SME Financing: Submitted To Mr. S. Clement September 17,2010
SME Financing: Submitted To Mr. S. Clement September 17,2010
SME Financing: Submitted To Mr. S. Clement September 17,2010
September 17,2010
SME
SMESector
Sectorin
inIndia
India 45% of industrial employment
accounts
accountsfor
for
35 % of exports
Trend in SME financing
The doubling of credit to the MSME sector as announced by Hon’ble Finance Minister
in August 2005, was to be achieved over a period of 5 years lending by FY 2009-10,
was achieved earlier by FY 2007-08.
The commercial banks meeting over 90 percent of the institutional credit needs of
this sector
Doubling of share of MSE credit in priorities sector credit from 17.9 percent in FY
2006-07 to 35.4 percent in November 2009.
Obstacles to SME Financing
This enables various services providers, including banks and credit agencies, to
provide their services more economically, thus reducing costs and improving the
availability of services for these enterprises.
RBI
The RBI aimed at providing adequate liquidity to compensate for the squeeze
emanating from foreign financial markets and improving foreign exchange liquidity.
RBI advised banks to consider restructuring the dues of MSMEs and issue prudential
guidelines on restructuring of advances.
RBI provided refinance of an amount of Rs. 7,000 crore to SIDBI to enhance credit
delivery to employment intensive MSE sector.
RBI also advised banks to contribute an aggregate amount of Rs. 2,000 crore
to MSME Refinance Fund with SIDBI, in advance, on basis of short fall in achievement
of subtarget of 10 percent for lending to weaker section category as on the last
reporting Friday of March 2009.
The RBI provided relief by reducing margin on receivables and relaxing the cash
margins on letter of credits/guarantee.
Structure of SIDBI
Small Industries Development Bank of India
• Private banks are moving into invoicing and factoring services, where the working
capital requirements of an SME are met immediately.
• If an SME is supplying to the larger corporate based on planned schedules, then the
bank steps in to fund it through purchase orders.
• For example, if an SME is manufacturing components on a purchase order, the bank
funds the SME on an open account.
• Once the goods are shipped to the corporate, the payment is made by the corporate
to the bank, but the recourse lies with the SME.
Loans by Banks
• A venture capitalist is a person who invests in a business venture, providing capital for
start-up or expansion.
• Venture capitalists are looking for a higher rate of return than would be given by
more traditional investments.
Need for Venture Capitalist
1. Private equity consists of investors and funds that make investments directly into
private companies.
2.Capital for private equity is raised from retail and institutional investors.
3.It can be used to fund new technologies, expand working capital within an owned
company, make acquisitions.
4.The investor acquires a stake in the company, becoming a partial or full owner.
5.So, the company which is in need of money is able to raise it without collateral and with
ease.
How do SMEs get money?(PE)
Exim Bank