A STUDY ON CUSTOMER AWARENESS AND PERCEPTION TOWARDS EFL WITH REFERENCE TO MSME SECTOR A Project Report submitted to the

SRM University in partial fulfilment of the requirements for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION

Submitted by G.L. SASIDEVI (3511120002)

Under the guidance of

Dr. C. SUNDAR, M.B.A., M.Phil., Ph.D (Internal Guide) Mr. R. SUDARSHAN (External Guide)

School of Management SRM University Ramapuram Campus, Chennai 89. May 2013

CHAPTER - I 1.1 OUTLINE OF THE PROJECT Consumer Awareness and Perception Any person who buys goods and services for personal consumption and not for commercial purpose or resale is called a consumer. The term Consumer Awareness has existed for a long time, but it was first in 1962, encouraged by the US President John F. Kennedy, he said that Consumer awareness is foremost a marketing term referring to the consumers right to be aware of the products they purchase, but also an ethical conduct for those responsible of the production and distribution of the goods. The success of a business depends upon its ability to attract and retain customers that are willing to purchase goods and services at prices that are profitable to the company. Consumer perception describes how customers and potential customers view a company and its products and services. Consumer perception is important to businesses since it can influence consumer behavior, which ultimately affects the profitability of a business. Many businesses spend large amounts of resources to influence consumer perceptions. Modern business is an integral part of current day society. Each company has as a socio-economic impact on the people and has to deliver the goods and services and the standard of living as per the aspirations of the people. It has a great social responsibility towards the well being of society. Therefore consumer is an important component of society and business has an obligation to him. But, when the goods are short in supply the producers charge high prices and consumers have no choice other than to purchase what is available. Therefore, consumer is to be protected from unsafe products, poor quality of goods and services, high prices, unfair trade practices and misleading advertisements. Therefore, it is necessary for an awareness to prevail amongst the consumer to protect them from unscrupulous trade practices and to give them the idea of the utility of money spent by them. Consumer occupies a supreme position in a free economy. But, he never received the attention he deserves.

In the early times, consumer was considered as King of the market but in the contemporary society, consumers are no longer safe against the mal practices such as substandard goods and unsatisfactory services. The consumer has every right to reject any product or services rendered by any manufacturer in the market and can mould them to produce goods of their choice. Consumers are informed and remaindered about the products and are requested and persuaded to purchase their products. Such communication may be made their along the product or well in advance of the introduction of product into the market. Such communication becomes necessary when new product or service is introduced in the market or an old product is improved or it is simply to increase the sales of the products. Awareness compasses all the tools in the marketing mix whose major role is persuasive communications. PHILLIP KOTLER. The main features of awareness are: 1) Customers are informed about the product or services of the company. Either at the time of introduction of a new product into the market or when any change is made in the existing product. 2) Customers are reminded of the products and services of the company. 3) Customers are requested or persuaded to purchase the product and services of the company. 4) Awareness includes, advertising, personal selling and other sales promotion techniques. Consumers must have awareness about the new products and their usage. Such activities are performed by the manufacturer. It is the responsibility of the producer to get

information about the consumers and prospective consumers so that the necessary product may be served to meet their demands. Subject matter companies must do more than make good products they must inform consumers about the product benefits and carefully position products in customers mind. To do this must skilfully use the mass promotion tools like advertising, sales promotion and public relations, personal selling, publicity.

1.1.1 NEED AND IMPORTANCE OF THE STUDY Awareness on the part of consumer is necessary for two reasons. (1) One needs to know his/her responsibilities and obligations as a consumer, to get the best out of the product/service that was purchased. (2) One needs to know his/her rights as a consumer, to get an effective redressal in case of deficiency of service / defective product. Consumer education will go a long way in curbing over consumerism.

Benefits of consumer education to individuals: It encourages critical thinking, which helps consumers function more efficiently in the marketplace. It promotes self-confidence and independence. It imparts life skills which contribute to success in everyday living. It fosters values such as distinguishing between needs and wants, paying bills, saving money, planning and budgeting. It improves the quality of life as well as environment.

Consumer education benefits society because it: Enhances citizen awareness. Promotes a stable society. Consumer education benefits business because: It satisfies customers. It increases sales.

1.1.2 SCOPE OF THE STUDY The study was conducted for the MSME sectors to find out their awareness and perception about EFL. Primary data was collected by issuing questionnaires to the customers and information was also collected by personally interacting with the customers. The main scope of the study is restricted to MSME areas in Chennai. This study has been made to customer awareness towards EFL in MSME sector.

1.1.3 PROBLEM DEFIINITIONS Understanding the customer perception is very much important. Deciding the needs and wants of the customers. The Research problem investigated here has been precisely defined as the customer awareness & their perception towards Electronica Finance Limited with reference to MSME (Micro Small Medium Enterprises)

1.1.4 OBJECTIVES OF THE STUDY Primary Objective: To study about the customer awareness about EFL with reference to MSME. To identify the customer perception towards machinery finance. To identify the factors influences the growth of consumer decision on machinery finance. Secondary Objective: To identify the key factor that would increase the efficiency of EFL. To identify the media, plays a key role in creating awareness towards EFL. To identify the customer awareness about various products offered by EFL. To identify the possible areas of improvement.
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1.1.5 RESEARCH METHODOLOGY INTRODUCTION: Marketing Research is a systematic and objective study of the problems pertaining to the marketing of the goods and services. It is a Systematic Design, Collection, Analysis and Reporting of Data and Finding relevant to a specific marketing situation facing the company. Spending on marketing research topped $40 billion globally in 2010, according to ESOMAR, the World Association of Opinion and Market Research Professionals. It may be emphasized that it is not restricted to any particular area of marketing, but is applied to all the phases and aspects. According to Emory C. William Research means any organized inquiry designed and carried out to provide information for solving a problem.

