Professional Documents
Culture Documents
INTRODUCTION
accessing adequate finance for their businesses. Apart from the traditional
modes of financing like banks and money lenders, newer sources of financing
initiatives both at the national and the international levels to improve the
availability of finance. But there are still certain impediments that the SMEs
industries throughout the length and breadth of the country. It also generates
a lot of employment opportunities and the capital cost per employee is very
minimum. With the service sector contributing a major share to the GDP and
as this sector relies on the SMEs, the scope for SME finance by the
1
SMEs contribute nearly 9% of India’s GDP and the Reserve Bank of India has
advised all commercial banks to achieve 20% annual growth in SME lending
till 2010, so that the SME sector exposure to commercial banks is doubled.
Public sector banks’ overall credit to SME sector grew by 26% in 2006-2007,
which amounted to Rs.1,85,000 cores. Among the large PSBs, state bank of
India’s SMEs exposure grew by 24% and all banks are targeting SMEs credit
growth of 25%.
As the small and medium enterprises (SME) sector is one of the fastest
growing industrial sectors all over the world, initiatives are being taken by both
the national and develop small and medium enterprises. Prominent among
them are the small industries development organization (SIDO), national small
economy. In order to see that Indian economy develops fast, planners and
have been developed to initiate and sustain the growth of small and medium
2
small scale industries through the credit facilities offered by national banks,
Rs.3 crores. (Subject to the condition that the unit is not owned, controlled or
subsidiary of any other industrial undertaking) .The Small Scale Sector has
emerged as dynamic and vibrant sector of Indian economy and it has been
employment generation.
creates largest employment opportunities for the Indian populace, next only to
assets in the small scale sector generates employment for four persons.
The sector contributes around 6 per cent of GSDP and employs close to 2.5
lakh people. Many of the growth engines selected for focused development,
e.g., construction and pharmaceuticals, will give rise to many opportunities for
small-scale industries. The sector will thus be a major focus in the strategy to
create rapid growth in the State. By 2020, Andhra Pradesh will have many
development and capability building, small scale units will flourish all over the
3
State. The proliferation of these industries will provide many opportunities for
The SMEs industries sector plays a vital role for the growth of the
The Small Scale Industry today constitutes a very important segment of the
Indian economy. The development of this sector came about primarily due to
the vision of our late Prime Minister Jawaharlal Nehru who sought to develop
core industry and have a supporting sector in the form of small scale
enterprises.
in the small scale sector produces 4.62 lakhs worth of goods or services with
Export contribution:
exports from the SSI Sector account for nearly 35% of total exports. The
number of small scale units that undertake direct exports would be more than
5000.
Economic Indicators:
Indian economy. The development of this sector came about primarily due to
the vision of our late Prime Minister Jawaharlal Nehru who sought to develop
4
core industry and have a supporting sector in the form of small scale
enterprises.
up the Indian small scale sector to the global competition. SMEs are now
government.
But SME in India and abroad suggests that there must be a paradigm
shift in Philosophy and seeks to resolve some constraints like future of SMEs
in India, fresh and further capabilities needed to equip and enable this sector
placed on meeting the credit needs of MSEs. This was manifest through the
following initiatives:-
5
1. Earmarking of credit for tiny sector within overall lending to small
industries.
requirement.
2.5 million)
lakhs.(Rs 5 million)
the Nayak Committee, the Kapur Committee and the Dr. S.P. Gupta Study
Group.
6
(I) NEED FOR THE STUDY:
The SME sector has become very important for many economic
sparing and labor intensiveness. In fact, the small and tiny sectors have a
major role to play in developing nations which suffer due to low capital
formation and over population Govt. of India took several measures for the
of India carefully planned the development of small and tiny industrial sectors
in the country. It was spent millions of rupees for their development during the
agencies, the sector has not been working well owing to different problems
SME Industrial units and thereby to suggest such measures that would
4. To outline the financial problems faced by sample units and the role
5. To examine the role played by SME promoting agencies including both the
7
6. To examine the awareness of various credit schemes offered by the
problem areas to resolve the major financial problems of the small and
Small Scale Sector”. The Role of Banks”, INDIAN BANKING TODAY AND
TOMORROW, MAY, 1981- the above article was prepared on the role of
banks in financing the SMEs in the year 1981. at those times the Indian
banking was not all interested in financing the SMEs , because of their
credit worthiness. Later due to changes in the industrial policy of India, the
commercial banks came forward and made immense help to the growth of
SMEs. This article was written before the economic reforms taken place.
Here is a gap for more analysis about the role of the banks in the post
facilities available to the SMEs in the wake of MSME act 2006. Due the
presence of the gap about the present day activities are different to those
of 1980’s. I made in-depth study of the banker’s role in providing the credit
prepared on the thesis, reveals the financing for the SMEs in the
8
study on credit facilities for SMEs. The article vividly discussed about the
Agricultural based and Artisan based SMEs. Really there is a gap between
the centralized and decentralized sectors in getting the finance from the
banks. The banks are very much lenient in providing loan facilities to the
INDUSTRY AND TRADE, April – 2005- The growth of small and medium
industries in India was discussed in the above article. The expected growth
focused on the one problem that is financial problems faced by the SME
Sector: Problems And Prospects” YOJANA 1-15, JAN, 1987 - the above
article deals with the various problems like ,marketing, raw material, labor,
technical and financial problems. The focus on the finance related issue is
very limited. They have given more importance to the procurement of raw
material and marketing and labor problems in SME segment. But not
9
From my study I focused more on the credit facilities available to the SMEs
Banks.
AND TRADE, MARCH, 1999, - the above article discussed very vividly the
purpose. In the wake of the MSME Act, 2006 passed in the interest of the
small scale sector by the Government of India, the attitude of the financial
above said financial institutions are very much helpful and friendly with the
MONTHLY REVIEW DEC16, 2007 – The article on the above topic paved
the way for the thinking strategy for the financing the small scale and
through its industrial policy clearly stated that the commercial banks
should give priority treatment to the SMEs. The nature of the banking
officials also discussed in the argicle. But that is not sufficient to promote
the SME sector because the sector was totally neglected for the last
several decades due to invention of the MNCs. By enacting the MSME act,
2006, the government of India clearly indicated the signal to the banking
10
people to provide the credit facilities to the SMEs. This article is very much
ECONOMIC TIMES DEC 2004 – in the year 2004 the author of this article
expressed his grief for an enactment to safe guard the SME sector. The
Government of India in the year 2006 came with the special law for the
implementation of the act by the nodal agencies for the promotion of the
SMEs.
OCT 9, 2001 – the above article discussed the reviving the sick SMEs in
labor, export promotion and giving finance. the root cause for all the above
INDUSTRIAL INDIA VOL 36, 12 DEC 2005. Through this article the author
tries to express the need for banks intervention in the promotion of the
SMEs. the officials of the banks in India are belong to middle class families
and unaware of the industrial promotion and its need. Mere advice to the
11
bankers is not helpful. So for that reason Srimathi Indira Gandhi
a central bank and banker’s bank and the prime lending bank to the
government should take initiatives to promote the SME sector. The author
is very much interested in financing the small and medium scale industries
arrests the migration to the cities from the villages in search of better jobs
and better facilities. This topic has given me the encouragement to think in
this way for the betterment of village and cottage industry development.
(IV) HYPOTHESIS:
In the light of this backdrop the present study has been taken up to
identify the credit facilities and the problems faced by the small and medium
the small and medium sectors are suffering from financial problem.
Gunturdistrict area are selected for study. To avoid any ambiguity in dealing
with the hypothesis and to organize the survey on sound lines, the objectives
The following are the main limitations of the study. They are
12
1. This study is confined only to 100 units in Guntur District. The unregistered
industrial units are totally excluded from the purview of the study.
2. Though small and medium industrial units were inter related, the study is
3. There were lots of difficulties in getting the data from the Small and
medium scale industries. But utmost care was taken to maintain the
5. Though there has been chance for bias, the investigator has taken all the
District does not exist. As registration of units is only optional many units are
about the total number of such units and their locations. The study has been
confined to those small units which are registered. The record maintained by
District Industries Centre is used for preparing a list of small tiny units
There were 5458 small and medium industrial units in DIC Registrar at
the end of December, 2007 out of which 2,880 units presently working and
remaining units were not working. 80% of units come under the tiny unit’s
category only. Among the Units having investment in P & M more than
13
sample is confined to 100 units in total. A structured schedule of questions
were approached for the purpose of presenting and finalization was done
schedule.
