permitted to categorize their MSME

general banking branches having 60% or more of their advances to MSME sector,

as specialized MSME branches for providing better service to this sector as a

whole. As per the policy package announced by the Government of India for

stepping up credit to MSME sector, the public sector banks will ensure specialized

MSME branches in identified clusters/centres with preponderance of small

enterprises to enable the entrepreneurs to have easy access to the bank credit and

to equip bank personnel to develop requisite expertise. Though their core

competence will be utilized for extending finance and other services to MSME

sector, they will have operational flexibility to extend finance/render other services

to other sectors/borrowers.

As on March 2014 there are 2887 specialized branches for lending MSME.

A) State Bank of India

State Bank of India is a pioneer in SME financing in India. As a bank, it has been

playing a critical role in the overall growth and development of the SME sector.

The Bank has developed a wide array of products and services in order to cater to

the evolving needs of the SME sector. It has over 1.3 million SME loan accounts

with total exposure of Rs 1.63 lakh crore as on March 2012. Under Micro and

Small Enterprises segment, the Bank has extended credit facilities to the tune of Rs

78,170 Cr as on December 2011 which contributed 52% of its total SME advances.

Apart from a wide network of branches across the country, 579 specialized

SME branches across the country have been kept under special focus to develop an

effective platform for SME lending. Single point contact through dedicated

relationship managers have been put in place for medium as well as small

enterprises. Centralized Processing Cells have been created for quick turnaround

time in sanction & disbursal for loans upto Rs 1 crore.

For inclusive growth, a special scheme called 'SME Collateral Free Loan' for

Micro & Small Enterprises segment has been designed for lending under

CGTMSE guarantee coverage with liberalized terms upto a credit limit of Rs 1.00

crore.

Supply Chain Finance Unit of SME offers Electronic Vendor Financing

Scheme (e-VFS) and Electronic Dealer Financing Scheme (e-DFS). Both schemes

are fully automated and work on the Banks internet banking platform which is

robust and real time.

The Bank offers various deposit products like eight SME Power variants in

Current Accounts and transaction products like Power Jyoti, to suit every needs of

the SME sector.

The Bank has adopted Cluster approach as a strategy to improve the credit

flow to SME sector through industrial and artisan clusters across the country. It

seeks to extend techno-managerial assistance and counselling support to SMEs

through Consultancy Services Cell and Project Uptech. This initiative facilitates

technology up-gradation in Industrial Clusters. The bank promotes

entrepreneurship through Entrepreneurship Development Programme (EDPs)

under tie-up with Entrepreneurship Development Institutes.

B) Punjab National Bank (PNB)

The Punjab National Bank (PNB) is one of the leading banks in India that offers banking aids to various industry in India. Apart from offering banking products, the bank has also forayed into the business of credit card/debit card, bullion, life and non-life insurance, gold coins and asset management, etc. The PNB also has a variety of offerings for the fastest developing MSME community in India.

MSME banking by PNB

Micro and small enterprises scheme

The PNB has realised the importance of the Micro and small sector which contrib-utes about 40 per cent of the gross turnover in the manufacturing sector, generates around 308 lakh employments, produces 7500 products and contributes more than 35 per cent of the country’s exports. So, the PNB has formulated a number of schemes to provide an impetus to growth of this sector.

The bank offers the following schemes.

1. Sarthak Udyami : Scheme for financing Micro and Small Enterprises

2. PNB Pragati Udyami: Scheme for financing industry related services/business enterprises

3. PNB Kushal Udyami

4. PNB Garrage Yogana

5. Loans for setting up industrial estates

6. PNB Vikas Udyami: Scheme for loans acquisition of ISO – 9000 Series Certi-fication

7. SME Sahayog Scheme

8. PNB Artisan Credit Card: Scheme to provide hassle-free financial support to ar-tisans

9. PNB Laghu Udyami Credit Card: A simplified loan delivery mechanism

10. Scheme for Advances to Small Road Transport Operators

11. Scheme for Advances to Owner-Drivers of Taxi Cars, Three Wheeler, Station Wagons, Tempos.

C) IDBI Bank MSME Finance

Loan for Small Business-IDBI Bank MSME Finance

IDBI Bank not only offers finance to MSMEs but also takes care of their all

banking needs under one roof with full range of banking products and services.

The Bank is in constant endeavour to introduce new products with a view to offer

wide array of solutions to the MSME Entrepreneurs.

IDBI Bank MSME Finance Advantage

o Complete Banking Solutions at one place

o Attractive Rate of Interest

o Hassle Free Process

o Faster Credit Delivery

IDBI Bank MSME Finance Products

SulabhVyapar Loan (Loan for Traders/Service Sector)-Aims to provide

hassle free finance to traders and to meet their business needs at competitive

interest rates.

Dealer Finance/ Dealer Solutions- To provide Liquidity to the distribution

chain partners.

Vendor Finance/ Vendor Solutions- Provides Working Capital and Bills

discounting facility to the vendors supplying to large corporate.

Loans to Small Road & Water Transport Operators- This product enables

various transport operators to acquire a small fleet of vehicles/ vessels.

Finance to Medical Practitioners- Hassle-free credit to doctors/medical

practitioners for setting up clinic or purchase of medical equipments.

Loans to Professionals & Self-employed- Special scheme to take care of

financial needs of Professionals and Self employed segment.

Lending Against the Security of Future Credit Card Receivables- Provides

financial assistance to the business entity accepting payments through

credit/debit cards.

LaghuUdhyami Credit Cards (LUCC)–Provides easy finance to existing

borrowers running Small business units, retail traders, artisans and other MSE

units.

Property Power (Loan against Property)-For unlocking the potential of

property and avail credit facility on easy terms for any business need.

SME Smart Line of Credit- Financial assistance available to the MSMEs in

the form of Pre-approved credit limits enabling them to grab unforeseen

business opportunities.

Funding under CGFMSE (Collateral Free Loans)-IDBI Bank offers Credit

facility upto Rs 1 Crore to Micro and Small Enterprises without insisting on

collateral and third party guarantee.

(ii) Government institutes and schemes

Central institutes and schemes

The following are the government bodies looking after MSME development and

some of the central government financing schemes available.

a) National Small Industries Corporation (NSIC) –

Financial and marketing assistance to the small scale unit supplying requisite

machinery on hire purchase and leasehold basis.

b) Small Industries Development Agency (SIDA) –

Single window service for SSI units

c) Credit Linked Capital Subsidy Scheme (CLCSS) –

Facilitates technology upgradation of micro and small enterprises. The

scheme provides 15% capital subsidy on institutional finance availed by them

for induction of well-established and improved technology in approved sub

sector products. The maximum limit of loan for calculation of capital subsidy

under the scheme is 100 lakh INR with a maximum subsidy of 15 lakh INR.

d) PMEGP Training Programme –

Beneficiaries can set up micro enterprises by availing of margin money

subsidy of 25% (35% for special categories) of the project cost in rural areas.