RESEARCH DESIGN A research design is the detailed blue print used to guide a research study towards its objectives. It helps to collect, measure and analysis of data. The present study seeks to find out the customer awareness and perception towards Electronica Finance Limited with reference to MSME. The study also aims at findings out the factor which influences on consumer decision. So this makes the study a descriptive one.

The study undertaken is of Descriptive Research in nature. Descriptive research is quantitative in nature, involving surveys using questionnaires and statistical analysis. Large and representative sample sizes permit generalization of results, aiding in the decision making process and the collection as well as interpretation of data is objective.

SAMPLING DESIGN SAMPLING PROCEDURE

Probability sampling allows confidence limits to be calculated for sampling error and makes the sample more representative. The sampling procedure was taken as Simple Random Sampling. Thus we are going to conduct an survey of customer awareness about EFL in MSME sector.

SAMPLING UNIT

Sampling is a process of obtaining. The information about the entire population by examines a part of it. The effectiveness of the research depends on the sample size selected for the survey purpose. It means who is to be surveyed. Here target population is decided and it is MSME sector and sampling frame is developed so that everyone in the target population has known chance of being sampled. So the survey is conducted particularly in CHENNAI city.

SAMPLING SIZE

This involves arriving at the number of respondents who must be surveyed to yield a representative sample of all demographic subgroups of respondents who are being studied. The sample size of the respondents was taken as 100 considering the scope and constraints of the study.

METHOD OF DATA COLLECTION: Primary Source of Data

Primary data refers to the information obtained first hand by the researcher on the variables of interest for the specific purpose. Such data are collected with specific set of objectives to assess the current stated problem. The primary data will be collected by using Questionnaire and Personal interview. Secondary Source of Data

It refers to the information collected already which may be published or unpublished. The secondary data collection methods are books, periodicals or journals, bibliography, research theses, foot notes, encyclopaedia. The source of secondary data for this project is website and books.

PILOT STUDY Pilot survey was conducted among a few from various designations to know about the validity and reliability of the questionnaire. After analyzing and taking into consideration the suggestions received from the external guide draft questionnaire was prepared. The pilot survey also enabled the researcher to visualize the time it would take to administer the questionnaire.

1.1.6 LIMITATION OF THE STUDY Some of the customers are not willing to fill up the questionnaire with full interest. So, all the data cannot be correct. A limitation to this study would be that the customers may complete the questionnaires as
they think the researcher wants them to answer.

Customer awareness is wide area. In that the researcher, cannot cover all the area. There may be error due to the bias of the customers. The minimum sample was taken as 100. The time duration for collecting data was too short. Some of the customers did not respond and return back the questioners issued to them. Busy working schedule of the customers.

1.1.7 CHAPTERISATION CHAPTER 1 It deals with the company profile, outline of the project, research methodology, objectives, data collection and tools for data analysis. CHAPTER 2 It consist of Review of Literature CHAPTER 3 It deals with the Data Analysis and Interpretation using Statistical tools. CHAPTER 4 It consists of summary, findings, conclusion of the project, bibliography and appendices.

1.2 INDUSTRY PROFILE

NBFC Industry in India In India, the Non-Banking Financial Companies (NBFC) industry consists of a large number of privately-owned, decentralized, and relatively small-sized financial intermediaries. They proliferated largely during the 1980s and 1990s. Citing RBI sources, The Indian Express3 reports that there were as many as 41,000 NBFCs on RBIs mailing list and the total public deposits of the reporting NBFCs stood at Rs 178.84 billion, constituting 4.1% of the aggregate deposits of the scheduled commercial banks. However, the functioning of the NBFCs was largely unregulated and the quality of their assets was very poor. Consequently, there was a spate of bankruptcies during 1990s and many depositors lost their money. Post-1996, thanks to the additional and more stringent regulatory norms by the RBI, the industry witnessed closure of many institutions and thus substantial reduction in their number. Tightened regulation has also contributed to consolidation, stability, and transparency of NBFCs. According to the RBI4, as on March 1, 2007, there were roughly 320 deposits taking NBFCs and 11,600 non-deposits taking NBFCs in the country. Most of these institutions are engaged in financing transportation equipments (both new and used vehicles) and others work in different, miniscule niches. Institutions specializing in financing MSMEs, however, are far fewer. A distinct feature of NBFCs is that they are large in number, spread far and wide, and maintain close proximity with their customers. In addition, they have the expertise in serving niche markets. They are characterized by their ability to deliver credit much faster than banks and financial institutions. Fewer pre- and post sanction requirements and speedy delivery of tailor made services are attraction to the borrowers who are wary of the procedural formalities and delay in getting credit from banks and mainstream financial institutions. Small borrowers and those in the unorganized sector find it easier and more convenient to borrow from these institutions compared to banks.

