“MSME Connect”, a program to reach out to the MSMEs is being organized by Confederation of Indian Micro, Small and Medium Enterprises (CIMSME) across India.
MSME-Connect aims to educate entrepreneurs on solutions that are available to them, build their capacity to take advantage of these solutions and build their businesses to match their dreams.
MSME connect is also a platform for dreamers to meet possible investors and mentors.
THE GOALS FOR THIS PROJECT INCLUDE:
- To open the minds of Entrepreneurs to their capacity to develop their businesses beyond where they are currently.
- Build MSME’s that have the capacity to a point where they can employ and manage a minimum of 5 – 50 people in their organizations.
- To provide simple, and easily assessable financial ideas, solutions and services that will empower their businesses to grow.
- To create real and tangible networking opportunities for all members of the community.
The prime objective of the seminar is to connect the MSMEs to the right fund provider as per their specific financial needs ranging from collateral-free loans to working capital requirements and receivable financing among others.
The Micro, Small and Medium Enterprises (MSME) are a significant contributor to the equitable growth of the Indian economy. Several reports and studies available in public domain estimate that the MSME sector contributes nearly 8 percent of the country’s GDP and about 40 percent of India’s exports*. Moreover, such reports state that this sector generates the largest share of employment after agriculture with an estimated 48 million units including a phenomenal range of products and services. Importantly, a KPMG report – The New Wave Indian MSME estimates a considerable increase in the MSME contribution to India’s GDP, increasing up to around 15 percent by 2020.
Despite this extensive contribution, several issues and hurdles sail this sector including limited access to funds/debt, high entry barriers for technology, competition for skills and branding etc. As a result, despite steady encouragement from the government in terms of financial and policy support, limited availability of timely and adequate funds at a reasonable cost remains a challenge for the MSME sector.
Apart from this, cost of credit (both interest rates for non-collateral as well as collateral backed loans) is often very high and at times prohibitive. Traditionally, the finance providers have viewed the MSME sector with skepticism on account of typically low capitalization, the paucity of financial and accounting records, lack of sufficient collateral, relatively higher risk perception of such businesses etc.
Available research studies on MSME sector financing reveal that demand for funds by the MSME sector, which is estimated at INR 32.5 trillion ($650 billion), is met by either formal or informal source. Moreover, the financing is sourced from self-finance, informal sources and from the formal financing sector. It is interesting that informal sources and self-finance together make up most of the finance channeled into the sector at an estimated 78% of the total fund demand as stated above.
Among the formal sector, providers of Finances to MSMEs include Banks, governmental institutions, financial Institutions; NBFCs and even Micro Credit Lenders. The suite of financial products usually made available to MSMEs is summarized below.
Types of Key Fund-Based Products offered to the MSME Sector:
Cash Credit/Overdraft – Based on Hypothecation of stocks/receivables with Additional Security (optional) – and/or Immovable property, allowing typical Loan to Asset Value of 50-60% with tenure of one year, renewable thereafter.
Term Loans – Secured by Mortgage land, building, factory, residence allowing up to 80% Loan to asset value with a tenure ranging from 1-15 years.
Asset-Based Financing – Secured by contracts, accounts receivable, invoice, letter of credit, inventory, machinery, equipment. Allowing Loan to Asset Value of up to 90% with a tenure of 1-7 years.
Credit Cards – Revolving Credit based on Third-party Guarantee, hypothecation of stock receivables allowing the maximum limit of INR 10 Lacs allowing a tenure of up to 3 years;
Some Non-Fund Based Products Offered to MSME Sector by Banks and NBFCs include:
Letter of Credit – Letter of Credit is beneficial to export-oriented MSME units; Importers make use of products like ‘Buyer’s Credit’. Credit is available for procuring raw material, manufacturing the goods, packaging and shipping the goods.
Bank Guarantee – Bank Guarantees are extended for making the advance payment, giving tender money, security deposit, etc.