The maximum cost of the projects assisted under PMEGP is 25 lakh INR in

the manufacturing sector and 10 lakh INR in the service sector.

e) Small Industry Development Bank of India (SIDBI) (Eastern Regional

Office) –

Promotion, financing and development of the small scale sector, and co-

ordination of the functions of the institutions engaged in the promotion and

financing or developing industry in the small scale sector.

SIDBI also refinances institutions such as state financial corporation’s

(SFCs), state industrial development corporations (SIDCs), and commercial

banks against loans granted to the small-scale sector. SIDBI also acts as

financer for small-scale projects directly on a selective basis.

Products and services offered by SIDBI may be broadly classified:

Institutional: Focuses on refinance schemes, like MahilaUdyamNidhi, finance

to small transport operators, technology upgradation fund for textile units,

loans for acquisition of ISO certification, self-employment loan for ex-

servicemen, single window finance for short term credit, all of them operated

through SFCs or SIDCs or primary lending institutions or Banks or other

microfinance institutions, depending upon the category of loans.

Promotional: SIDBI acts as a nodal agency for several Government schemes

such as Technology several Government schemes such as Technology

Upgradation Fund Scheme for the textile sector, Integrated Development of

Leather Sector Scheme for the leather sector and Modernization/Upgradation

of Food Processing Industry.

SIDBI Venture Capital Fund Ltd (SVCL) manages two funds set up by SIDBI

at the national level.

The National Venture Capital Fund for Software and IT Industry (NFSIT) is

worth 100 crore INR, established with the focus of supporting incubation

projects of small-scale units in the IT and related business.

The SME Growth Fund has a corpus of 500 crore INR which targets growth-

oriented businesses in the areas of life sciences, retailing, light engineering,

food processing, IT, infrastructure related services, healthcare, logistics and

distribution, for making primary equity and equity related investments.

f) National Bank of Agriculture (NABARD) –

Assistance and refinance to farm and rural development agro processing

sector

g) Credit Guarantee Fund Trust for Micro and Small Enterprises

(CGTMSE)

CGTMSE, established jointly by SIDBI and the government of India, extends

credit facilities to the micro and small enterprises sector.

The mandate is:

Credit facilities, including term loans, fund and non-fund based working

capital facilities up to 1 crore INR extended to micro and small enterprises

are guaranteed up to 80% of the amount in default, subject to a maximum of

65 lakh INR. With regard to loans up to 5 lakh INR to micro units, the

coverage is 85%. Loans guaranteed under the scheme carry zero percent risk

weight and provision for the lending institution for the guaranteed portion.

The scheme also facilitates lending institutions by the evaluation of the credit

proposals on the basis of intrinsic merits of the projects, rather than merely

on adequacy of collaterals.

h) Reserve Bank of India Rural Planning and Credit Dept –

Providing refinance to nationalised banks and financial institutions in the

industry sector and framing of policy decision in the working of banks.

i) Exim Bank –

Credit facilities are available for financing all stages of the export cycle of

Indian firms. The bank’s lines of credit (LOC) extend to commercial banks,

financial institutions, regional development banks, and entities overseas serve

as a market entry mechanism to Indian exporters and provide a safe mode of

nonrecourse financing option to Indian exporters. The bank offers buyer’s

credit and supplier’s credit for exports on deferred payment terms. These

facilities help SMEs, to offer competitive credit terms to the buyers and to

explore newer geographical markets.

j) TUF –

TUF facilitates those SMEs that look to improvise their technological skills. It

provides 15% margin money subsidy for the SSI textile and jute sector in lieu

of 5% interest reimbursement on investment in TUF compatible specified

machinery subject to a capital ceiling of 200 lakh INR and ceiling on margin

money subsidy 15 lakh INR. A minimum of 15% equity contribution from

beneficiaries is ensured.

k) CLCSS –

Under CLCSS, tiny units with investment in plant and machinery of less than

10 lakh INR are eligible for a loan support of upto 8 lakh INR.

Tiny units with investment in plant and machinery between 10 lakh INR to 25

lakh INR are eligible for a loan support of upto 20 lakh INR.

Small units with investment in plant and machinery of above 25 lakh INR are

eligible for a loan support of upto 40 lakh INR.

l) Interest subsidy scheme of IPR-

It works effectively with the active assistance of banks and financial

institutions - The interest subsidy scheme helps in dispensation for labour-

intensive industry by extending the facility of 2% interest subvention for

handlooms, handicrafts, carpets and small and medium enterprises (SMEs).

m) NEF –

Under NEF, loans are given to firms with a project cost (including margin

money for working capital) not exceeding 50 lakh INR in case of new projects.

No interest is charged on the loan component except service charge of 5% p.a.

n) Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

Through Coir Board – 75% for CFC, technology upgradation, product

development and 100% for capacity building, market development with

component-wise ceiling. The components of funding are technology

upgradation, setting-up of common facility centres (CFCs), development of

new products and designs, new and improved packaging, etc, market

promotion activities, capacity-building activities, other activities identified by

the implementing agency (IA) as necessary for the development of the cluster.

1) Schemes of the NABARDSMEs and farm sectors. It will also step up its fiscal support for the

farming and agro sector as well as the rural India based MSMEs. Loan from banks

with refinance facility from NABARD is available for starting many of the

agricultural activities including dairy farming. The margin money depends on the

category of the borrowers and range from 5 to 25%. Banks are free to decide the

rates of interest within the overall guidelines. However, for working out the

financial viability and bankability of the model projects it has been assumed the

rate of interest would be 12 % p.a for ultimate borrowers.

Schemes-

a) Production Credit -

Nature of Assistance - This is a short-term refinance facility, aimed at

supporting agricultural production operations and marketing of crops by

farmers and farmers cooperatives marketing and distribution of inputs like

fertilisers, seeds and pesticides.

Production and marketing activities of village cottage industries, handicrafts,

handlooms, power looms, artisans, small scale and tiny industries and other

rural non-farm enterprises.

Amount- Eligible institutions for this facility are state cooperative banks

(SCBs) and regional rural banks (RRBs). The period of credit is 12 months.

b) Short Term Credit –

Nature of Assistance - This is a short term financing facility for agricultural

operations, pisciculture activities and distribution of agricultural inputs.

Refinance is provided for production purposes at concessional rate of interest

to state cooperative banks (SCBs) and regional rural banks (RRBs) by way of

sanction of credit limits.

Amount- Each withdrawal against the sanctioned credit limit is repayable

within 12 months.

c) Direct Credit

Nature of Assistance - Supporting cooperatives in order to strengthen the

owned funds position of cooperative credit institutions and thereby increasing

their capacity to leverage larger resources, NABARD provides loans to state

governments to contribute to the share capital of these institutions.

Amount- Direct credit is provided by regional rural banks and government

banks.