Industry Performance during Recent Past: The industry has clocked a robust growth during the last six years. The compounded annual growth in loan assets was 50.90 % during the six-year period from 2001-02 to 200708. Total income grew by 17 % and interest income by 39 % during the same period. Net profit after tax for the industry as a percentage of total income improved consistently during
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the period - from 1.22 % in (2001-02) to 12.46 % in (2007-08). The year 2007-08 was exceptionally good for the industry. The industrys total income went up by 53 % over the previous year; loans and advances by 106 % and interest income by 70 %.

1.3 COMPANY PROFILE Electronica Finance Limited (EFL), an Asset Finance Company (AFC), has been financing Micro, Small, and Medium Enterprises (MSMEs) since its inception. Initially, it was offering leasing and hire purchase to business units in very few sectors like plastics and auto components. Over time it has diversified its sectoral and product portfolios and has also started offering non-fund-based services to its customers like corporate advisory services and sale of insurance products. To augment its resources, it has recently tied up with the Small Industries Development Bank of India (SIDBI), under which it offers two products, namely, Micro Enterprise Loans (MEL) & Credit Delivery Arrangement (CDA) to its customers. Having gained sufficient experience in the field, the management of EFL has set the goal of attaining ten-fold growth in the volume of business and fifteen-fold growth in the number of customers. Besides, it has set a mission to make available the incentives and concessions under various government schemes for the MSMEs and all financial products including nonfund-based businesses like bank guarantee and letter of credit to the MSMEs, under a single window. Mr S R Pop hale, the Chairman of the company, is in the process of finding the ways and means of attaining the goals.

MSMEs in India World over, MSMEs are considered to be the engines of economic growth and India is no exception. As per the quick estimate of the Fourth All India Census of MSMEs, there are around 26.1 million MSMEs in the country. They contribute to 45 % of the countrys industrial output and 40 % of the exports. The sector is the second largest employment provider and helps achieve inclusive and distributed growth.

Electronica Finance Limited: History and Operations Mr. Pophale, a post-graduate in engineering and Mr. R. K Ratnaparkhi, a graduate in engineering, wanted to use their knowledge to develop technology and manufacture machines indigenously. However, they neither had business background nor capital. Therefore, they initially undertook teaching and a few years later, started a business in a small shed at their hometown, Pune, in 1973. They named their business firm as Electronica Machine Tools
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Limited (EMTL). Though their dream was to develop technology and manufacture machines, due to lack of resources, initially, they undertook job works. Two years later, Mr. P. K. Ratnaparkhi (Mr. R K Ratnaparkhis brother), a graduate in electrical engineering from IIT Mumbai, joined their business. With some savings and a stronger team, they started developing technology and manufacturing machine tools. The very first machine they developed and produced was Electric Discharge Machine, a machine cutting tool. The machine received very good response from the market. Gradually, they started developing technology and engineering for manufacturing several other machines like wire cutting machines and injection moulding machines. They received orders from many customers in India. Over time they started receiving orders from several other countries as well. At present, the company is exporting technologies and products to around 45 different countries including the developed ones like Japan, Korea, Taiwan and many European nations. Started in a small shed, today they have become a multi-product, multi-location, and multimillion dollar group. The groups turnover for the year ending March 31, 2009 was about Rs. 4 billion.

MSMEs: The Focus Market Many of EMTLs customers were micro, small, and medium enterprises (MSMEs). While dealing with the customers, the promoters realized the fact that the entrepreneurs have difficulty in identifying suitable technology, brand, and supplier. Moreover, they did not have the knowledge, skill, or time to fulfil the formalities involved in importing machines. EMTL, therefore, started trading in imported machines and later machines manufactured by other companies in India mainly to MSMEs. The MSME market thus became the focus of the company.

THE BIRTH OF EFL As is evident from the discussion under the head MSMEs in India, small business borrowers do not find favour with banks. This is despite the fact that financing MSMEs falls under priority sector lending. The long association with various MSME customers helped the promoters of EMTL understand the MSME market and its potential. They found that there were millions of small businesses in the country lacking technology support and capital. It prompted them to start a financial institution exclusively for financing MSMEs. The idea was to win the twin objectives of getting more business for the machines manufactured/traded by EMTL and to tap the huge MSME finance market. They were,
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however, very cautious about stepping into the field and therefore started by offering relatively more secure businesses of leasing and hire purchase. A separate AFC Electronica Finance Ltd. (originally Electronica Leasing & Finance Ltd.) was established for the purpose in the year 1990 at Pune. The company has got the necessary registration as a NonBanking Finance Company (NBFC) from the RBI and as such is governed by the regulations applicable to the non-deposit taking NBFCs.

EFLS VISION AND MISSION While banks consider MSMEs to be opaque and highly risky, EFL considers them to be most dependable. Though MSMEs are considered to be the backbone of the economy, they do not receive adequate and timely finance from the mainstream financial institutions. The promoters of the company have realized this from their own experience. Given the huge, yet untapped, MSME market, they wanted to remain focused on financing MSMEs. Accordingly, they have coined the phrase, Building the SME . Driving the Economy as the vision statement for the company.