The researcher visited the sample units of small scale sector and
Both primary and secondary data are used in the study. Secondary
data is collected mainly from District Industries Centre, Guntur, Hand Book of
Statistics, Guntur District and Industrial Profile, Guntur District. Primary data
Period of study:
This period seems to be the normal period for the small scale industrial
14
Presentation of the study (‘Chapterization’)
The first chapter deals with the objective of the study, research
SMES, the growth of SMES, Indian and global importance, and the chapter
discuss about the Industrial policy of government of India before the economic
reforms and after. This chapter discuss about the contributions to Indian
economy from the SMEs sector and finally the problems faced by the SMEs.
The second portion of the second chapterdeals with the various credit
and state government in the contextual background of MSME act 2006. the
active participation of the public and private commercial banks in the creation
of the credit facilities to SMEs sector. Finally it deals with the promotional
The third chapter deals with the analysis of the study of the sample
units carefully selected from the eligible list of SMEs, situated in and around
Guntur district, at different industrial estates. Finally this chapter deals with the
test of hypothesis.
The fourth and final chapter deals with the findings of the study and
suggestions. For the findings of the study the investigator conducted a survey
with a well structured schedule covering all sorts of questions relevant to the
15
CHAPTER – 2
INDIAN PERSPECTIVE:
any economy. Traditionally they produce certain specialized items for which
they enjoy virtual monopoly of skill and expertise developed over the years.
Many items produced in the small scale sector are also used as raw materials
in the large scale industry and thus small scale industries contribute to large
However, in a free economy, the small and medium scale industries will
have to face stiff and challenging competition from the large scale industrial
sector. In a controlled economy, the small scale industries are protected from
In a free economy, the small and medium scale industrial sector is not
insulated from competition from the large scale sector and for their survival
16
and growth; they will have to face competition from the large scale sector out
Small and Medium Enterprises (MSMEs) sector. The experience has been
rewarding both for the financial system as well as the recipient sectors of the
economy...
ASIAN PERSPECTIVE:
existence for several decades and are an integral part of the financial
these institutions.
Korea has one of the largest Credit Guarantee Company in the world in
Nepal, Sri Lanka, Indonesia, Thailand and other countries in the Asian
region have fairly well developed and mature credit guarantee organizations
Small and Medium Enterprises (MSMEs) in driving India’s growth story needs
no elaboration.
17
There is enough evidence to suggest that a strong and vibrant Small
and Medium Enterprises sector in the country is one of the key elements
the millions of young Indians to participate in the nation building task are
development.
guarantee support to banks and lending institutions for their exposure to the
Micro, Small and Medium Enterprises (MSMEs) sector. This is the only credit
For a small fee, the credit facilities upto Rs.50 lakh extended by
CGTMSE to the extent of 75% of the sanctioned credit facility (80% for
MLIs are requested to utilize the CGS to increase their lending to the
micro and small enterprises sector, particularly, those enterprises being set up
18
by women, young first generation entrepreneurs and those from
The operations of CGTMSE during the past few years have recorded
sharp growth both in number and amount approved. This is indicative not only
of the growing confidence amongst MLIs about the beneficial aspects of CGS
but, also about the ability of CGTMSE in delivering on its commitments. Since
operation.
To all those whom we are privileged to serve, we wish to thank you for
times and look forward to your useful suggestions for improving our
effectiveness.
• Diversion of funds.
• Shortage of power.
• Technological obsolescence.
20
Problems in Recovery of Receivables
environment, it must be ensured that receivable dues are realized with utmost
expedition. The SME units will have to make special efforts for collection of
their dues for their growth. They may have to utilize the services of factoring
The small and medium scale units must properly look after these areas
India, despite a liberalized economy, the SME sector is performing well. In the
year 1996-97, the production of Village and Small industries sector increased
to about Rs. 4, 81,466 crores recorded in 1995-96, of which the share of SME
was nearly 80 per cent. The overall growth of the sector was 9.1 per cent
The policies of the Government are also directed towards the growth of
small and medium scale industries. The Government has since enhanced the
investment limit in plant and machinery from Rs. 60 lakh (Rs. 75 lakh for
ancillaries and exporting SMEs) to a common limit of Rs. 3 crores. This would
appropriate new technologies in the sector and stimulate the growth of new
21
The Government is also keen to provide adequate institutional credit to
the SME sector by ensuring that working capital limits of small scale units are
capabilities for promotion of small scale industries. In India, the small and
measures are taken to meet the challenges thrown up by the large scale
sector.
development program are playing a vital role to promote the SME sector in
institutes help the small scale industries’ entrepreneurs in providing all the
guidance.
22
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN INDIA:
order of skill and artistic talents through traditional handicrafts, India has
Scale Industry. But with the provisions of permanent place in the nation's
has staged a grand recovery and is now well entrenched on the path of
and industry in particular. SSI sector in India has posted impressive growth in
generation has been equally impressive from 3% to 45% during the same
since 1991.
23
--- Financial subsidies
--- Equity contributions are all the protective measures for the sector
Industrial policy 1948 which stated that cottage and small scale industries
are particularly suited for better utilization of local resources and for the
goods.
liberal and wider grants under the state aid to Industries Act, and price
replaced the Industrial policy resolution of 1948. The state had followed a
the aim of the state policy is to ensure that the decentralized sector acquires
24
sufficient vitality to be self supporting and its development is integrated
finance small scale units and make changes if necessary to ease the credit
to small scale sector and made some suitable policy changes. The definition
of small scale unit was revised to include all manufacturing units having
units, the investment ceiling was Rs.45 Lakhs. More recently the definition
was relaxed to include service oriented industries and the list of industries
reserved for exclusive development was increased as also the items reserved
account for 55% of industrial production, 40% of exports and above 88% of
inversely with the level of development and their contribution. Small and
and balancing economic and social developments within the country. Small
and Medium enterprises have emerged as the leaders in the industrial sector.
25
In recognition of their significance and stature, the then government
announced policy measures on August 6, 1991 for the first time in the post
independence period. This was to promote and strengthen small, tiny and
The Small and Medium sector which plays a important role in the
Indian economy in terms of employment and growth has recorded a high rate
the country. It has made steady progress during recent years. The good
performance of the small scale units is evident from their number, production,
For a country like ours, with limited financial resources and huge reservoir of
human resources, Small and Medium industry is the only means for solving
26
Table 2.1
Fixed Employme
Productio Export
Investment nt
Year n (Rs. In (Rs.
crore) (lakh Crore)
(Rs. Crore) persons)
1990-91 93555 63518 158.34 9664
1991-92 100351 73072 165.99 13883
1992-93 109623 85581 174.84 17784
1993-94 115795 98804 182.64 25307
1994-95 123790 122210 191.40 29068
1995-96 125750 148290 197.93 36470
1996-97 130560 168413 205.16 39248
1997-98 133242 189178 213.16 44442
1998-99 135482 212901 220.55 48979
1999-00 139982 234255 229.10 54200
2000-01 147348 261289 239.09 69797
2001-02 154349 282270 249.09 71244
2002-03 162533 311993 260.13 86013
2003-04 170726 351427 271.36 155.10
Gross National Product of the Country. Table shows that the total production
2000-01. It is important to note that the output of the small and Medium
sector rose faster than that of large scale sector. The total value of production
by village and small scale industries during the 10th Five year plan period is
27
Small and Medium scale industries has registered a high growth in the
investment, employment, production exports does bear out that it has made
28
PROBLEMS OF SMEs:
. The financial problem of SMEs is the Root Cause for all the other
problems faced by the SME sector. The small and medium industrialists are
generally poor and there are no facilities for cheap credit. They fall into the
clutches of money lender who charges very high rates of interest, or else they
borrow from the dealers of their goods, who exploit them by completing them
to sell their products at very low price. After the nationalization of 14 major
Indian Banks in July, 1969, the Commercial banks were providing only a small
output. As against the share of the village and SME at 40% in the industrial
out, its share in total credit to the industrial sector is only about 30%.
quality and regularity of the supply of raw materials are not satisfactory.