2) SIDBI

Small Industries Development Bank of India (SIDBI), set up on April 2, 1990

under an Act of Indian Parliament, presently acts as the Principle Financial

Institution for the Promotion, Financing and Development of the Micro, Small and

Medium Enterprise (MSME) sector and also co-ordinates the functions of the

institutions engaged in similar activities. As on March 31, 2012, the Authorised

Capital of SIDBI is ` 1000 crore and Paid Up Capital is ` 450 crore. Presently, the

Bank provides refinance support through a network of eligible member lending

institutions for onward lending to MSMEs and direct assistance is channelized

through the Bank’s branch offices. SIDBI also extends financial assistance in the

form of loans, grants, equity and quasi-equity to Non Government Organisations /

Micro Finance Institutions (MFIs) for on-lending to micro enterprises and

economically weaker sections of the society, enabling them to take up income

generating activities on a sustainable basis.

SIDBI has initiated various schemes for upliftment of MSME sector and

continues to be the prime lending institution for MSME sector. The necessity of

continuously providing low cost credit to MSEs through concessional resource

support to SIDBI has become more pronounced in the present scenario of recovery

of the Indian economy from the economic slowdown. As per the Union Budget

2011-12, SIDBI has been allocated ` 5000 crore to SIDBI for refinancing

Banks/SFCs at concessional rates, out of which SIDBI received ` 4,711 crore,

which has been channelized to banks/SFCs.

(iii) Financial support from venture capitals

SME private equity and venture capital funds

Venture capital is a means of equity financing for rapidly-growing

MSMEs. Venture capitalists provide funds after carefully scrutinising projects.

Their main aim is to earn higher returns on their investments, but their methods are

different from traditional lenders. They take active part in the management of the

company as well as provide the expertise and qualities of good bankers,

technologists, planners and managers. As funds required by SMEs are too large for

microfinance institutions and too small or too risky for commercial banks, this is

one of the primal issues that the PE/VC component addresses as part of the

investment promotion of the consolidated project for SME development in India.

Advantages of VC funding

Venture capital has a number of advantages over other forms of finance:

It injects long-term equity finance which provides a solid capital base for

future growth.

The venture capitalist is a business partner, sharing both the risks and rewards.

Venture capitalists are rewarded by business success and capital gain. The

venture capitalist is able to provide practical advice and assistance to the

company based on past experience.

The venture capitalist also has a network of contacts in many areas that can

add value to the company, such as in recruiting key personnel, providing

contacts in international markets, introductions to strategic partners, and if

needed, co-investments with other venture capital firms when additional

rounds of financing are required.

Mode and criteria for investmentVenture capital provides financial assistance primarily by way of equity or

equity-linked capital investment. It also endeavours to provide mentoring support

and other value addition to enable funded companies to achieve rapid growth and

achieve and maintain their competitive edge in domestic and international markets.

The VC fund seeks a strategic stake in the funded companies with board

representation and other rights as venture capital investor.

Key criteria for SME project selection are as follows:

Strong and committed core team

Growth potential

Long-term competitive advantage

Viable business plan

A clear exit plan

Institutions offering VC/ PE

Some venture capital firms, institutional investors and banks who provide

venture capital to MSMEs are as follows:

SIDBI Venture Capital Limited (SVCL)

IFCI Venture Capital Funds Limited (IVCF)

Helion Venture Partners/ Erasmic Venture Fund

Accel India Venture Fund/ Seed Fund

Upstream Ventures

Aavishkaar India Micro Venture Capital Fund (AIMVCF)

IL&FS Trust Company Limited

Infinity Venture India Fund

Walden International Investment Group

SEAF India Investment and Growth Fund

BTS India Private Equity Fund Limited

Canbank Venture Capital Fund

SBI Capital Markets Limited

ICICI Bank’s SME venture capital fund

IDBI Bank’s SME venture capital fund

This is not an exhaustive list and there are many niche VC funds who actively

participate in providing financial assistance to SMEs.

(iv) Snapshot of bank-specific schemesSome of the bank specific schemes are outlined below. The MSMEs can contact

the nearest regional branch of the following banks to get more details of the

schemes mentioned below.

1. State Bank of India

Commodity backed warehouse receipt financing, SSI loans, Traders easy loan

scheme, Open term loan, Business current accounts, Retail Trade, SBI Shoppe,

SME Petro Credit, Small business credit card, Paryatan Plus, Swarojgar credit

card, etc.

2. Bank of Baroda

Baroda SME Gold Card, Baroda Vidyasthali Loan, KVIC-ISEC, Scheme for

Financing Energy Efficiency Projects, Baroda Overdraft Against Land and

Building, Baroda SME Loan Pack, Baroda Arogyadham Loan etc.

3. Export-Import Bank of India

Agri Finance, Several Debt Restructuring schemes for Small and Medium

Enterprises (SMEs) etc.

4. United Bank of India

United Doctor Plus, United Medical Plus, United Mahila Udhyami Yojana, United

Shilpi Card, United UdyogshreeYojana etc.

5. Indian Bank

IND SME secures, IB Doctor Plus, IB BPO finance, IB Vidyamandir, IB

ayushman Scheme, IB my own shop etc.

6. Central Bank of India

Cent trade, Cent Doctor Scheme etc.

7. IDBI

Entrepreneurial development fund, Dealer finance program, SME

hosiery A/C etc.8. Corporation Bank

One-Time Settlement Scheme for NPA under SME, Corp Kisan Vehicle Loan

Yojna, Corp Kisan Farm Mechanisation Scheme, Corp Kisan Tie-Up Loan

Scheme, Corp Gram Mitra Yojana etc.

9. Vijaya Bank

Liquidity Finance To MSEs, Technology Upgradation Fund Scheme For MSE,

VijayaKisan Card, Credit Guarantee Fund Scheme To MSE, etc.

10. Union Bank of India

Union high pride, Union support, Union transport, Union Cyber etc.

11. PNB

PNB vikashudyami, PNB SME sahayog scheme etc.

12. Syndicate Bank

Synd Vyapar, Synd Udyog, Synd Swarozgar Credit Card, Synd Laghu Udhyami

Credit Card, Synd General Credit Card etc.

13. Dena Bank

Dena Shakti Scheme [for women entrepreneurs], Scheme for financing wind mills

Channel financing scheme for dealers / suppliers etc.

14. UCO bank

SME Medium Term Loans, Scheme for Financing Energy Efficiency Projects etc.

15. Allahabad Bank

Micro, Small & Medium Enterprises (MSME) Advances etc.

16. Andhra Bank

Composite loan scheme, Composite loan scheme, Term Finance, Open cash credit

(OCC), AB Power Tools (Shakti) etc.

17. ICICI Bank Ltd.

The ICICI bank edge, vendor bill discounting, SME dialogue etc.

18. HDFC Bank LTD.

Working capital finance, construction equipment loan, commercial vehicle finance,

Credit substitute, Export credit etc.

19. Yes Bank

Working capital loans, Term loans, Export finance etc.

20. Axis Bank

Financing to Non-Priority Sector Entities, Overdraft against Property, Financing to

Priority Sector Entities, Term Loan against Property, Lease Rent Discounting, Business

Loan for Property (BLFP) etc.