DIVERSIFICATION AND GROWTH: EFL treaded very cautiously and was financing the MSMEs only for purchase of machine tools. The volume of business was, therefore, modest during the first few years. It slowly achieved a significant growth in its business by increasing its leasing and hire purchase business and by diversifying into other financial services like working capital finance to MSMEs. However, it did not succeed in those businesses and hence decided to stick to its core business of asset financing. Nonetheless, the failure to succeed in new products did not deter the company from expanding its operations. For long it was providing finance to a very few sectors, mainly plastics, auto components, and engineering for purchase of machine tools. It later started financing other assets like gensets, compressors, and technology up gradation to these sectors. It has also started providing other lines of businesses like term loans and non-fund-based services like corporate advisory services, loan syndication, and distribution of insurance products. To expand its business, it has opened branches in various industrial cities in the country and at present the number of branches stands at 13. Recently, it has signed a MOU with SIDBI to provide finance to MSMEs in collaboration. Of late, the promoters have found that the Indian housing sector is growing at a
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phenomenal rate and the demand for household as well as office furniture has grown significantly. One special feature of the recent growth in the furniture market is the demand for readymade items. This has led to the proliferation of woodwork units across the country. While there are many large scale furniture manufacturers, both Indian and multinational, a large number of small units have mushroomed all over the country. These small units have mostly been promoted by carpenter-turned-entrepreneurs. In general, the large furniture manufacturers produce moulded furniture. The small units, on the other hand, produce traditional and modern furniture. These small woodwork units are making their operations increasingly mechanized. But like most other MSMEs, these units also suffer from inadequate capital. EFL has found this sector as an emerging one and has started financing them very recently. Mrs. Shilpa, the Managing Director of the company, says that the booming housing sector has also created a huge demand for construction equipments. She says that there are a large number of small construction companies/ contractors to whom EFL has started providing finance for purchase of construction equipments like earth movers and concrete mixers. The diversification coupled with the boom in the economy during 2003 through 2008 gave a boost to EFLs business in terms of volume and margins. The assets of the company have grown well to above Rs 1 billion and gained the status of Systematically Important NBFC (NBFC-ND-SI) from the RBI. Its pursuit of growth continues and it is now on the lookout for newer avenues. In order to reflect the diversified nature of its businesses, the name of the company has been changed to Electronica Finance Ltd (EFL), since 2007.

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1.4 PRODUCT PROFILE: PRODUCTS AND SERVICES Until recently, the company was providing finance to the MSME customers for the purchase of machine tools under leasing and hire purchase arrangement. Lease financing was offered by the company normally for a period not exceeding five years. The government gave various concessions to the lease financing companies which helped them make decent returns. About two years back, many of the concessions have been withdrawn. Besides, lease financing attracts both sales tax/ value added tax (VAT) and service tax. These developments have forced many lease finance companies like EFL to exit from this business. EFL has phased out its leasing business completely over the last three years. Currently, it offers the following products and services to the MSMEs .

Product Offerings from EFL Fund-based products 1. 2. 3. 4. Hire purchase. Term loans. Bill discounting. Micro enterprise loans (funded by SIDBI)

Non-fund-based/free-based Services 5. Corporate advisory services. 6. Distribution of insurance products 7. Credits delivery arrangement( under tie up with SIDBI)

Hire Purchase (HP): HP continues to be one of the major business segments for the company and accounts for 16 % of the companys earning assets. The management, however, considers this business as becoming less attractive because of the incidence of sales tax and service tax on assets sold under hire purchase. EFL is therefore reducing HP business in states/regions where these taxes are prohibitive.

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Term Loans : MSME customers can avail term loan from the company for buying machines and equipments. This is the largest segment for the company and its share in the earning assets is 80 % as at the end of 2008-09. This also includes Micro Enterprise Loans, which is described in the next section.

Bills Discounting: This facility is being offered to its existing customers since the last two years. Though the company had some business in this segment, the performance was not encouraging. The management has therefore put the business on hold and is currently reviewing it.

Corporate Advisory Services: Many of EFLs customers have grown bigger and need larger loans and other financial services like bank guarantee, letter of credit, etc. EFL arranges such facilities for its customers from banks and financial institutions. The company is very optimistic about the business and hopes that it will emerge as another major source of income.

Insurance Distribution: EFL is a corporate agent of many leading insurance companies in the country including ICICI Prudential Life Insurance, Bajaj Alliance Insurance, Reliance Life Insurance, and Life Insurance Corporation of India. It sells both life and non-life insurance products. Though its own customers are the main target, it sells insurance products to others as well. Collaboration with SIDBI EFL has recently signed an MOU with SIDBI to provide finance to MSMEs under two different schemes Credit Delivery Arrangement and Micro Enterprise Loan.

Credit Delivery Arrangement (CDA): Under this arrangement, EFL procures business on behalf of SIDBI. EFL was originally disbursing credit to the customers under the scheme from its own funds and then got refinanced by SIDBI. Presently, EFL identifies customers, conducts due diligence, appraisal, assessment and other processes. Based on its recommendation, SIDBI disburses credit directly to the customers. It is therefore an off-balance sheet/fee-based business for
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EFL. The agreement has a First Loss Guarantee Cover clause under which EFL wi ll bear the major portion of the risk of loss and any loss in excess of a certain limit will be passed on to SIDBI. The scheme has helped the company to gain many new customers. One unique advantage available to the customers under the scheme is that most of them get subsidy available under the Credit Linked Capital SubsidyScheme (CLCSS). Both SIDBI and EFL are optimistic about the potential for this business and SIDBI is expected to increase the funding support to EFL under the scheme.