29
SME units suffer from inadequate work space, power, lighting and
ventilation, and safety measures etc. These short comings have tended to
endanger the health of workmen and have adversely affected the rate of
feasible. Wage rates and service conditions of small industries are not
completely at the mercy of middle man. The potential demand for their goods
remains under developed. The SMEs have to face the competitions from large
scale units in marketing their products. It causes damage to the growth and
promote their sales. Further, SMEs produce such products which can not
prepare marketing plans for penetration into domestic and foreign markets.
Small scale industries in our country have suffered from the lack of
cottage industries and SMEs are handicapped by technical know how in the
30
Sickness of SMEs:
been sickness. Many small units have fallen sick due to one problem or the
other. Sickness is caused by two sets of factors, Internal and external factors.
From among the various internal and external causes of sickness the
low labor productivity etc., Besides these factors, some aggregate economic
technologies and creative designs appear almost daily on the market and are
the result of continuous human innovation and creativity. Small and medium-
sized enterprises (SMEs) are often the driving force behind such innovations.
Their innovative and creative capacity, however, is not always fully exploited
as many SMEs are not aware of how these emerging trends can help and
safeguard them. To help SMEs more fully utilize the emerging trends in their
NATIONAL PROGRAMS
SIDO in collaboration with UNIDO has undertaken National programs
for development of selected sectors namely Toy, Stone, Machine Tools, and
31
Hand Tools & Lock in India. The estimated cost of these National programs is
32
COMMON CHARACTERISTICS OF SMEs:
includes many trading and retail establishments while most countries continue
structures and less number of people ensure that there is greater operational
33
SMEs skill in innovation, improvisation and reverse engineering are
legendary. By being able to meet niche requirements, they are also able to
SMEs are usually the prime drives of jobs, in some cases creating upto
80%. Jobs SMEs tend to be labor intensive per se and are able to generate
more jobs for every unit of investment, compared to their bigger counterparts.
SMEs provide jobs locally and hence utilise manpower available locally.
Since it is available for them to transport materials over long distances, they
SMEs enjoy the flexibility of location. Thus, any country, SMEs can be found
spread virtually right across, even through some specific location s emerge as
‘clusters’ for units of a similar kind. Nevertheless, the spread of SMEs is a fact
The sector contributes around 6 per cent of GSDP and employs close to 2.5
lakh people. Many of the growth engines selected for focused development,
e.g., construction and pharmaceuticals, will give rise to many opportunities for
SME industries. The sector will thus be a major focus in the strategy to create
34
rapid growth in the State. By 2020, Andhra Pradesh will have many dynamic
capability building, SMEs will flourish all over the State. The proliferation of
Bowl of India", is also surging ahead on the industrial front. The state has
in the recent Past. Andhra Pradesh has rich and abundant natural resources
and cheap and peaceful labor. Further, it has adequate power supply. It has
also recorded a steady growth in the number of large and medium industries.
Small and tiny sectors are assuming a greater role in the further
recent past has been significant. The District Industrial Centers, set up by the
Government have greatly contributed to the promotion of small and tiny units
in the rural areas. The number of Small and medium Industries significantly
increased to 1, 36,175 by the end of 2003 as against only 8,090 units in 1970.
This indicates that they are increased by more than 15 times in a period of 32
sector.
35
Infrastructural facilities:
denotes that the state has sound infrastructural facilities. The facilities are
not only adequate for the existing industrial units but also sufficient to the units
base, the state could attain significant industrial growth in the recent past.
The state took many steps to industrialize the state with a good number of
units engaged in different trades spread throughout the state. The important
facilities.
the state. They are established after the formation of the state in the year
1956. They have made a mark in the development of the state industrially.
In the absence of these agencies the state would have remained industrially
The district has been developing in agriculture with nearly 40% of the
land put under agriculture; out of the total population, nearly 80% is living in
rural areas when agriculture is the main occupation for its livelihood. Out of
the total working population about 20% is engaged in agriculture sector, and
the rest is in non-agricultural sector. The Principal food crops shown in the
district are paddy, bazra, jower, wheat etc. A sizeable quantity of pulses like
picture of SMEs in the district. From the table it is easy to say that upto the
year 2000 there were 4,516 registered units with a capital investment of
37
Rs.58, 577 lakhs providing employment to 85,863 persons. But afterwards
to Rs.60, 840 lakhs. The employment creation also increased and reached
89,406 persons.
Capital
Year No. of Units Employment
investment
Upto 2000 4, 561 58, 577 85, 863
2000 – 2001 4, 595 59, 447 86, 798
2001 – 2002 4, 682 60, 361 88, 592
2002 – 2003 4, 738 60, 840 89, 406
2003 – 2004 4, 837 61, 101 90, 043
2004 – 2005 4, 912 61, 450 91, 245
2005 – 2006 5, 176 61, 983 91, 796
2006 - 2007 5, 452 62, 093 92, 011
Infrastructural facilities:
education facilities, banking facilities etc, are basic necessities for industries
The district has a fairly adequate railway system of broad gauge. The
most important broad gauge double lines from Madras to Howrah, to Delhi
and to Hyderabad pass through this district, thus providing an easy access
to all important places in the state and country. The double broad gauge
38
line between Madras and Vijayawadais electrified. The district has gained
significantly after the Nadikudi – Bibinagar railway line. Many long distance
trains pass through Guntur now and it has become an important junction.
Calcutta. The district is well connected with the state high ways, Zilla
Parishad roads and Panchayat Samithi roads linking all the important
centres.
present, the industries on Industrial Estate and meeting their water needs
opportunity to start various categories of small and tiny units in the years to
unemployment among working class and educated youth in the district can
industrialization of the district with the help of Small Scale Sector with the
come.
39
Credit Guarantee Fund Scheme for Small and Medium Industries:-
There are an estimated 128.44 lakh registered and unregistered micro and
small enterprises (MSEs) in the country at the end of March 2007, providing
contributes about 39% of the manufacturing sector output and 33% of the
timely and adequate credit at reasonable interest rate is one of the most
important. One of the major causes for low availability of bank finance to this
sector is the high risk perception of the banks in lending to MSEs and
consequent insistence on collaterals which are not easily available with these
enterprises. The problem is more serious for micro enterprises requiring small
The Credit Guarantee Fund Scheme for Micro and Small Enterprises
collateral-free credit to the micro and small enterprise sector. Both the existing
and the new enterprises are eligible to be covered under the scheme. The
implement the Credit Guarantee Fund Scheme for Micro and Small
Enterprises. The scheme was formally launched on August 30, 2000 and is
operational with effect from 1st January 2000. The corpus of CGTMSE is
being contributed by the Government and SIDBI in the ratio of 4:1 respectively
40
September 30, 2007. Based on the future requirement, the corpus is likely to
upto Rs 500,000 in fixed assets, excluding land and building, are called Small
Scale Service/ Business Enterprises (SSSBE’s). This limit has been raised to
business, credit is perhaps the most crucial. The best of plans can come to
naught if adequate finance is not available at the right time. MSEs need credit
support not only for running the enterprise & operational requirements but
expansion etc. In respect of MSEs, the problem of credit becomes all the
more critical when ever any episodic event occurs such as a large order,
Government of India recognized the need for a focused credit policy for
MSEs in the early days of promotion of MSEs. This in turn led to a credit
41
Credit to the small scale sector is ensured as part of the priority sector
industries, export etc. The inclusion of small industries in this list makes them
42
Improving the Credit Flow
1991 (Report came in September 1992) dealt with aspects of adequacy and
timeliness of credit to SMEs. Nayak Committee found that SMEs was getting
working capital to the extent of 8.1% of its annual output which was less than
recommended that the SSI sector should obtain 20% of its annual projected
guidelines advising the banks to grant working capital to the extent of 20% of
the projected annual turnover, timely disposal of loan applications and setting
5 crores.
