Facilitating Credit in the SME

Marketplace

CA. K. Raghu

President, The Institute of Chartered Accountants

of India

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SMEs As the Backbone of Indian Economy

• The Medium and Small and Medium Enterprises Sector (MSME) is governed by a separate

Ministry of Micro , Small and Medium Enterprises

• The MSME Sector contributes around 9% of GDP

• SMEs employs close to 40% of India's workforce and contributing 45% to India's

manufacturing output,.

• The country's 1.3 million SMEs account for 40% of India's total exports.

• Micro Small Medium Enterprises has been playing an significant role in the development of the

country and employs 805.24 lakh of persons.

• As per the Indian Economic Survey 2013-14 the sector contributes with 31.8% of the

manufacturing enterprises and it has showed a increasing trend of the growth from 11% in the

year 2010-11 to 19% in the year 2011-12 and reached about 14% in the year 2012-13.

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Key Industries In Which SMEs Operate

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Indian Perspective

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Global Perspective

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Need Of Credit In The SME Market Place

The SMPs organizational operational and financial limitations as

compared to non SMPS therefore;

• SMEs need financing for two basic purposes:

• Working capital financing and,

• Capital expenditures financing

• The debate on SMPs and non-SMPs is not on account of professional knowledge,

skills and training imparted to them or for that matter the level of expertise and

skills possessed by them. It is for addressing the core issues driving their

sustenance i.e Infrastructure Financing. Without which they cannot operate

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Constraints to SME Financing

SME FINANCE CHALLENGES

POOR CUSTOMER KNOWLEDG

E

SMEs SKILLS AND

LITERACY

LOW PROFITABILIT

Y

LACK OF CREDIT DATA

POOR BUSINESS ENABLER

LACK OF CAPITAL

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Non-financial Barriers To SME Development

• Tax Rates

• Corruption

• Electricity

• Transportation

• Regulations

• Lack Of Business And Management Skills

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G20 and Growth of SMEs Financing

• Alternative sources of SME finance should be encouraged, with appropriate

protection for stakeholders involved.

• SMEs must adopt new technology and embrace the digital economy to become

globally competitive.

• SMEs and industry organisations should submit specific instances of existing red

tape requiring reform to relevant members of a nation’s executive for review

• Tendering and insurance requirements for government business should be

streamlined and reduced for SMEs.

• ‘Economic gardening’ of local small firms, through which SMEs are encouraged to

take on an extra worker or two, can incrementally increase employment.

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Indian Government Role in SME Developement

Fundamental role played by Government in ensuring a supportive

enabling environment and expanding the frontier for SME Finance.:

• Stable macro economic environment

• An effective financial infrastructure

• Supportive legal and framework

• Offering concessional loans by International organisation to governments to

support bank lending to SMEs

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Support initiatives provided by the Government with the greatest

representation in the stocktaking exercise include:

• Funded financing facilities extended via state banks and/or private

financial institutions;

• Credit guarantees also extended via state banks and/or private

financial institutions; and,

• State bank initiatives.

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Role of ICAI In SMP/SME Sector

Facilitation of Specialized Loan Scheme through Public Sector Banks

• The ICAI has taken an initiative to arrange financial assistance to all members in practice /

firms in the form of specially designed loan scheme through Corporation Bank. Through the

scheme, eligible Chartered Accountants can avail finance for setting up of offices including

cost of furniture/fixture/office equipments-computers and other accessories

Revised Minimum Recommended Scale of Fees for the Professional assignments

done by Chartered Accountants for Class ‘A’ & Class ‘B’ Cities

• The ICAI has taken a major initiative for prescribing the Revised Minimum Recommended

Scale of Fees for the professional assignments done by the members of ICAI. The

recommendation is about the fee to be charged as per the work performed for various

professional assignments and the amount quoted under respective heads of professional

work.

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Way Forward

• Redefine MSME

• Availability and Cost of Credit

• Assistance in Marketing

• Increase Productivity

• Technology Upgradation

• Skill Development

• Improve Infrastructure

• Fix incentives/Tax related issues

• Develop an Institutional Framework

• Resolve Sector Specific Issues

• Crowd funding a new concept in evolution is an alternative source of capital for SMEs

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Thank You!