Micro Enterprise Loan (MEL): Recently, EFL has started offering MELs to micro enterprises with funding support from SIDBI. Loans in the range of Rs. 200,000 to Rs 500,000 are provided to small businesses under the scheme at reasonable interest rates.

LENDING PROCESS Since its inception, EFL has adopted a focused strategy, specializing in financing MSMEs. Marketing executives of the company originate the business and the branch officials do the follow-up and processing of the proposals. The process of due diligence, appraisal, etc., is carried out in four phases, namely: Field investigation Appraisal Inspection Sanction and disbursal

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 Field Investigation: The branch officials visit the premises of the prospective customers and interview the promoter. They collect relevant information regarding the promoters profile, ownership, nature of business, capacity and capacity utilization, need for new machines, etc., upon which a report is prepared. Appraisal: If the field investigation report gives a positive picture about the unit, the branch officials proceed to the next step of collecting information like financial statements. Figures given in the financial statements are counter-checked by corroborating with income tax returns and VAT returns. The branch officials also check actual records of the unit, cash transactions, and any other business run by the borrower. Mr. Amar Deshpande, General Manager of EFL, however, says that there is difficulty and delay in obtaining necessary documents from the customers. The information thus collected is analysed and an appraisal note is prepared. The appraisal note is similar to the ones prepared by the commercial banks. It includes financial analysis, industry analysis, business analysis, and management appraisal. Very recently, the company has been registered with the Credit Information Bureau (India) Limited (CIBIL). This will provide access to the credit history of many prospective borrowers in the future. Inspection: The branch officials visit the premises of the borrower once again and evaluate the qualitative aspects of the borrower unit and submit a report on the same (inspection report). Finally, the proposal, complete in all respects, is sent to the head office with the branch managers recommendation. Sanction and Disbursal: There are credit analysts at the head office who check the proposal and place it before a four-member committee headed by the Managing Director. The other members of the committee include two General Managers and a country head. The committee meets every day to take a final decision on the proposals. In case any clarification or more information is required, it is sought from the branch. On receipt of the same, the committee decides whether

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to sanction the loan to the customer or not. Within the next few days, the sanction order is issued to the customer and the necessary order to the supplier of the machine is placed. Payment for the machinery is made by EFL to the supplier and the delivery of the machinery to the customer is followed up. In all, it takes 15 days for the entire transaction to be executed if the supplier has the machine readily available in stock. For instance, machine tools are generally available in ready stock and are delivered by the suppliers immediately after payment, whereas plastic moulding machines are in good demand and the suppliers take two to three months to deliver. One major deviation in the credit sanctioning process of EFL from that of commercial banks is that EFL does not normally take any collateral other than the life insurance policies of the promoters. Even third party guarantee is not insisted upon. Collateral-free lending makes the loan decision process of EFL much simpler and therefore faster as compared to banks.

COST OF CREDIT: The management of EFL claims that the rate of interest charged by them is nominal as compared to most other NBFCs in the country. In their view, though the rate of interest is higher than the rates charged by banks, customers save other incidental charges like auditors fees for valuation certificate, legal charges, and documentation fees. In all, the cost of credit from EFL would be comparable with that of the commercial banks. Mr. Pophale, however, is of the view that cost of credit is not an issue for their customers. Rather, access to credit is the real problem.

RISK MANAGEMENT: Universally, MSMEs are perceived to be highly risky and managing risk in MSME lending is a stupendous task. EFL, however, has evolved a safe way of financing MSMEs and has achieved good business with minimum loss. The approaches that help minimize the risks for the company include providing finance only for purchase of capital goods, security deposit, tie-up with suppliers, exposure limit, and handholding. The company provides finance only for the purpose of buying assets, mainly machine tools. It has tied up with many machinery suppliers and dealers in India and abroad and provides finance for purchase of machines from such suppliers only. The margin component for the loans (in the form of security deposit) is 25 % and is collected upfront in cash. EFL in turn pays the full cost of the machine directly to the supplier through cheque. EFL has also set an exposure limit following the RBI norms. As such the
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exposure limit to any single borrower is limited to 5 % of its net worth. Instructions have been issued to the operational people to strictly adhere to the exposure limit. Mr. Pophale says that while the exposure limit helps manage the risks, it leads to a loss of valuable customers. He says that those customers who have been with them for long migrate to banks or other institutions simply because EFL cannot provide more/ adequate finance. The company follows a handholding approach with the borrower right from loan origination in order to ensure recovery of principal and interest. It continues its close association with the customers and does a strict pre-default follow-up. The measures include effective follow-up on delivery of machinery financed, operation of the machines, and monitoring the performance of the borrowers business. All these measures have resulted in a very low level of defaults and non-performing assets (NPAs). Mr. Deshpande shared the fact that the default rate for the company was less than 1 % and the level of net NPA of the company was 0.21 % for the year ending March 31, 2009. It was at 0.02 % a year before and at 0.04 % during 2006-07.