Action Plan for improving the flow of credit to SME sector. This included:-
Man Committee headed by Shri S.L. Kapur, the then Member, Board for
of credit delivery system of SME industries with a view to making the system
more effective, simple and efficient to administer; and to make suggestions for
submitted its Report to RBI on 30th June 1998, which contains 126
RBI and decision taken thereon. Banks/ Financial Institutions and other
Committee include:-
lakhs.
• Setting of DRTs.
44
The Credit Facilities from NABARD
scale industries, cottage and village industries, handicrafts and other rural
crafts. It also has the mandate to support all other allied economic activities in
rural areas, promote integrated and sustainable rural development and secure
45
• Credit functions, involving preparation of potential-linked credit plans
annually for all districts of the country for identification of credit potential,
monitoring the flow of ground level rural credit, issuing policy and
Financial Inclusion
Indian economy in general and banking services in particular have
made rapid strides in the recent past. However, a sizeable section of the
low income groups, continue to remain excluded from even the most basic
services are:
(ii) A savings product suited to the pattern of cash flows of a poor household,
(iv) Small loans and overdrafts for productive, personal and other purposes, &
47
National Equity Fund Scheme (NEF)
Purpose
Eligible Borrowers
small scale sector and rehabilitation of potentially viable sick SME units
irrespective of the location. Existing tiny and SME industrial units and service
enterprises [tiny enterprises would include all industrial units and service
Norms
Soft Loan limit - 25% of cost of project subject to a maximum of Rs.10, 00,000
per project.
1. SSIs
48
• Service sector units with project cost above Rs.25 crore and upto Rs.250
crore.
Eligible Borrowers
iii] Service sector units with an overall project cost not exceeding Rs.25 crore.
ii] Service sector units with an overall project cost above Rs.25 crore and upto
Constitution
Trusts would also be considered on a case to case basis. The unit should
Nature of assistance
Term loan and other forms of assistance such as Working Capital Term
Term loan and other forms of assistance such as Working Capital Term Loan,
bonds, etc.
Currency of loan
49
In Rupee or foreign currency
Purpose
improving the competitiveness and overall long term viability of the textile
Special Features
For SSIs: The borrowers can avail of any one of the following benefits: 5%
loan or coverage of exchange rate fluctuation not exceeding 5% p.a. from the
base rate or cost of forward cover premium upto 5% p.a. on the base rate of
Subsidy on eligible investment made for modernization, for SME Textile and
Jute Industries in respect of Rupee Loans; The units are permitted to make
new investment eligible under TUGS upto Rs. One crore or till the unit
reaches SSI limit, whichever is higher. OR 20% Credit linked Capital subsidy
(CLCS @20%) on machinery cost exclusively for power loom units in SSI
sector. The cost of modern weaving machinery admissible is upto Rs. 60 lakh
For units’ graduating out of SSI and Medium Sector Enterprises (MSEs):
50
fluctuation not exceeding 5% p.a. from the base rate or cost of forward cover
currency loan.
Eligible Borrowers
SME units, SME units graduating out of the sector after implementation
of the scheme and MSEs in the Textile sector and Cotton Ginning and
Purpose
Eligible Borrowers
bodies buying machinery / capital equipment from SME units. Limits are also
Norms
51
Purpose: Assistance for equipment and/or working capital as also for work
sheds
Eligible Borrowers: Artisans, village and cottage industries and small and
medium industries
Purpose
To provide both term loan for fixed assets and loan for working capital
through the same agency. The total working capital requirement of such units
inclusive of all fund based facilities may be taken into account for determining
Eligible Borrowers
rehabilitation scheme
Norms
operative banks
52
Term Loan - Not to exceed Rs.20 million
53
CREDIT GUARANTEE FUND SCHEME FOR SMEs:
Introduction
small and medium enterprises (MSMEs) in the country at the end of March
sector contributes about 39% of the manufacturing sector output and 33% of
the nation’s exports. Of all the problems faced by the MSMEs, non-availability
of timely and adequate credit at reasonable interest rate is one of the most
important. One of the major causes for low availability of bank finance to this
sector is the high risk perception of the banks in lending to MSMEs and
consequent insistence on collaterals which are not easily available with these
enterprises. The problem is more serious for micro enterprises requiring small
The Credit Guarantee Fund Scheme for Micro and Small Enterprises
collateral-free credit to the micro and small enterprise sector. Both the existing
and the new enterprises are eligible to be covered under the scheme. The
implement the Credit Guarantee Fund Scheme for Micro and Small
Enterprises. The scheme was formally launched on August 30, 2000 and is
operational with effect from 1st January 2000. The corpus of CGTMSE is
being contributed by the Government and SIDBI in the ratio of 4:1 respectively
The institutions, which are eligible under the scheme, are scheduled
and select Regional Rural Banks (which have been classified under
Ltd. (NEDFi) and SIDBI have also been made eligible institutions. As on
September 30, 2007, there are 62 Member Lending Institutions (MLIs) of the
Regional Rural Banks and 3 other Institutions viz., NSIC, NEDFI and SIDBI.
The credit facilities which are eligible to be covered under the scheme
are both term loans and working capital facility up to Rs.50 lakh per borrowing
new or existing micro and small enterprise. For those units covered under the
guarantee scheme, which may become sick owing to factors beyond the
also be covered under the guarantee scheme. It is noteworthy that if the credit
facility exceeds Rs.50 lakh, it may still be covered under the scheme but the
guarantee cover will be extended for credit assistance of Rs.50 lakh only.
Another important requirement under the scheme is that the credit facility
Government or other agencies, will not be eligible for coverage under the
scheme.
Guarantee Cover
per cent of the sanctioned amount of the credit facility. The extent of
guarantee cover is 80 per cent for (i) micro enterprises for loans up to Rs.5
lakh; (ii) MSEs operated and/or owned by women; and (iii) all loans in the
North-East Region. In case of default, Trust settles the claim up to 75% (or
80%) of the amount in default of the credit facility extended by the lending
institution. For this purpose the amount in default is reckoned as the principal
Tenure of Guarantee
The Guarantee cover under the scheme is for the agreed tenure of the
The fee payable to the Trust under the scheme is one-time guarantee
fee of 1.5% and annual service fee of 0.75% on the credit facilities
56
sanctioned. For all loans in the North-East Region, the one-time guarantee
scheme and creating its greater awareness. With a view to imparting training
DAVP, which has created considerable awareness about the scheme among
enterprises have been approved for guarantee cover for aggregate credit of
57
stakeholders, the pace of proposals being accepted for guarantee cover has
below:
NSIC SCHEMES
Bill Financing
Bills drawn by small scale units for the supplies made to the reputed
and well established enterprises and duly accepted by them will be financed /
their emergent requirements. Pre and post shipment finance shall also be
industries.
Eligibility
58
Exclusively for existing && financially viable SSI units including
ancillary units, duly registered as SSI units with the Directorate of Industries.
Benefits
Simple formalities and speedy sanction. Single window system for imported
import license, opening of Letter of Credit etc. Tax rebate on full 5 year lease
rental.
Basic Terms
lease rental at the rate of Rs.24 per Rs.100 per month of the cost of machine.
The unit will have to pay the following before the order for equipment
can be placed on the supplier. Amount equal to three months rental (six
equipment (8% for Imported equipment) to cover the insurance charges of the
machinery for the period of lease i.e. 5 years and administrative charges of
the Corporation.
59
The unit/party must carefully read the terms and conditions and also
the list of the documents to be furnished along with the application as printed
on the application form. The party will have to execute an Agreement Bond
before delivery of machine. Payment of lease rental will start after three
Single Window Scheme to provide both term loan for fixed assets and loan
Composite Loan Scheme for equipment and/or working capital and also for
including Diesel Generator Sets which are not related to any specific project.
60
Venture Capital Scheme to encourage SSI ventures/sub- contracting units to
capacity.