21. Kotak Mahindra Bank

Kotak Business Loan, Working Capital Finance, International Import Finance,

International export Finance.

D) General financing schemes

These are few financing schemes drafted for the MSMEs, which the industry could

approach for (depending on their requirement). Almost all the public sector banks do

provide the following schemes. The MSMEs are advised to visit the Banks with

their requirement to get more detailed information.

a) SME Credit Card (upto 10 lakh INR)

Loans are for the micro enterprises including SSI units, small business enterprises,

professional and self employed persons, small retail traders, transport operators etc for

meeting any kind of credit requirement including purchase of shops, maximum limit

being 10 lakh INR including term loan and working capital loan. The loan will be

sanctioned for three years with an annual review.

b) SME Smart Score(upto 50 lakh INR)

The loan product is for manufacturing trade and services segments to meet working

capital needs and for acquisition of fixed assets. A simplified appraisal model has been

developed to standardise the appraisal process for loans up to 50 lakhs INR in SSI sector

and up to 25 lakh INR for trade and services sector available with attractive interest

rates. The loan will be sanctioned for two years with an annual review.

c) SBI SMILE (interest free loan as equity)

The scheme provides interest free loan as equity assistance towards part of margin

requirements of the project, to assist eligible professional and technically qualified

entrepreneurs setting up new micro and small enterprises and units covered under the

bank’s project uptake for technology upgradation. Equity assistance is up to a maximum

of 10 lakh INR. The interest free loan is repayable in three years with a moratorium

period of 5-7 years.

d) General Purpose Term Loan for SSI sector (up to 50 lakh INR)

This product is for existing borrowers for any general commercial purpose such as

shoring up of net working capital, substitution of high cost debt, R&D, ISO certification,

etc. subject to disbursement being made in line with the specific purpose approved. The

maximum loan available is 50 lakh INR repayable in maximum period of five years.

e) Open Term Loan (up to2.5 crore INR)

A pre-sanctioned term loan with limit up to 2.5 crore INR for existing or new corporate

or non-corporate customers in manufacturing sector and up to 1 crore INR for hotels,

hospitals, educational institutions in service sector.

The sanctioned limit is valid for a year. Margin requirement is 10%. The borrower can

utilise pre-approved sanction to plan capital expenditure and negotiate with suppliers of

machinery and finalize best possible contract.

f) Corporate Loan (from 25 lakh INR up to 10 crore INR)

The scheme provides term loan for all existing customers and established non customers

(subject to takeover norms of the bank) in manufacturing sector. Quantum of finance is

minimum 25 lakh INR and maximum 10 crore INR for non-corporate and no cap for

corporate borrowers. No margins are required under the scheme. A maximum of three

corporate loans can be outstanding per borrower at any point of time.

g) SME Credit Plus

For existing and new borrowers this scheme provides a clean cash credit facility to meet

contingencies. Under the scheme 20% of aggregate WC or max 25 lakh INR fund based

limit can be availed. Margins are not required and interest rate will be same as

applicable to cash credit limit. The facility is repayable in two months and can be

availed for 12 times a year.

h) Standby Line of Credit

For existing units including export units, an additional working capital(fund based and

non-fund based) limit by way of cash credit, packing credit and bills discounting against

stock, receivables to meet contingencies such as bunching of orders, delay in shipment,

sudden increase in raw material prices, mismatch in cash flows. Under this 15% of

aggregate working capital or max 5 crore INR can be availed. Margins as applicable to

original limit.

i) Rice Mill Plus

Term loan for acquisition of machinery, factory building for modernisation, expansion

and working capital needs of rice mills engaged in milling, sorting, grading and

polishing. No upper ceiling on loan amount.

j) SME Collateral Free Loan (SMECFL)

Collateral free loan for viable projects of micro and small enterprises in manufacturing

and service sector with maximum guarantee cover up to1 crore INR under the CGTMSE

guarantee scheme for working capital and term loan (FB+NFB) facilities.

k) Traders Easy Loan

Easy loan for specific business needs of traders, self-employed, small business

enterprises, agents engaged in purchase and sale of food grains etc. Loan can be availed

for normal day to day business requirements or for purchase of equipment/ fixed assets.

Loan is available up to 5 crore INR with very competitive rate of interest.

l) Dal Mill Plus

Term loan for dal mill owners for acquisition of machinery, factory building,

modernization and all working capital needs.

m) Artisan Credit Card

Maximum loan under the scheme is 2 lakh INR. The scheme provides loans to Artisans

to meet their credit requirements both for investments as well as working capital in a

flexible manner at liberal rates of interest.

n) SME Construction Equipment Loan

Maximum loan available is up to 25 crore INR with minimum margin applicable up to

15%. Tenure of loan can be extended up to maximum of four years. Term loan for

purchase of construction equipments viz. loaders, excavators, cranes etc., for contractors

and firms engaged in construction activity

o) SME Car Loan

Loans for purchase of passenger cars, jeeps, multi utility vehicles, etc., to the

promoter/partner/senior executives of the SME units having borrowing arrangements

with the bank.

E) Initiatives of the Ministry of Micro, Small and Medium Enterprises

(MSME) in recent years -

1. Promulgation of MSMED Act, 2006

In a significant policy initiative, the Government has enacted ‗Micro,

Small and Medium Enterprises Development Act, 2006‘, which aims to facilitate

the promotion and development and enhance the competitiveness of MSMEs. The

Act, which came into force from 2nd October 2006, fulfilled a long-cherished

demand of this sector. Apart from giving legal strength to the definitions of micro,

small and medium enterprises, this Act also contains penal provisions relating to

the delayed payment to these enterprises.

2. Khadi and Village Industries Commission Act, 1956

The Khadi and Village Industries Commission Act, 1956 has been

comprehensively amended in 2006, introducing several new features to facilitate

professionalism in the operations of the Commission as well as field-level formal

and structured consultations with all segments of stakeholders. A new Commission

has also been constituted in Nov. 2011.

Khadi is the proud legacy of our national freedom movement and the father

of the nation. Khadi and Village Industries (KVI) are two national heritages of

India. One of the most significant aspects of KVI in Indian economy is that it

creates employment at a very low per capita investment. The KVI Sector not only

serves the basic needs of processed goods of the vast rural sector of the country,

but also provides sustainable employment to rural artisans. KVI today represent an

exquisite, heritage product, which is 'ethnic' as well as ethical. It has a potentially

strong clientele among the middle and upper echelons of the society.

3. Prime Minister’s Employment Generation Programme

A national level credit linked subsidy scheme, namely, ‗Prime Minister‘s

Employment Generation Programme (PMEGP) ‘was introduced in August 2008

by merging erstwhile PMRY and REGP schemes of this Ministry. Under this

programme, financial assistance is provided for setting up of micro enterprises

each costing upto Rs.10 lakh in service sector and Rs.25 lakh in manufacturing

sector. The assistance is provided in the form of subsidy upto 25 per cent (35 per

cent for Special category including weaker sections) of the project cost in rural

areas while it is 15 per cent (25 per cent for Special category including weaker

sections) for urban areas.