SOURCES OF FUNDS: The main source of funds for the company is banks which provide cash credit (i.e., line of credit) and term loans. The total funds availed by the company from banks account for about 30 % of its total liabilities. EFLs bankers are happy to lend to it for two reasons. Firstly, it is a good customer and secondly, the money lent to it will be treated as priority sector credit that helps them fulfil their target of lending to MSMEs. Banks however, do not give any concession in the rate of interest and other charges to EFL. The management of EFL argues that they are a channel partner and not the end user of bank funds. They further say that they are lending to MSMEs, a priority sector, and hence they should be provided funds at concessional rates. In order to avail funding support from the banks and the market, EFL has obtained credit rating from ICRA Limited. The ratings are: Long-term rating: LBBB (Moderate credit quality indicating higher than average credit risk) Long-term rating for structured obligations: LAASO (High credit quality which indicates low credit risk) Short-term rating: A3+ (Moderate credit quality) The company has also built up its capital base by retaining substantial portion of its profits. During the years 2006-07 and 2007-08, it has retained 90 % and 92 % of its profits respectively and the entire profit earned during 2008-09 has been retained. The net worth of
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the company has hence become stronger and has resulted in a higher capital adequacy ratio. Its capital adequacy ratio at the end of 2008-09 was 26.11 % as against the regulatory minimum of 12 % (it was 20.58 % during the previous year). In addition to its own capital and bank borrowings, EFL also raises funds from the market by way of issuing debentures, albeit to a limited extent.

MANAGEMENT The company remains a closely held one owned by the promoters and their relatives. All the three promoters were playing active role in the management as executive directors in

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the company . Mr S R Pop hale had been the Chairman and Managing Director of the company for long. Since the last year, he has been holding the Chairmans position after relinquishing the executive position of Managing Director to his daughter, Mrs Shilpa. She is a post-graduate in information technology and has undergone training in leadership and business management in the US. She joined EFL immediately after completing her studies 15 years ago and was inducted into the board three years back. Ratnaparkhi brothers stepped down from their executive directors position last year and the vacancies have been filled up by two non-executive directors. In addition, there are two independent non-executive directors on the board. The board has constituted sub-committees like the Asset Liability Management Committee, the Risk Management Committee, and the Investment/Demand and the Call Loan Policies Committee to look after the policy and strategic issues. EFLs organization is divided into four different functional departments, viz., operations, marketing, finance and accounting, and recovery The management considers its employees as the main pillar of the organization and crucial for its success and hence maintains a very good relationship with them. In order to hone their skills and capabilities, employees at all levels are given training in various aspects like credit appraisal, monitoring, leadership, and communication. As a result, the attrition ratevamong its employees are very low and their productivity is very high. Another reason cited by Mr. Pophale for the low attrition rate is that the management does not put their employees under too much of pressure. He was quick to add that less pressure allows the people to think creatively and improves their productivity. EFLs management believes in ethics and values and has set its corporate philosophy as growth through quality and productivity. The goal is to achieve this through satisfaction of all stakeholders including employees, suppliers, and customers. It is believed that job satisfaction to employees by providing a conducive work environment and by treating the suppliers and customers as partners in the business would ensure quality and productivity which in turn would result in profitability and economic well-being of all stakeholders.

FINANCIAL PERFORMANCE: Initially, EFL offered finance under leasing and hire purchase schemes to small businesses, mostly the customers of its parent company, EMTL. The volume of business was hence quite small. The conservative approach helped them sustain the business and make decent profits. The last few years have been extremely good for the company. The growth in

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key parameters like loans and advances, operating income, and profit after tax achieved by the company during the last three years was impressive.

IMPACT OF RECENT ECONOMIC SLOWDOWN: The Indian economy experienced a robust growth in GDP for five consecutive years from 2003-04 to 2007-08, recording an average growth of 8.8 % during the period. However, since 2007, the developed world is reeling under one of the worst ever financial crises and recession. The impact was felt in the Indian economy too. During the first two quarters of 2008-09 ending September 2008, the impact was very less and the growth of major sectors was not affected significantly. However, the second half of the year was very bad for most of the sectors and the overall economy was derailed. As a result, the GDP growth declined from 9 % during 2007-08 to 6.7 % during 2008-09. Mrs. Shilpa said that amongst their customers, the worst hit were auto ancillaries and exporting units. Despite the unfavourable developments, EFLs profitability improved significantly during the year. Return on total assets and return on equity have increased due to increased rate of interest and improved operational efficiency. She further added that the management took several initiatives to maintain the quality of the balance sheet and to minimize losses including going slow in lending, checking the financial health of borrowers, tightening of credit norms, and appropriate recovery measures. She further said that on top of all these measures, the conciliatory approach with the borrowers really helped the company minimize losses. All these measures helped in maintaining the net NPA for the year 2008-09 at 0.21 %. While sharing these facts, she expressed her anguish that RBI did not heed their request for restructuring the loan accounts though it allowed the banks to do it.