Agencies that are in existence for at least 5 years; have a good track record
New Schemes
Major Schemes
61
existing industrial units in the sector, to modernize their production facilities
SIDBI in July 1996 had permitted SFCs and promotional banks to grant
loans for modernization projects costing upto Rs. 50 lakhs. The Coverage of
the TDMF scheme has been enlarged w.e.f. 1.9.1997. Non-exporting units
and units which are graduating out of SSI sector are now eligible to avail
of India (SIDBI) provides equity type assistance to SSI units, tiny units at five
per cent service charges. The scope of this scheme was widened in 2000-01
raising the limit of loan from Rs. 6.25 lakhs to Rs. 10 lakhs and project cost
(a) The following are eligible for assistance under the scheme:-
ii. Existing tiny and small scale industrial units and service enterprises
62
assistance earlier), undertaking expansion, modernization,
iii. Sick units in the tiny and small scale sectors including service
viable, irrespective of the location of the units (except for the units in
Metropolitan areas).
iv. All industrial activities and service activities (except Road Transport
Operators).
(b) Project cost (including margin money for working capital) should not
exceed Rs. 50 lakhs in the case of new projects in the case of existing units
per project.
of the project cost. However, the ceiling on soft loan assistance under the
Scheme has been enhanced from the present level of 15% lakh per project to
25% of the project cost subject to a maximum of Rs. 10 lakhs per project.
Factoring Services
63
payments for fear of adverse "customer-image" in the market. Factoring
services are being increasingly set up, which is a good sign. Some private
factoring companies have also come up. Government of India intends to bring
forward legislation to promote factoring without recourse for the SSI Sector.
and term loan together from a single agency. The limit for composite loans
loan along with term loan to new tiny and small scale sector units so as to
overcome the initial difficulties and delays faced by them to start production
expeditiously.
3:1 in the total venture of outlay (i.e., cost of the project plus working
Promoter's Contribution
- Other areas and Municipal limits of all cities of the state 30%
64
I TIER II TIER
During Remaining
LOAN DESCRIPTION construction period
implementation/
period of term loan
1.TERM LOAN
a) For new units in backward area 12.5% 13.5%
b)For units in non-backward area 13.5% 14.5%
2. WORKING CAPITAL LOANS
a) All loans upto Rs 2 lakhs 15.0%
b) All loans exceeding Rs 2 lakhs 16.5%
Repayment
Security
the current asset. Corporation may also ask for Collateral Security against
• Working Capital loan should be availed within one year from the date of
commencement of production.
• The unit should open a current account with a designated bank and the
• The unit should route its entire transaction of the business including all
Corporation at once in case the unit approached the bank for more
working capital.
• The unit should provide monthly stock statement showing the position of
inventory level of the Corporation. If they fail to provide the same, the
• All other terms and conditions would be applicable as per details given in
time to time.
Direct Taxes
With effect from 1st April 2000, deduction in respect of profits and gains
for new SMEs is available under Sec. 80IB. The deduction allowed is 25% of
profits for 10 years. For units in the NE & specified backward States, the
deduction allowed is 100% for first five years & 25% for the next five years. To
avail deduction under Sec. 80IB the SSI unit should commence production
66
State Governments offer incentives to SMEs in respect of Sales Tax.
Some give a tax holiday for periods ranging from 5 to 10 years while others
In the Union Budget for 1993-94 a five year tax holiday has been
granted for new industrial undertakings located in all of the North Eastern
States, Jammu & Kashmir, Himachal Pradesh, Sikkim, Goa and U.T. of
Andaman and Nicobar Islands, Dadar and Nagar Haveli, Daman and Diu,
The small and medium enterprises (SME) in India are the second
our exports and provides 40% of value addition to our manufacturing sector.
In developed countries like the US and Japan this sector plays equally
respectively and contributes 61% and 72% manufacturing out put in those
India.
SMEs all over the world lean upon external finance for their survival
67
have suffered due to high cost of funding, inadequacy and delayed
disbursements.
• SMEs poor financial condition makes them unfit to assume market and
technological risks.
RECENT INNOVATIONS
acceptable for funding by banks. These initiatives aim to reduce cost and risk
• Venture capital funds have been floated to share risk, cost of funding
68
• Better information systems and training modules have been developed
Despite these recent changes, SMEs need some more hand holding to
Existing gaps:
SMEs.
financing
69
• Developing derivative market for price risk
Recent developments
rating facility. Besides this, venture capital has been floated to assume
higher risk.
• Lending on the merit of the project rather than on the basis of collateral
sustainable development of financing model for SMEs. How ever, still these
banks have miles to go to reach the desire point. To comprehend this, it would
mitigate risk and blocking of funds. They have also made efforts to alleviate
using recently developed micro data on SMEs with low return on assets
(ROA) and poor equity ratios are paying high interest rates and eventually
defaulting. These studies also have revealed that effect of adaptation strategy
works as this enable SMEs to get finance at reduced interest rate than those
70
SMEs chosen on selection basis. The age of the firm is another factor helping
banking. Hence in Japan relation banking is surging ahead and collateral and
Similarly in Japan, credit guarantee schemes has helped improving not only
model that shall provide for a partnership in between SMEs and banks. The
concept further, it would also help borrower to get more acceptable rate of
banking which of late is growing in importance due to present rise in oil prices.
There is also an urgent need to develop equity market for SMEs. This
may be done by spreading success stories of SMEs in India. It has been the
71
findings of many research studies that SMEs mostly depend upon external
capital and this should not be only loans from banks but should be partly
equity raised from the market besides the nominal equity held by the
promoter. In this the supportive role of mutual funds and venture capitals
assets (NPAs) that are blocking regular flow of funds to credit institutions
catering to SMEs.
complimentary and not a substitute strategy. Along with this risk cover and
sharing of risk may help further improving SMEs financing by banks in India/
Credit Schemes
1. General Loans
Industrial Co-operative Societies for establishing tiny, small scale and medium
scale industrial units and service oriented industries For acquiring assets for
case of existing units. Project cost should not exceed Rs 12.00 crores.
Existing well performing small and medium scale units: Assisted by the
Financed. Units should be in operation for at least 4 years from the date of
72
commercial production earned profits/declared dividends, during immediate
or any other purpose except new projects Project cost including proposed
3. Modernization Schemes
Existing tiny, village, small and medium scale units, which are in
machinery should have been in use in the unit for a period atleast 5 years.
measures
bottle necking. Improvement in material handling etc., Total Project cost: Not
restaurants with motel projects with wayside restaurants and lodging facilities
73
building, plant & machinery, kitchen equipment, furniture & fixtures, crockery &
cutlery, etc.
For setting up of
74
-For setting up Nursing Homes/ Hospitals.
Doctors.
-For acquiring Bore well Drilling Rigs with Transport vehicle chassis.
75
Proprietary/Partnership Firms, Private/Public Limited companies of
expenses) requirements.
Rs.12.00crores.
furniture & fixtures and related equipment. Cost of land, building should not
exceed 50% of total project cost. Cost of project below Rs.20.00 lakhs.
76
New tiny and SSI units
Venture outlay shall not exceed Rs.100.00 lakhs including working capital
should be in operation for 3 years and not defaulted to institutions and banks.
Project outlay not to exceed Rs.100 lakhs. Outlay on land and building
should not exceed 25% of the project cost. Minimum promoters contribution
Assistance for acquiring land, construction of civil works, machinery and initial
stock of chicks, feed, medicines and vaccines. Project cost: Need based.
77
New projects in tiny and SSI sectors irrespective of location. Existing
tiny & SSI and service enterprises except transport operators undertaking
irrespective of location. Sick units in tiny & SSI sector including service
Governments, SFCs and other State level institutions or banks (except State
investment subsidy) are not eligible for assistance. For acquiring assets to
Project cost: Not exceeding Rs.10.00 lakhs for new units and for existing
DER-1.857:1
Other Schemes:
For setting up units in cottage, village and tiny sector and in places
where the population is less than five lacs. However, the population restriction
does not apply to artisans. For equipment and/or working capital as also for
work sheds. Project cost not exceeding Rs.50, 000/- Promoters contribution-
Nil
78
For projects less than Rs.50,000/-
Promoters contribution-Nil
Existing units assisted by the Corporation/units availed term loan not less than
Rs.5.00 lakhs earlier and have closed the loan account/units financed by the
Corporation and in operation for more than 3 completed years and have
earned net profits for the last 3 years, regular in repayment to the financial
institutions, should not have availed reschedulement facility more than once
purposes, except for speculative purpose. Loans above Rs.50.00 lakhs are
considered for short term working capital requirements only. Total assistance
to all the associated units of a group of companies shall not exceed Rs.300.00
lakhs.