During 2012-13, disbursements were made in 56,997 cases utilizing

Rs.1078.61 crore as margin money subsidy. The estimated employment generation

is 4.28 lakh persons. An amount of Rs.1418.28 crore including Rs.1380 crore

margin money subsidy has been provided in BE 2013-14.

4. Procurement Policy for MSEs

A Public Procurement Policy for MSEs was notified in March 2012. The

policy envisages that every Central Ministry/PSU shall set an annual goal for

procurement from the MSE sector with the objective of achieving minimum 20%

of the total annual purchases from MSEs in a period of three years. Of this, 4%

will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

The policy will help to promote MSEs by improving their market access and

competitiveness through increased participation by MSEs in Government

purchases and encouraging linkages between MSEs and large enterprises.

5. Task Force on MSMEs

A Task Force under the chairmanship of the Principal Secretary to Prime

Minister was constituted to address the issues of MSME sector. The Task Force, in

its Report, has made recommendations in the areas of credit, marketing, labour,

rehabilitation and exit policy, infrastructure, technology, skill development,

taxation and development of MSMEs in the North-East and Jammu & Kashmir. A

large number of recommendations have been implemented. A Council on MSMEs

under the chairmanship of Hon‘ble Prime Minister has been constituted to lay

down the broad policy guidelines and review the development of the MSME

sector. For ensuring timely/speedy implementation of the recommendations of the

Task Force and follow-up on the decisions of the Prime Minister‘s Council on

MSMEs, a Steering Group under the chairmanship of Principal Secretary to the

Prime Minister has also been constituted.

6. 4th All India Census of MSMEs

The 4th All India Census of MSMEs (2006-07), which was launched in

May 2008, were released during 2011-12. The results reveal that there are 36.2

crore MSMEs in 2006-07, providing employment to over 80 crore persons. This is

the first Census after the enactment of the MSMED Act, 2006 and includes, for the

first time, medium enterprises also.

7. Enhanced Credit Flow to the MSE Sector

For strengthening the delivery of credit to the MSEs, the Government

announced a ‗Policy Package for Stepping up Credit to Small and Medium

Enterprises (SME)‘ in August 2005 for doubling the credit flow to this sector

within a period of five years. This has resulted in a significant increase in the

credit flow from Public Sector Banks (PSBs) to the micro and small enterprises

(MSE) sector — with the outstanding credit of public sector banks increasing from

Rs.1,02,550 crore at the end of March 2007 to Rs.2,78,398 crore at the end of

March 2010. It has further enhanced to Rs.3, 96,343 crore at the end of March

2012. With constant monitoring and efforts made by the Government, the credit

flow from Public Sector Banks (PSBs) to the MSE sector has registered a growth

of 47.4%, 26.6% and 45.4% during 2007-08, 2008-09 and 2009-10 respectively —

higher than the stipulated 20% in the Policy Package. The growth of credit during

2011-12 and 2012-13 has been 5% and 25% respectively.

8. Credit Guarantee Scheme

The Government has set up a Credit Guarantee Fund to provide relief to

those micro and small entrepreneurs who are unable to pledge collateral security in

order to obtain loans for the development of their enterprises. The guarantee cover

provided is upto 75% of the credit facility upto Rs. 50 lakh(85% for loans up to

Rs. 5 lakh provided to micro enterprises, 80% for MSEs owned/operated by

Women and all loans to NER)with a uniform guarantee at 50% of the credit

exposure above Rs. 50 lakh and upto Rs. 100 lakh.

A composite all-in annual guarantee fee of 1.0 % per annum of the credit

facility sanctioned (0.75% for credit facility upto Rs. 5 lakh and 0.85% for above

Rs.5 lakh and upto Rs.100 lakh for women, micro enterprises and units in NER

including Sikkim) is now being charged. As a result, the scheme has been able to

overcome the initial inhibition of bankers and is steadily gaining in acceptance.

Further, efforts made to enhance the awareness have led to the coverage of

14,19,807 proposals ( for guarantee cover for a sanctioned loan amount of Rs.

70026.28 crore) at the end of March 2014. The Government is making concerted

efforts to further enhance the awareness of the scheme throughout the country for

enhancing the coverage of the Scheme.

9. National Manufacturing Competitiveness Programme

Ensuring the growth of Small Scale Sector at a healthy rate is crucial for

the overall growth of Manufacturing Sector as also the National Economy. For this

to happen the small scale sector has to become competitive. In the 2005-06

Budget, the Government announced formulation of a National Competitiveness

Programme, particularly to support the Small and Medium Enterprises (SMEs) in

their endeavour to become competitive. Accordingly, the National Manufacturing

Competitiveness Council (NMCP) has finalized a five year National

Manufacturing Competitiveness Programme (NMCP). The National

Manufacturing Competitiveness Programme (NMCP) highlights the needs for

enhancing the competitiveness of Indian Manufacturing sector. This is determined

by measuring the productivity vis-à-vis the use of its human capital and natural

resources.

The NMCP is the nodal programme of the Government to develop global

competitiveness among Indian MSMEs. The Programme was initiated in 2007-08.

The programme targets at enhancing the entire value chain of the MSME sector

through the following schemes:

(a) Lean Manufacturing Competitiveness Schemes for MSMEs;

(b) Promotion of Information & Communication Tools (ICT) in MSME sector;

(c) Technology and Quality Upgradation Support to MSMEs;

(d) Design Clinic scheme for MSMEs;

(e) Enabling Manufacturing Sector to be Competitive through Quality

Management

Standards (QMS) and Quality Technology Tools (QMSQTT);

(f) Marketing Assistance and Technology Upgradation Scheme for MSMEs; and

(g) National campaign for buildings awareness on Intellectual Property Rights

(IPR).

(h) Support for Entrepreneurial and Managerial Development of SMEs through

Incubators.

(i) Bar Code under Market Development Assistance (MDA) Scheme.

10. Micro & Small Enterprises Clusters Development Programme (MSE-

CDP)

The Micro and Small Enterprises – Cluster Development Programme

(MSE-CDP) is being implemented for holistic and integrated development of

micro and small enterprises in clusters through Soft Interventions (such as capacity

building, marketing development, export promotion, skill development,

technology upgradation, organizing workshops, seminars, training, study visits,

exposure visits, etc.), Hard Interventions (setting up of Common Facility Centers)

and Infrastructure Development (create/upgrade infrastructural facilities in the

new/existing industrial areas/ clusters of MSEs). Assistance is provided for the

following activities under the scheme-

(i) Preparation of Diagnostic Study Report with Government of India (GoI)

grant of maximum Rs 2.50 lakh (Rs.1.00 lakh for filed offices of the

Ministry of MSME).

