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Narendra Modi government mulls fund raising schemes for MSMEs to foster growth

Monday, 4 August 2014 - 8:05am IST | Place: Mumbai | Agency: dna

A separate ministry formed to monitor the micro, small and medium enterprises (MSMEs) under the Narendra Modi government will soon launch schemes to attract funds and boost the sagging industry.

"It is only the SME sector that can eradicate poverty and we will come out with schemes to foster growth in the sector," said Kalraj Mishra, union minister for MSMEs, at the India SME Awards 2013-14 ceremony, organised by Bank of India and the SME Forum of India.

"The Modi government that set up a separate ministry for the sector acknowledges the importance of the sector. Besides providing finance, training and skill development of the people servicing the sector is of great importance," said Mishra.

Sumitra Mahajan, speaker of the Lok Sabha, said, "The SME sector needs continuous support and policy backing as the sector is critical for rapid economic progress of the country."

With the micro, small and medium enterprises accounting for about a quarter of bad loans, banks are awry of lending to the sector. But recognising their importance to the economy, about 100 of the top performing MSMEs were awarded not just for their profitability but for the systems they have put in place for corporate governance, transparency and best practices in management.

"India has about 26 million units serviced by 160 million people contributing to 8% of the GDP. It accounts for 40% of India's exports and a 50% of our manufacturing output. Recognising the importance of this sector, we have 100 SME branches to provide finances, 28 credit processing centres in major cities and 51 finance literacy centres to provide to provide speedy credit," said Vijayalakshmi Iyer, chairperson and managing director, Bank of India.

"Non-availability of bank finance, inadequate market linkages continue to be problems for the sector. Banks should understand the peculiarity of the SME sector and structure finance according to the needs of these borrowers. NBFCs and the micro-finance institutions are providing finance in comparison to the banks that adopt a cautious approach," Iyer said.

According to a study conducted by McKinsey and IFC, member of the World Bank Group, "In developing countries, formal MSMEs represent around 45% of employment and approximately 33% of GDP. This is even greater when informal MSMEs are included. Despite their importance, this article finds that the total unmet need for credit by all formal and informal MSMEs in emerging markets today is significant – in the range of $2.1 trillion to $2.5 trillion."

According to the study, the pool of revenues from the SME sector is Rs 32,000 crore and it is expected to grow to Rs 70,000 crore in the next few years.

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