79
From Rs.10.00 lakhs to Rs.25.00 lakhs 18 months
case basis.
Only well-established and reputed companies having proven track record with
a minimum 3 years of operation, earned net profits for the last 3 years, with
etc., for the borrower concerns towards working capital requirement other
than consumables.
Maximum limit for sanction Rs.90.00 lakhs. The sanction limits shall be
150%
Pre-issue appraisals
Syndication etc.
d) Equipment Lease
80
Industrial concerns eligible for availing term loans from the Corporation falling
The cost of the equipment shall be Rs.10.00 lakhs and above. Maximum
Rs.90.00 lakhs in case of partnership concerns and Rs. 60.00 lakhs in case of
years of operation, earned net profits for the last 3 years, with satisfactory
purpose nature having high saleability and shall be procured from standard
The cost of the equipment shall be Rs.10.00 lakhs and above. Maximum
Rs. 90.00 lakhs in case of partnership concerns and Rs, 60.00 lakhs in case
81
The repayment period shall not be for more than 3 years.
(NABARD)
82
Just like any other businesses when you get referrals from the others, it
is generally easier and less stressful to have your friends and business
anyone who can refer a financial institution to you, you can consult bank
branches where you maintain personal bank account. The branch manager
will generally be glad to refer you to their commercial departments when their
Hong Kong, there are increasingly more finance companies that are providing
commercial finance companies have started to provide many new and more
smaller. The most important factor for you is to decide who is providing the
Since financial institutions are risk averse, they would only finance
companies that they deem are of low risks. Of course, each financial
institution has a different way to evaluate risks and has different degrees of
commercial enterprise:
i) Management
83
iii) Collateral Value
Management
ensure they have the ability to operate the company in ways that the company
that repays loans. Some of the key questions that you, as managers, will be
card of your business and it separates between "Dream" and "Reality " of a
SME.
auditor on a timely basis will help financial institutions know your financial
84
conditions more clearly and objectively. This is especially important during the
audited financial statements as of March 31, 1997 will be too "Old" and
1998. If you are in need of heavy financing support from financial institutions,
you can consider having your external auditor prepare your financial
statements twice a year. With better and more timely reporting, you will be
up of his/ her business, but also for successful operation as well as regular up
Government (both at the Central and State level) has been undertaking
various policies and schemes, etc. All such measures are specifically focused
The public sector banks are the major source of financial assistance to the
industrial sector. They extend credit support to the firms in the form of loans,
advances, discounting bills, project financing, term loans, export finance, etc.
and services that can cater to any business or market requirement. It deploys
85
multiple channels to deliver integrated solutions for all financial challenges
services sector.
Project finance
Structured Finance
been set up in different parts of the country exclusively for the development of
BANK OF BARODA offers various products and services that meet the
units. Various schemes relating to the provision of loans and advances by the
bank include:-
Term Finance
Traders Loan
86
ANDHRA BANK has also devised a host of loan schemes to meet the
include:-
Term Finance
Corporate Loans
Project Finance
Kisan Sampathi
formulated several policy packages including schemes and funds for their
87
1. Small Industries Development Organization (SIDO) is an apex body for
industries.
gradation.
88
2. National Small Industries Corporation Ltd (NSIC), has been
established with the objective of promoting, aiding and fostering the growth
services.
of scares raw materials, etc. NSIC also takes care of all the
of imports.
89
• Performance and credit rating scheme for small industries:-
At the State level, various State Financial Corporations (SFCs) have been set
the industrial units. For this purpose, these institutions have brought out
several funds and schemes, from time to time. There are 18 State Financial
91
Growth in Small and Medium Scale Industries during Census
Periods in India (1972, 1987-1988 and 2001-2002)
92
CHAPTER – 3
several problems which hamper their growth. The industries concerned are
small but their problem seen to be many. It is observed that every unit is
facing by one problem or other depending on its size and structure. The Root
cause for all the above problems are lack of availability of credit. The
them. Though the government and its agencies are providing all sorts of credit
facilities in various forms, the small and medium enterprises are unaware of
the credit facilitates offered by the industrial promotion banks and agencies
Financial Problems:
As pointed out earlier, this second part of the chapter brings out the
financial problems of small units. Efforts have been made to analyze the
the data obtained from the sample units and care is taken to draw out
meaningful conclusions.
93
Sources of Finance:
capital, viz., 1. Own capital and 2. Borrowed capital consisting of (i) Long
term capital for its investment in equipment and other capital assets and (ii)
sharing of management and control. Much of this initial capital is required for
the purchase of fixed assets like land, building, plant equipment and the
Owned capital may not be sufficient to meet the long term needs. In
such a case, besides the own capital, long term capital is needed for
term credit is needed for working capital to buy raw materials and stores, to
The facilities available for financing small and tiny units in Guntur
District are reflected in the analysis of the actual amount of loans granted to
94
them by various organized and un organized agencies, besides their own
Percentage
S. No. of
Particulars
No Respondents
(%)
1 Manufacturin 59 59.00
g
2 Service 31 31.00
3 Any other 10 10.00
Total 100 100.00
95
Table- 3.2: About Form of organization
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Sole Trader 25 25.00
2 Partnership Firm 45 45.00
3 Co-operative 6 6.00
Society
4 Private Limited 24 24.00
Total 100 100.00
From the above table and graph it shows that majority of the SMEs
belongs to partnership type of organizations comes to 45%. 25% of the
respondents belong to sole trader ship of business. 24% of the SMEs
registered under companies act and next 6% of the firm’s registered under the
co-operatives act. This shows clearly that the industrial organizations are very
much interested in form their business under the partnership act, because the
formation and dissolving the partnership is very simple. That’s why the
management consultants like the chartered auditor support formation of
partnership at initial stages, for its low cost operations and less obligated to
government enactments and they are free from mandatory obligation put forth
by the companies act.
96
Table- 3.3 : Sources of Borrowed Capital
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Commercial Banks 46 46.00
2 State Financial Corporation 15 15.00
3 Commercial banks and SFC 13 13.00
4 Friends and Relatives 16 16.00
5 Money Lenders 06 06.00
6 APSSIDC 04 04.00
Total 100.00
From the above table and graph it is quite clear that the credit facilities
are offer by the commercial banks about 46% , next comes the friends and
relatives. The state financial corporation is funding around 15% of the
respondents. The state financial corporation with collaboration with the
commercial banks are offering credit to 13% of the respondents. Still the
SMEs are depending upon the money lenders 4%. These money lenders
charge more rate of interest, this is also one of the major financial problems
faces by the SMEs. The state governments APSSIDC also providing minimum
credit support to the 4% of the respondents.
Table- 3.4 : Investment Outlay
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 10 Lakhs to 25 Lakhs 59 59.00
2 25 Lakhs to 2 Crores 24 24.00
3 2 Crores to 5 Crores 15 15.00
4 5 Crores to 10 2 2.00
Crores
Total 100 100.00
97
From the study it was observed that 59% of the respondents are
Percentage
S. No. of
Particulars
No Respondents
(%)
1 50 – 50% 10 10.00
2 40 – 60% 20 20.00
3 30 – 70% 15 15.00
4 20 – 80% 55 55.00
Total 100 100.00
50- 50% composition of fixed assets to working capital are 10. The no of
Percentage
S. No. of
Particulars
No Respondents
(%)
98
1 Small Scale 24 24.00
2 Medium Scale 15 15.00
3 Micro Scale 59 59.00
4 Public Private Participation 2 2.00
Total 100 100.00
59% of the units are under micro scale category, followed by 24% of
the units are under small scale , 15% of the units come under medium scale
district municipal corporation entered into joint ventures with Ramky group of
Hyderabad to produce electricity through BIO-Mass gas plat and village water
treatment plants erection and maintaining with TEAM company of Tamil Nadu.