(ii) Soft Interventions with GoI grant of 75% of the sanctioned amount of the

maximum project cost of Rs 25.00 lakh per cluster. For NE & Hill States,

Clusters with more than 50% (a) micro/ village (b) women owned (c)

SC/ST units, the GoI grant will be 90%.

(iii) Detailed Project Report (DPR) with GoI grant of maximum Rs 5.00 lakh

for preparation of a technical feasible and financially viable project report.

(iv) Hard Interventions in the form of tangible assets like Common Facility

Centre having machinery and equipment for critical processes, research

and development, testing, etc. with GoI grant upto 70% of the cost of

project of maximum Rs 15.00 crore. For NE & Hill States, Clusters with

more than 50% (a) micro/village (b) women owned (c) SC/ST units, the

GoI grant will be 90%.

(v) Infrastructure Development with GoI grant of upto 60% of the cost of

project of Rs 10.00 crore, excluding cost of land. GoI grant will be 80% for

projects in NE & Hill States, industrial areas/ estates with more than 50%

(a) micro (b) women owned (c) SC/ST units.

(vi) The GoI assistance shall also be available to Associations of Women

Entrepreneurs for establishing exhibition centres at central places for

display and sale of products of women owned micro and small enterprises

@ 40% of the project cost.

Progress under the components of MSE-CDP Cluster Development:

A total of 921 interventions in various clusters spread over 28 States and 1

UTs in the country have so far been taken under the programme for Diagnostic

Study, Soft Interventions and Hard Interventions (CFCs). Further, 170 projects

have been taken up for infrastructure development under the scheme.

11. Technology Centre Systems Programme (TCSP)

Ministry of Micro, Small and Medium Enterprises, Government of India

have established 18 Technology Centres (TCs) earlier known as Tool Rooms (10

Nos) and Technology Development Centres (8 Nos) spread across the country.

The Technology Centres‘ primary focus is to support industries particularly

MSMEs in the country through access to advanced technologies & providing

technical advisory support as well as skilled manpower by offering opportunities

for technical skill development to the youth at varying levels ranging from School

Drop-outs to Graduate Engineers.

Recent evaluation studies of TCs have found a strong need to replicate

them at more places. In view of important role played by these Centres for

providing thrust to manufacturing sector, Government is considering to upgrade

and expand network of MSME Technology Centres at an estimated cost of Rs.

2200 crore with World Bank funding.

Towards achieving this objective, Ministry of MSME, Government of

India is in the process of establishing 15 Technology Centres (TCs) and

upgrading / modernizing the existing TCs under Technology Centre Systems

Programme (TCSP). The Programme is expected to improve the competitiveness

of Micro, Small and Medium Enterprises (MSMEs) in key manufacturing

industries across India by facilitating improved access to technology and business

advisory services as well as skilled workers through systems of financially

sustainable Technology Centres. The Proposed Program will reinforce the

technical capability of the Technology Centres as well as industry sector to

perform well at both National and International levels.

12. Credit Linked Capital Subsidy Scheme

The Ministry of Micro, Small and Medium Enterprises is operating a

Scheme, namely, Credit Linked Subsidy Scheme (CLCSS) for technology

upgradation of Micro and Small Enterprises (MSEs). The Scheme aims at

facilitating technology upgradation of Micro and Small Enterprises by providing

15% Capital Subsidy (limited to maximum Rs. 15.00 lakh) for purchase of plant

and machinery. Maximum limit of eligible loan for calculation of subsidy under

Scheme is Rs. 100.00 lakh. Presently, 51 well established and improved

technologies/Sub-Sectors have been approved under the Scheme. For effective and

transparent implementation of the Scheme, Ministry has started ―online

Application and Tracking system w.e.f 01.10.2013 for online lodgement of

subsidy claims by nodal banks. Since inception of the Scheme, 28,287 units have

availed subsidy of Rs. 1,619.33 crore upto 31.03.2014.

13. Entrepreneurship and Skill Development

In today‘s fast paced economic and industrial scenario, technology has

become more vital than ever before. Its development and absorption are key

ingredients for the overall economic development of a nation. This is even more

relevant in the context of developing countries like India where technological

development and employment generation have to go hand to hand. Thus the

Ministry of MSME, which has the overall mandate for the development of

MSMEs, has been undertaking a number of programmes for encouraging

entrepreneurship and skill development amongst youth to fulfill the need of skilled

manpower by the industry. These programmes are conducted through a nationwide

network of establishments under office of Development Commissioner (MSME),

Khadi and village Industries Commission (KVIC), National Small Industries

Corporation (NSIC), Coir Board and various other organizations under the

Ministry.

The training programmes conducted by various organizations of the

Ministry cater to all strata of the society as per their need, covering traditional

/rural industries based programmes for the lower rung of the society, to the high

end, high tech training programmes, such as conventional manufacturing, CAD

/CAM, Tool design, CNC, Mechatronics etc., conducted by Technology Centres of

the office of Development Commissioner, MSME, catering to the need of highly

skilled people in present day modern Industries.

Apart from other programmes, Ministry is also promoting self

entrepreneurship by providing training on entrepreneurship and subsidy on loan to

the unemployed youth in the country under Prime Minister‘s Employment

Generation Programme (PMEGP) creating lakhs of employment opportunities. In

its efforts to provide integrated solution to the industry in the form of producing

well trained , skilled and innovative manpower through technology Centres (Tool

Rooms), one of the mile stone achieved by the Ministry was Finance Minister‘s

announcement in his Budget speech in February 2013, regarding setting up of 15

new Tool Rooms with World Bank Assistance. The work of establishing these

Technology centres is on fast track. To improve the quality of training, strategies

like, real time online monitoring, standardization of course curriculum, up

gradation of workshops and focus on workshop based courses have been adopted

by the Ministry. Through Entrepreneurship / Skill Development programmes

conducted by various organizations of this Ministry, about 16.87 lakh persons

were trained during the XIth Plan period. The Ministry has fixed a target to train

42.65 lakh persons during XIIth Plan period through various schemes being

implemented by various organizations under the Ministry.

14. Rajiv Gandhi Udyami Mitra Yojana

The scheme aims to promote and support establishment of new micro and

small enterprises through handholding of potential first generation entrepreneurs,

who have already successfully completed Entrepreneurship Development

Programme (EDP)/ Skill Development Programme (SDP) /

Entrepreneurship-cum-Skill Development Programme (ESDP) of at least two

weeks‘ duration, or have undergone vocational training (VT) from ITIs. One of the

main objectives of handholding is to guide and facilitate the potential

entrepreneurs in dealing with various procedural and legal hurdles and completion

of various formalities which are required for setting up and running of enterprise

successfully and to save them from harassment at the hands of various regulatory

agencies for want of required compliances. It will not only increase the proportion

of potential entrepreneurs trained under various EDPs/ SDPs/ESDPs/ VT in setting

up their enterprises, more importantly, it will also enhance survival / success rate

of newly set up enterprises.