Way Ahead for MSME Sector: The economies around the world are slowly recovering and the Indian economy is expected to clock 6.5 to 7 percent growth during the year 2009-10. It is widely expected that the Indian economy will revert to its high growth trajectory from 2010-11. Historically, the MSME sector has been growing at a faster rate than the rest of the economy. The Eleventh Five Year Plan document states that in order to achieve the targeted 9 % growth during the plan period, the MSME sector has to grow at least by 12 %. To achieve that growth rate, adequate credit has to be provided to the sector. Banks, however, are not interested in
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financing MSMEs due to various constraints like lack of understanding of the market, lack of sound risk assessment tools, very high perceived risk, high transaction cost, and a host of other factors. Banks anyway, have many other attractive business avenues like housing loans, personal loans, corporate credit, infrastructure finance, exports, etc. The Raghuram Rajan Committee on Financial Sector Reforms8 has recommended that loans extended by NBFCs and other institutions to the underserved sectors be securitized (under a scheme called Priority Sector Lending Certificate) and the same may be sold to banks and financial institutions. This will serve three purposes banks will be able to achieve their priority sector lending target by subscribing to these certificates; it will help improve the flow of institutional finance to the MSMEs; it will also help minimize the rate of interest in this market greatly. EFLs Plans for the Future: Realizing the opportunity and the favourable environment, EFLs management has set its sight far higher and wishes to grow ten-fold in terms of size of assets and fifteen-fold in terms of number of customers. Mr. Pophale, however, added that the company will remain focused on MSMEs and will continue to provide finance only for the purchase of capital goods. To achieve the targeted growth, the management is exploring various other industrial sectors and is currently studying the pros and cons of financing small businesses in industries like food processing, printing, packaging, etc. Mrs. Shilpa said that necessary credit risk rating models and business delivery models are being developed in-house for the purpose. The company has also created a Micro Enterprise Division and has obtained rating from Micro Credit Ratings International Limited (M-Cril). The rating given by M-Cril is - (Alpha minus) which indicates reasonable safety. Apart from setting a high growth target for the company, Mr. Pophale revealed his long-cherished mission to extend all the financial products and services to the MSME sector including term loans, working capital, letter of credit, bank guarantee and other services. He also expressed his desire to make all the government incentives and subsidies available to the sector through his company. He wishes to provide these services in collaboration with commercial banks.

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CHAPTER II REVIEW OF LITERATURE Laurent, Kapferer and Roussel, 1995 Study reveals that the pictorial advertisements as compared to non-pictorial advertisements indicate how much more effective they are rural consumers as compared to urban consumers. Ben-Akiva et al. (1999) Study reveals that the preferences as comparative judgments between entities. Additional reasons (other than promotions) why consumers may purchase other brands despite a stated brand preference include a desire to try and learn more about different brands in the category; changing needs or situations; variety seeking; and changes in the available alternatives due to new products or improvements to existing products .

Alba and Hutchison (1987) Study reveals that the experts are more likely to search for new information because (a) expertise increases awareness of the existence of potentially acquirable information and (b) familiarity reduces the cost of information acquisition.

Schmidt and Spreng (1996) Study reveals that the knowledge increases the perceived ability to search and therefore should decrease the perceived costs of search. Greater knowledge has been shown to be positively related to increased involvement with a category.

Yee and Young (2001), Study reveal to create awareness of high fat content of pies, studied consumer and producer awareness about nutrition labelling on packaging.

Chen (2001) Study reveals that the expressed a different thought on brand awareness that it was a necessary asset but not sufficient for building strong brand equity. Customer satisfaction remains a worthy pursuit among the consumer marketing community In this study, customer loyalty was attitudinally measured by customers behavioural intention to continuously or increasingly conduct business with their present company, and their inclination to recommend the company to other persons. This measure has proven to be useful in previous research (Zeithaml, Berry,& Parasuraman, 1996).

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Satisfied customers tend to have a higher usage level of a service than those who are not satisfied. They are more likely to possess a stronger repurchase intention and to recommend the product/service to their acquaintances (Bolton & Lemon, 1999; Ram & Jung, 1991).

Mike Asher (2000), the study reveals that the customer satisfaction is only possible when there is full information about customer requirements and everyone who has influence on how they are met. Eleonora Pantano, (University of Calabria, Cosenza, Italy, 1998), the study reveals that the new consumers perception model of local products coming from MangaGracia. In particular, the model shows the most important factors influencing the perception, which are related to cultural value of the products. Ruth M.W. Yeung (Cranfield Univetsity, Silsoe, Bedfordshire,UK), Joe Morris, 2003 the study reveals that the Food safety has become a major issue of public conern, encouraging the UK Government and the food industry to take steps to rebuild consumer confidence. In this context the paper draws on a review of research literature to develop a conceptual framework to identify and review the factors influencing consumer perception of food safety related risks and the likely impact on purchasing behaviour. Leslie J. Harrington (2010), the study reveals that the companies create multiple brand and product features ande use technology to continuously improve the appeal and delivery of their offering, a perception that high tech characteristics are sufficient to attract customers and build loyalty for the company is a common misconception. In reality, the emotional aspects of the customer- brand/ product bond are critical and must be factored into strategic decisions. Holbrook and Batra (1987) the study reveals that the consumers seek emotional value and benefit from brand/ product and that these emotional ties may exceed the value derived from technology. While research turns attention to investigate emotions within this brand/ product relationship, questions arise regarding possible levers that can be engaged to trigger this emotional relationship.