99
Table- 3.7 : Sources of Borrowed Capital
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Commercial Banks 46 46.00
2 State Financial Corporation 15 15.00
3 Commercial banks and SFC 13 13.00
4 Friends and Relatives 16 16.00
5 Money Lenders 06 06.00
6 APSSIDC and other Govt agencies 04 04.00
Total 100.00
From the above it is clear that 46% of the respondents are obtaining
the loan from commercial banks. 15% of the respondents are obtaining the
loan from state financial corporation. 13% of the respondents are obtaining
the loan from both commercial banks and state financial corporation. 16% of
the respondents are obtaining loan from friends and relatives. 6% of the
respondents are obtaining the loan from money lenders. Remaining 4% of the
respondents are obtaining loan from other Governmental agencies
100
Table- 3.8 : Problems faced by the SMEs in obtaining the credit
Percentage
S. No. of
Particulars
No Respondents
(%)
1 Non Eligibility of Credit 39 39.00
2 Rise in Interest Rate 15 15.00
3 Delay in process 21 21.00
4 Heavy Documentation 25 25.00
Total 100 100.00
From above table and graph it is revealed that 32% of the respondents
don’t have the eligibility to obtain credit facility from the banks. 15% of the
respondents had a problem because of raise in the interest rates. 21% of the
entrepreneurs from the government side. 25% of the respondents feel that the
who are involved in producing products are still unaware of the credit facilities
101
Table- 3.9 : Agencies help in solving Financial Problems
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 SIDBI 5 5.00
2 MSME 5 5.00
3 SFC 25 25.00
4 SBI 40 40.00
5 Andhra Bank 25 25.00
Total 100 100.00
From the above table it is clear that 5% of the respondents are helped
financial problems. 25% of the respondents took the help of SFC to solve their
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Delay in sanction 40 40.00
2 Security problem 20 20.00
3 No. of visits paid up & followed 20 20.00
up
4 Incidental expenses 15 15.00
5 Any other problem 5 5.00
Total 100 100.00
102
Majority of the entrepreneurs are experiencing the problem of delay in
approval and sanction of their loans from the banks and credit agencies. Next
comes the security problem, the SMEs who is approaching the banks are not
problem is the no of visits paid and followed up with the banks for the sanction
of the loan. There are some peculiar problems like the political leaders are
putting their legs to stop the sectioning of the loan to the eligible owners of the
SMEs.
Percentage
S. No. of
Particulars
No Respondents
(%)
1 Increase the production 55 55.00
2 Increase the working 10 10.00
capital
3 Purchase raw material 25 25.00
4 Modernization 10 10.00
Total 100 100.00
From the above table and graph 55% of the respondents are taking the
taking the credit to increase their working capital. 25% of the respondents are
taking the credit to purchased raw material. Another 10% of the respondents
taking loan for the modernization of their existing units. The utilization of the
From the above table it is clear that 18% of the respondents got full
subsidy from the government. 12 % of the respondents felt that they got
partial subsidy. 24% respondents are of the opinion that they got nominal
subsidy. 6% of the respondent s felt that they enjoyed 40:60 subsidy from the
government. 40% of the respondents felt that they did not got any subsidy
104
Table- 3.13: Quick Disbursal of Credit from various commercial banks
Percentage
S. No. of
Particulars
No Respondents
(%)
1 HDFC 30 30.00
2 ICICI 50 50.00
3 Fullerton 5 5.00
4 SBI 15 15.00
Total 100 100.00
From the above table and graph it depicts that 50% of the respondents
feel that ICICI Bank is quick at granting the credit. 30% of the respondents
feel that HDFC Bank is at second position in offering credit. 15% of the
Respondent fees that Fullerton is taking more tin\me than any o0ther
105
Table- 3.14 : Behavior of Financial Agencies in granting loan
Percentage
S. No. of
Particulars
No Respondents
(%)
1 Friendly 20 20.00
2 Helpful 30 30.00
3 Neglecting 10 10.00
4 Non- 40 40.00
cooperative
Total 100 100.00
From the above table and graph, 20% of the respondents feel that
that employees are neglecting them. 40% of the respondents feel that
Percentage of Percentage
S. No. of
Loan amount
No Respondents
sanctioned (%)
1 100% 10 10.00
2 75% 30 30.00
3 50% 40 40.00
4 25% 20 20.00
Total 100 100.00
106
From above table it is clear that 10 out of the sample of the
respondents feel that their entire loan amount was sanctioned. 30 out of the
sample of the respondents are at the opinion that 75% of the loan is
sanctioned. 40 out the sample of the respondents are at the opinion that 50%
of the loan is sanctioned and 20 out of the sample of respondents feels that
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 1 Week to 1 Month 10 10.00
2 1 Month to 2 Months 25 25.00
3 2 Months to 4 25 25.00
Months
4 4 Months to 6 40 40.00
Months
Total 100 100.00
From the above table it is clear that 10 respondent feels that their loan
has been sanctioned in less than one month. 25 respondents feel that their
feels that their loan amount has been sanctioned within 4 months. 40
respondents feel that their loan amount has been sanctioned within 6 months,
107
Table- 3.17: Facilities provided by them to repay the loan
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Interest Holiday 1 1.00
2 Deferred payments 15 15.00
3 E.M.I 65 65.00
4 Interest charged on yearly 19 19.00
basis
Total 100 100.00
The SME entrepreneurs feel that the banks and the governmental
agencies are giving some sort of help in repayment of their loans. 65% of the
respondents feel that the institutions are giving chance to convert their loan
amount into monthly equated installments for easy and regular payments.
19% of the respondents feel that instead of charging compound interest they
charging simple annual interest. 15% felt that they enjoying the mode of
deferred payment from the financial institutions. In some cases the banks are
deferring the credit amount for 1 to 3 years. Least among all the facilities is
the interest holiday announced by the government to some SME sector
industries. These units are enjoying the interest holiday for 1 to 3 years , this
can be treated as one of the subsidies provided by the government of India in
the promotion of small and medium sector industries
Table- 3.18: Awareness of credit facilities given by government
Percentage
S. No. of
Particulars
No Respondents
(%)
1 Yes 60 60
2 No 40 40
Total 100 100.00
From above table it is clear that 60 respondents are of the opinion that
they are aware of various credit facilities available.40 respondents are of the
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opinion that they don’t have any information about the availability of the credit
facilities. The SME sector is suffering from lack of knowledge about credit
facilities given by the government through the nodal agencies. All the SME
unit owners are requesting to provide the awareness programs of the different
109
Table- 3.19: Amount that you looking from the Government
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 1 – 5 Lakhs 10 10.00
2 5 – 10 Lakhs 30 30.00
3 10 – 20 Lakhs 40 40.00
4 Above 20 Lakhs 20 20.00
Total 100 100.00
The SMEs are very much interested to take the loan from the banks
the amount ranging from Rs10-20laks, the reason behind this is almost 90%
of the SMEs in Guntur district are seasonal and they operate hardly for 4 to 6
months in a year. To run the business in the season they need Rs10- 20 lakh.
But some of the bigger units like cold storages are interested in taking the
loan for more than Rs20 lakh to 1crore. The tobacco companies need more
capital investment in the form of purchase of raw material in the season for
export. The raw material is purchased from the auction centers on cash and
carry basis.30% of the respondents insisted on borrowings from Rs5-10lakhs
and 10% of them are interested in borrowing Rs1-5lakhs, because of their
size of operations.
Table- 3.20: Payback period opted by you
Percentage
S. No. of
Particulars
No Respondents
(%)
1 1 – 5 Years 10 10.00
2 5 – 10 Years 25 25.00
3 10 – 15 Years 20 20.00
4 15 – 20 Years 45 45.00
Total 100 100.00
years as the payback period. 25 respondents opted less than 1d0 years as
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the payback period. 20 respondents opted less than 15 years as the payback
period. And 45 respondents opted less than 20years. Generally the operators
in SME segment likes longer payback period for their loan amounts because
turnaround in these units are limited and the within the short span of time it is
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Table- 3.21 : Capacity Utilization
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Under utilization of the capacity 85 85.00
2 Over utilization of the capacity 5 5.00
3 Installed capacity utilization 8 8.00
4 Not utilizing the installed capacity 2 2.00
Total 100 100.00
From the above table and graph 85% of the units are under utilizing their
installed capacity. 5% of the respondents are not utilizing the installed capacity.2% of
the respondents are over utilizing the unit capacity and 8% of the respondents are
utilizing installed capacity of production from their units. The under utilization and not
utilization of the units, they have reasons to explain. Those causes for the under
utilization are discussed in the below table. the machinery what they are using in
producing the products are very old in nature , some units have second hand and
used machinery , due to this mechanical and maintenance also they are suffering .