As a component of this scheme, the Ministry has launched a MSME Call

Centre (known as ‗Udyami Helpline‘) with a toll-free number 1800-180-6763.

The Udyami Helpline, inter alia, provides basic information on how to set up an

enterprise, various schemes being implemented for the promotion of MSMEs,

accessing loans from banks and further contacts for obtaining detailed information.

15. Performance and Credit Rating Scheme

To sensitize the MSE sector on the need for credit rating and encourage the

MSEs to maintain good financial track record enabling them to earn higher rating

for their credit requirements, the Government in April 2005 launched the

‗Performance and Credit Rating Scheme‘. The implementation of the scheme is

through National Small Industries Corporation (NSIC). Reputed Rating Agencies

have been empanelled by NSIC from which the MSEs can select the one to be

engaged by it for obtaining the rating. The Ministry of MSME subsidises the cost

of rating by sharing 75% of the fee charged by the Rating Agency, subject to a

ceiling of Rs.40,000.

16. National Small Industries Corporation (NSIC)

National Small Industries Corporation Ltd. (NSIC), is an ISO 9001:2008

certified Government of India Enterprise under Ministry of Micro, Small and

Medium Enterprises (MSME).

NSIC has been working to fulfil its mission of promoting, aiding and

fostering the growth of small industries and industry related Micro, Small and

Medium Enterprises in the country. Over a period of five decades of transition,

growth and development, NSIC has proved its strength within the country and

abroad by promoting modernization, upgradation of technology, quality

consciousness, strengthening linkages with large medium enterprises and

enhancing exports – projects and products from small enterprises. NSIC operates

through countrywide network of offices and Technical Centres in the country. To

manage operations in African countries, NSIC operates from its office in

Johannesburg, South Africa. In addition, NSIC has set up Training cum Incubation

Centre & with a large professional man power; NSIC provides a package of

services as per the needs of MSME sector.

NSIC carries forward its mission to assist small enterprises with a set of

specially tailored schemes designed to put them in a competitive and advantageous

position. The schemes comprise of facilitating marketing support, credit support,

technology support and other support services.

17. Khadi Reform Development Programme (KRDP)

In order to revitalize and reform the traditional khadi sector with enhanced

sustainability of khadi, increased artisans welfare, increased incomes and

employment opportunities for spinners and weavers with lesser dependence on

Government grants, a Khadi Reform and Development Programme was

formulated by the Ministry of MSME in consultation with Khadi and Village

Industries Commission (KVIC), Asian Development Bank (ADB), Department of

Economic Affairs (DEA) and M/s Price Waterhouse Coopers (PWC). This

programme is proposed to be implemented in 300 selected khadi institutions

willing to undertake the identified reforms. The DEA has arranged a sum of US$

150 million equivalent to Rs.717 crore (approx.) from ADB to be given to KVIC

as grant in four tranches over a period of 36 months. After completion of

procedural formalities, and signing of necessary agreement and announcement by

ADB, the first tranche of Rs.96 crore was released to KVIC in February, 2010.

‗Khadi Mark‘, a mark to establish genuineness of Khadi was launched in

September 2013 under the KRDP.

18. Market Development Assistance (MDA) Scheme

The scheme has been introduced w.e.f. 01.04.2010 and envisages financial

assistance @ 20% on value of production of khadi and polyvastra which will be

shared among artisans, producing institutions and selling institutions in the ratio

25:30:45. The scheme has been introduced on the basis of recommendations of

several committees constituted during the past few decades and after running

several pilot projects in the past. The need had arisen because Khadi production so

far was not based on market demand or performance and the rebate system did not

benefit the spinners and weavers. Also KVIC was constrained to devote most of its

resources for administration of rebate; to the detriment of its remaining

responsibilities regarding development of the sector.

MDA seeks to rectify this imbalance and provide flexibility/ freedom to the

khadi institutions to take innovative measures to improve its marketing

infrastructure such as renovation of outlets, training sales persons, computerization

of sales, design improvement, publicity, discount to customers, improved

equipments of production, training of artisans and capacity building so that khadi

can attract more customers not just because of discount, but because of its quality

design and appeal. Most importantly, for the first time a definite share of 25% of

MDA has been earmarked for spinners and weavers which will give them a

prominent role in the entire khadi chain of activities. An amount of Rs.126.94

crore has been released to KVIC during 2013-14 towards MDA.

19. Workshed Scheme for Khadi Artisans

Under this scheme, assistance is provided for construction of Worksheds

for Khadi artisans for better work environment. Financial assistance of Rs.8.23

crore for establishment of workshed has been provided to 4444 artisans in 2013-

14.

20. Scheme for Enhancing Productivity & Competitiveness of Khadi Industry

and Artisans

The scheme aims to provide financial assistance to 200 of the ‗A+‘ and ‗A‘

category khadi institutions of which 50 institutions would be those which are

managed exclusively by beneficiaries belonging to Scheduled Castes/Scheduled

Tribes to make them competitive with more market driven and profitable

production by replacement of obsolete and old machinery and equipment.

22. Scheme for Rejuvenation, Modernisation and Technological Upgradation

of Coir Industry

Under the scheme being implemented since 2007-08, assistance is provided to

spinners and tiny household sector for replacement of outdated ratts/looms and for

constructing worksheds so as to increase production and earnings of workers.

23. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

This Scheme was launched in 2005 for regeneration of traditional industries

identified clusters in khadi, village industries and coir sectors with a view to make

these industries more productive and competitive and increase the employment

opportunities in rural and semi-urban areas. The objective of the Scheme is to

establish a regenerated, holistic, sustainable and replicable model of integrated

cluster-based development of traditional industries in khadi, village and coir

sectors. So far 96 clusters (khadi – 29, Village Industries – 47 and Coir - 20) have

been developed under SFURTI.

It is proposed to develop 800 clusters during the XII Plan.

24. Mahatma Gandhi Institute for Rural Industrialization (MGIRI)

A national level institute named MGIRI has been established at Wardha,

Maharashtra as a society under Societies Registration Act, 1860 by revamping

Jamnalal Bajaj Central Research Institute has in association with IIT, Delhi for

strengthening the R& D activities in khadi and village industry sectors. The main

objectives of the institute are as under:

To accelerate rural industrialization for sustainable village economy so that

KVI sector co-exists with the main stream.

Attract professionals and experts to Gram Swaraj

Empower traditional artisans

Innovation through pilot study/field trials

R&D for alternative technology using local resources

24. National Board for MSMEs

The Government has set up for the first time, a statutory National Board for

Micro, Small and Medium Enterprises so as to bring together the representatives of

different sub-sectors of MSMEs, along with policy-makers, bankers, trade unions

and others — in order to move towards cohesive development of the sector. The

Board has been meeting periodically. The Board has recently been re-constituted

on 27th May 2013.The deliberations and directions of the National Board pave the

way to guide and develop enterprises in this sector — to become more competitive

and self-reliant.

