Trade Articles

In the Budget 2008-09 speech, finance minister Mr. P. Chidambaram has thrown light on the present status of small and medium enterprise. He said that there has been considerable rise in the number of registered units, unregistered units, production, export and employment. As per an estimate small scale industries produce more than 8000 products and has an industrial output of nearly 40%. After agriculture it is the major employment provider sector. Therefore, the sector opens up an avenue for the country to utilize the local advantages by keeping an eye open for the international arena. For fillip up the sector, finance minister has declared out the creation of a risk capital fund in the Small Industries and Development Bank of India (SIDBI). The SIDBI has shell out a scheme of reducing the guarantee fee from 1.5 per cent to 1 per cent and similarly annual service fee is also shell out from 0.75 per cent to 0.5 per cent for loans up to a maximum Rs.5 lakh. This year budget has also paved out the way for creating the two funds of each Rs.2000 crore in the SIDBI. The one fund is decided to be set aside for risk capital financing and the other one has been declared for increasing the refinance capability to the micro, small and medium enterprises. Furthermore by creating the Credit Linked Capital Subsidy Scheme the government has come up for assisting 15% of the bank credit with a motive of replacing old machinery and equipments. with technologically and high graded one. The creation of the 'Outreach Programme for Skill Development in Less Developed Areas' in 2006 is considered to be one of the important step taken in the direction of micro, small and micro enterprises (MSEs) progress. The said programme is directed towards developing skills and for imparting training to people who can't afford it in terms of money.

Problems of SMEs

• SMEs have inadequate accession to the monetary institutions due to the improper or absence of any financial information. They fail to reach to the private equity and venture capital and are confined only to the secondary financial instruments.
• SMEs are generally fragmented and are more prone to market fluctuations.
• Their area of business is limited only to the national territory. They fail to harness booming international trading opportunity.
• In the absence of any technical know how, SME's witness a major struck in their business.
• Small and medium enterprises counter to huge problems when it comes about settling monetary issues with big scales of buyers.

Reserve Bank Guidelines for SMEs

• Every Bank is required to set up its own policies for providing monetary assistance to the SME.
• Banks may start taking important steps for rationalizing the cost of loans granted to the SME sector. They should adopt a transparent rating system. SIDBI has its own Credit Appraisal & Rating Tool (CART) and Risk Assessment Model (RAM) along with a rating model. These have been developed for assessing risk involved in SMEs projects. The National Small Industries has their own Credit Rating Scheme, which in turns boost up the Small scale enterprises for getting themselves credit rated by the eminent credit rating agencies.
• For making formal credit possibilities accessible to the small and medium enterprises, all banks including of regional and rural banks are required to take up concrete steps for providing credit facilities to an average of at least 5 micro, small and medium enterprises (MSME's).
• Reserve Bank has issued a notification to all banks for detailing out their procedures of disposition of loan applications of MSME's including of the extent to which banks are permitted to grant collateral free loans etc.
• Reserve Bank has made special arrangements in institution for analyzing credit requirements of such units. Like the Standing Advisory Committee in Reserve Bank and cells at head office and regional centers of the bank, check and review the credit flow to SME.

SEBI Guidelines for SMEs

Indian financial markets regulator, the Securities and Exchange Board of India (SEBI) has decided to frame out plans and policies for developing small and medium enterprises. For this purposes comments and discussion are invited by the SEBI from market players with the help of its discussion paper. The move of SEBI in progressing SMEs is considering as a concrete step taken in the direction of improving condition of this segment.

While discussing its plans, SEBI ruled out the concern areas of SMEs, which it has outlined during its regular interactions with the different market participants. High cost involved in raising of capital is doted out to be a major problem. To facilitate more capital inflow into the small and medium enterprises, SEBI has come up with an idea of creating a separate stock exchange for the small & medium enterprises in India.

It was not the first attempt made in the direction of implementing policies for the small and medium scale enterprises. In 1989 OTCEI and in 2005 the INDO NEXT Platform of the BSE was launched. But both these experiments were failed to reach out their set objectives. The SEBI is all set to introduce new changes in the Indian capital market as the board is planning to introduce Indian depository receipts (IDRs) for benefiting small and medium enterprises. Besides solving monetary problems it will also deliver financial knowledge for educating investors.