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Ramendra Singh and Abraham koshy, (1999), the study reveals that the salespersons customer orientation has six domain areas, namely, providing information to customers, understanding customer needs, fulfilling customer needs, creating and delivering customer value, sustaining customer satisfaction and maintaining long-term relationships with customers. Morry Ghingold,(Bloomsburg University, Pennsylvania, USA) 2002, the study reveals that the make-up, structure, functioning and outputs of multi-person buying decision making units, commonly referred to as buying centers, have received substantial attention in the business marketing literature. Roger Halliwell, (Harvard Business School, Boston, MA, USA,1991) the study reveals that the data from a large banks retainbanking operations, illustrates the relationship of customer satisfaction to customer loyalty and customer loyalty to profitability, using multiple measures of satisfaction, loyalty and profitability. An estimate of the effects of increased customer satisfaction on profitability suggests that attainable increases in satisfaction could dramatically improve profitability. Laurens Swinkels, Pawel Rzezniczak (2001) the study reveals that for each of the three categories, equity, balanced and bond funds, the paper positive ,but insignificant selectivity skill of the mutual fund managers. No evidence is found of bond or equity market timing skills in the sample. Bala Ranasamy, Matthew C.H, yeung. (1970) the study reveals that the three important factors which dominate the choice of mutual funds. These are consistent past performance, size of funds and costs of transaction. Factors which relatively important. With the

impending liberalization of the financial markets in the developing world, our findings would assist those international funds that are considering expanding their operations into these emerging markets. C. Edward Chang (1995) the study reveals the contribution of his is two unique findings. First, although SRFs have had a relative advantage in terms of lower expense ratios, lower annual turnover rates, lower tax cost ratios and lower risk, SRFs also exhibit lower returns and two risk- adjusted return measues indicate SRFs have inferior reward- to- risk performance.

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Javier Rodriguez (1987) the study reveals that the raw returns, socially responsible funds performed better than some market indexes but this evidence of outperformance disappears once risk is incorporated into the analysis. Consistent with previous studies, no evidence was found of out performance by socially responsible funds. Also, the difference between the performance of SRMFs and conventional mutual funds is not statistically significant. This result is robust to the use of two additional measures of risk-adjusted performance. Fikriyah Abdullah, Taufiq Hassan, Shamsher Mohammad (1986) the study reveals that the Islamic funds performed better than the conventional funds during bearish economic trends while, conventional funds showed better performance than Islamic funds during bullish economic conditions. In addition to that finding both conventional and Islamic funds were unable to achieve at least 50% market diversification levels, through conventional funds are found to have marginally better diversification level than the Islamic funds.

Narjess Buibakri, jean-Claude cosset (2001) the study reveals that the compared mutual funds, SWFs indeed exhibit different preferences for instance, SWFs prefer to acquire stakes in larger, less liquid companies which are financially distressed but which also have a higher level of growth opportunities. They also prefer less innovative firms with more concentrated ownership, which are located in less developed but geographically closer countries with whom they do not necessarily share cultural and religious backgrounds. Gyorgy Varga, Maxim Wengert, 2011 the study reveals that the effect of the subprime crisis and shows that the first wave of this crisis had very little impact, but the second wave with the collapse of Lehman brothers did have a major impact on risk, returns and flows of the mutual fund industry in Brazil. Scott Beasley (2005) the study reveals that the fund families that is sponsors- that use multiple boards have significantly higher objective adjusted board level weighted excess returns. But, there are no significant differences in the objective adjusted board level

weighted excess expenses. These results are consistent with the argument that multiple boards provide superior monitoring.

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QUESTIONNAIRE
COMPANY NAME: ________________________________________________________ 1. How many years are you doing the business? a) Less than 5 years b) 5 10 years c) More than 10 years 2. Is your concern a family business? (Yes / No) 3. Is your organization able to meet short term resource requirements? (Yes / No) If no, would you like to go for any immediate loans? (yes/no)

4. Which of these do you prefer for obtaining loans? a) Banks, why? b) NBFC, why?__________ 5. Which of the following institutions are you aware of? a) TIIC b) Electronica Finance Ltd c) SIDBI d)L & T

6. How did you come to know about the institute? a) Print media b) Web c) Word of mouth d) Others , specify .

7. Which of the institutes have you availed loan? a) TIIC b) Electronica Finance Ltd c) SIDBI d)L & T

8. What services did you avail from EFL?

9. Did the EFL cater to your immediate requirements?

10. How would you grade their turnaround time? a) Excellent b) Good c) Average d) Poor 29

11. The process of obtaining finance from the EFL was a) Simple b) Complicated 12. What would be the key factor you would want to change in order to increase the efficiency of the institute? a) Simplified process b) Prompt response c) Commitment met d) Other loans e) New offers f) Others , specify . 13. Interest rate of the company (EFL) is__________ a) Very high b) Medium c) Low

14. A) Are you planning any future expansions or up gradations? (Yes/No) B) If yes, are you planning to obtain finance for the above mentioned purpose? C) What is the time limit within which you require the finance? a) Less than one month b) 1 3 months c) 3 6 months d) 6 9 months e) 9 12 months D) Is the machinery you require readily available?

15. A) Would you refer the institutes you have obtained finance to others in the industry? (Yes / No) B) If yes, which institute would you refer? a) TIIC b) Electronica Finance Ltd c) SIDBI d) L & T

16. What are the challenges you have faced in availing the loan?

17. Would you prefer any machine purchases in the near future?

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