25. Announcements for MSME sector in Union Budget, 2013-14

Hon‘ble Union Finance Minister, while presenting Union Budget 2013-14

to the Parliament, made various announcements specifically for MSME sector, as

under:

Micro, small and medium enterprises (MSME) have a large share of jobs,

production and exports. Too many of them do not grow because of the fear of

losing the benefits associated with staying small or medium. To encourage them to

grow, the benefits or preferences enjoyed by them will now stay with them for

upto three years after they grow out of the category in which they obtained the

benefit. To begin with, the non-tax benefits would be made available to an MSME

unit for three years after it graduates to a higher category.

To provide greater support to MSMEs, the refinancing capability of SIDBI

has been enhanced from the current level of Rs.5,000crore to Rs.10,000 crore per

year.

SIDBI set up the India Microfinance Equity Fund in 2011-12 with

budgetary support of Rs.100 crore to provide equity and quasi-equity to Micro

Finance Institutions (MFI). An amount of Rs.104 crore has been committed to 37

MFIs. Earlier Rs.100 crore were allocated to the IME Fund in the budget and now

another sum of Rs.100 crore has been provided in present budget for the Fund.

The Factoring Act 2011 has been passed by Parliament. A provision of a

corpus of Rs.500 crore to SIDBI has been made in the present budget to set up a

Credit Guarantee Fund for factoring.

Tool Rooms and Technology Development Centres set up by the Ministry of

Micro, Small and Medium Enterprises have done well in extending technology and

design support to small businesses. Finance Minister has proposed to provide, with

World Bank assistance, a sum of Rs.2, 200crore during the 12th Plan period to set

up 15 additional Centres.

Incubators play an important role in mentoring new businesses which start

as a small or medium business. The new Companies Bill obliges companies to

spend 2 percent of average net profits under Corporate Social Responsibility

(CSR). The Ministry of Corporate Affairs will notify that funds provided to

technology incubators located within academic institutions and approved by the

Ministry of Science and Technology or Ministry of MSME will qualify as CSR

expenditure.

Appropriate action has been initiated by the concerned Govt. agencies for

implementation of these announcements.

26. Launch of MSME Virtual Clusters

An initiative of Ministry of Micro, small and Medium Enterprise, Virtual

Clusters during the Presentation Ceremony of National Awards to Micro, Small

and Medium Enterprises at a function organized in Vigyan Bhavan, New Delhi.

An Initiative of Ministry of Micro, Small and Medium Enterprises, virtual Clusters

conceived as supplementing Physical Clusters, is a dedicated Web-portal which

will enable the small businesses located anywhere in the country as well as the

other stakeholders; Banks and other financial institutions; Central State and other

Government bodies; NGO, Industry Experts, Consultants and trainers; Academia;

Research & Technical Institutions etc. to register instantly thereon and avail

prompt linkages with each other. This Web-platform would facilitate the

stakeholders to leverage the expertise of each other for their mutual growth and

benefit. The web portal would be administered by the National Institute for

Entrepreneurship and Small Business Development (NIESBUD), an organization

of the Ministry of MSME.

27. Inter-Ministerial Committee for Accelerating Manufacturing in MSME

An Inter-Ministerial Committee for Accelerating Manufacturing in MSME

was set up under the Chairmanship of Secretary (MSME). The Committee

submitted its report in September 2013. The Committee has made a number of

recommendations covering issues of regulation, finance, infrastructure, technology

and market through the different stage of the life cycles of MSMEs.

Concluding Observation-

Financial assistance is given to micro, small and medium enterprises

including first generation entrepreneurs under various schemes for availing

different services to solve the current/upcoming issues in the enterprise as well as

to enhance the efficiency and effectiveness of its operations.

Fast changing global economic scenario has thrown up various

opportunities and challenges to the MSMEs in India. While on the one hand, many

opportunities have opened up for this sector to enhance productivity and look for

new markets at national and international level, it has also, on the other hand, put

an obligation to upgrade their competencies in various fields like marketing,

finance, business development, operations, technology etc. For this purpose,

MSMEs are required to make use of various services.

CHAPTER: 5

Findings of the Study

SMEs are facing problems which are quite unique in nature such as access to

capital, technology, skill, market, awareness etc. Among all the problems access,

to adequate and timely credit at reasonable cost is the most critical problems for

MSME. The major reason for this has been the high risk perception among

bankers about the sector and the high transaction costs for loan appraisal.

With the strong focus on promoting the MSME sector and supporting their func-

tioning by timely capital infusion, easy access to credit, providing necessary advis-

ory assistance and technology infrastructure, the MSME’s are slated for an unpre-

cedented growth in the years to come.

SMEs are the engine of India's economy. They are a central part of the economic

development model in the emerging economies like India, and they play a signific-

ant part in fuelling growth, innovation and prosperity. Despite all the positive de-

velopment happening in this sector, there is still a huge demand supply gap and the

sector is plagued by numerous challenges, such as:

Availability of timely and affordable credit

Inadequate capital infusion and delayed payments from large corporate and

PSU’s leading to working capital gaps

Restricted access to organized finance.

Traditionally banks have been the largest source of funds for the SMEs. Banks

in India have had a conservative ecosystem, being risk averse and credit has

primarily been extended against collateral.

CHAPTER: 6

Suggestion and Conclusion

6.1 Suggestions

There should be proper coordination among various institutions i.e. MSME-

DC-DI, MSME-DI, NSIC, NIESBUD, DSIIDC, KVIC, COIR for the various

categories of assistance on time.

The procedure of providing financial support should be made simple, transpar-

ent and less time consuming.

The government should encourage industry association and various private or-

ganizations to play role in the financing of small scale units.

6.2 Conclusion

The present study focuses on the existing financial support provided by different

institutions, banks, government to MSME sector. The largest institute being Office

of Development Commissioner- Micro, Small and Medium Enterprises (MSME-

DC). It functions as the nodal Development Agency under the Ministry of Micro,

Small and Medium Enterprises. The MSME sector plays a significant role in the

Indian economy. A catalyst for socio-economic transformation of the country, the

sector is critical in meeting the national objectives of generating employment, re-

ducing poverty, and discouraging rural-urban migration. This sector facing many

challenges due to inefficient resource utilization. Of the many challenges impeding

the growth and development of MSMEs, inadequate access to financial resources

is one of the key bottlenecks that make these enterprises vulnerable, particularly in

periods of economic downturn.

References Internet Reference-

1) http://msme.gov.in/mob/AboutMSME.aspx

2) http://www.dcmsme.gov.in/MSME-DO/sido.htm

3) http://www.idbi.com/msme-finance.asp

4) http://msme.gov.in/web/portal/FAQ.aspx

5) http://www.cdc.org.in/UserFiles/File/Notifications/Proposals/FACS-

MSME.pdf

6) https://sbiforsme.sbi.co.in/SME/aboutUs.htm?execution=e2s1

7) http://www.ciol.com/msme-banking-pnb/

8) http://financialservices.gov.in/banking/sidbi.asp

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