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Table- 3.22 : Causes for under Utilization
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Due to financial problem 85 85.00
2 Due to labour problem 5 5.00
3 Due to marketing problem 8 8.00
4 Due to raw material problem 2 2.00
Total 100 100.00
From the above table and graph it is quiet evident that 85% of the SMEs are
credit schemes offered by the commercial banks and the governmental agencies and
the neglecting attitude of the government and bank officials the SMEs are facing
funds crunch and this leads them to all sorts of production problems. In the opinion of
the industrialists, if they got sufficient money, all other problems like labor, marketing
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Table- 3.23 : Awareness of SIDBI; SIDO; NSIC; SFC; NABARD
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Any One Organisation 70 70.00
2 Any Two Organisations 12 12.00
3 Any Three Organisations 8 8.00
4 Any Four Organisations 6 6.00
5 All organizations 4 4.00
Total 100.00
From the above table and graph it is quiet clear and assumable that the
majority of the SME segment operators are unaware of the credit agencies,
which are promoted by the central Government. According to our survey the
Promoters of the SMEs have little knowledge about the various institutions
offering credit facilities to the SMEs. Only 8%of the respondents know all the
five important governmental institutions. 70% of the respondents are aware of
the any one of the organization. 12%of the respondents are aware of the only
any two organizations. The remaining knows the any three or four of the
above credit granting organizations. It is clear evidence that the SMEs sector
needs more awareness from the nodal agencies about the credit institutions.
Table- 3.24 : Awareness of below Schemes
a) Bill discounting Scheme; b) Hire purchase and equipment leasing scheme
S. No. of Percentage
Particulars
No Respondents (%)
1 All Schemes 10 10.00
2 3 Schemes 30 30.00
3 1 or 2 Schemes 45 45.00
4 None 15 15.00
Total 100.00
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From the above table and graph it vividly clear that only 10% of the
respondents know all schemes. 30% of the respondents know only few
schemes and remaining owners are not aware of such schemes. They have
not shown interest to learn about those schemes. Because they have very
bad experience with the governmental agencies granting the loans. Whenever
they applied for the loan the banks or the credit granting agencies made
hassle with the officials of the banks. Generally they are not interested to go
fro bank loans ad depending on the friends and relatives and money lenders
for their source of credit.
Table- 3.25 : Suggestions
Percentag
S. No. of
Particulars e
No Respondents
(%)
1 Create awareness about the credit facilities 30 30.00
2 Quick disbursal of credit 40 40.00
3 Regular interaction with the entrepreneurs 20 20.00
4 Redress our grievances effectively 10 10.00
5 Any other (Please specify) – –
Total 100 100.00
From the above table and graph it is clear that 30 respondents feel that
awareness should be increased about the credit facilities available for the
enterprises. 40 respondents are of the opinion that the agencies should focus
on quick dispersal of credit. 20 respondents feel that the government
employees should have interaction to the entrepreneurs at regular intervals to
know their grievances. 10 respondents feel that their grievances should be
redressed effectively.
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Testing of Hypothesis:
which hamper their growth. It is found that no single unit is free from
problems and that every unit is hit by some problem or the other based on
problem responsible for a host of problems in small units. Small units require
two types of capital, fixed capital and working capital. The sources of capital
are self finance and borrowed funds. The important sources of borrowed
Before starting the study of this project the hypothesis is that the SMEs
are facing severe and acute finance problems. But after conducting the study
banks in public and private sector are providing very good service to the
SMEs. The main problem lies in the perception of the entrepreneurs about the
banks and governmental agencies. Still the promoters of the SMEs thinking
that the above institutions are not helping them in getting the credit facilities.
But in my study I came to know that the banks and other financial institutions
are very much ready to offer and extend the credit facilities to the small and
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medium enterprises, if they come with proper documentations and ready to
fulfill the minimum parameters to avail the credit facilities from those
surprise I came across the new enactment of MSMED act 2006, especially for
The Government of India identified the need for the more credit
facilities for the SMEs in the wake of invasion of MNCs and TNCs in India.
The post economic reforms period is a testing time for the SME sector. All the
MNCs entering into India are capturing the products which were once
produced by the small and medium scale industries. The intrinsic problems of
the SMEs are that they cannot compete with the amount of investment and
facilities to the SMEs. The entrepreneurs are unaware of the schemes and
struggling from the financial crunch. More ever all the promoters are not highly
qualified to run the business strategically. They are ailing from low education
and traditional methods of production methods. The SMEs are still following
operations. For ex, the handloom industry giving more employment than any
other SME segments are still using the conventional methods in producing the
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cotton material for dhotis and saris. It causes the low production with more
labor.
overall growth of the SME sector is phenomenal. Currently even public private
with standing the global competition. These agencies are considered to play a
pioneering role in coordinating the efforts of the governments with those of the
financial intermediaries, which will go a long in taking India into the ranks of
118
CHAPTER - 4
All efforts were made by the researcher to make the study as scientific as
possible.
Findings:
1. The growth of small scale industries in Andhra Pradesh in the recent past
Andhra Pradesh denotes that the state has a sound infra structural
facilities.
state. In the absence of these agencies the state would have remained
industrially undeveloped.
3. It is found that difference in the size of total capital exist not only between
different types of industries but also among different units in the same
industry.
capital.
119
8. It is found that many units have been suffering production problems due to
the shortages of inputs like credit. In the case of Regal, a Foot ware
manufacturing unit at Guntur could not produce quality foot wares because
they don’t have adequate funds to purchase latest machinery to get quality
out put.
example, in Guntur the JOCIL co., manufacturing good quality soaps with
a brand name JOY. But due to lack of product promotional activity it was
gradually suppressed by the MNCs who already exist in the market. From
the own voice of the managing director of JOCIL, they withdraw the JOY
only due to cut throat competition posed by the MNCs. If they have credit
facility for promotional activities then they would have succeed in the
market. It is also found that units are demand based but there is no
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SUGGESTIONS:
1. The industry promoting agencies should take care of the well being of
small scale sector and they should initiate such measures which would
2. It is right time to adopt the idea of limited partnership with a view to boost
3. Timely finance should make available to the small units keeping in view
their needs.
guidance at the time of setting up for considering the long-term and short-
their projects. They should undertake only such projects which are
9. the entrepreneurs are of the opinion that , the funding institutions are
taking much time in sanctioning the loan. Hence it is suggested that the
entrepreneurs.
10. The Entrepreneurs are of the opinion that they are not getting proper
the loan from the funding institutions. Hence it is suggested that the
122
CONCLUSIONS:
From the above major findings of the study the following conclusions
are drawn:
1. The growth of small and medium scale industries in Andhra Pradesh has
4. Capital base of small units is very poor and they are facing several
financial crisis.
problems.
6. The SMEs are not aware of the credit schemes offered by the commercial
7. The delays in sanctioning of the loan and the neglecting attitude of the
bank officials are the main causes behind the bad perception of SMEs
8. The Central Government should take the initiative in propagating the credit
9. Financial problems are the root cause for all the problems faced by the
SMEs. The State Government should encourage this segment through its
Finance Corporation.
123
10. The entrepreneurs should be motivated to run successfully of their units by
acceptable for funding by banks. These initiatives aim to reduce cost and risk
in financing SMEs.
• Venture capital funds have been floated to share risk, cost of funding and
• Despite these recent changes, SMEs need some more hand holding to
Existing gaps:
124
• Non- existence of reliable information systems to study the risk pattern
SMEs.
financing
and highlighting the credit facilities available for SMEs. But there still exits
• To study the perception of the SMEs towards the central and state
governments.
SME financing has gained momentum in the last few years, because of
Banks, especially private sector banks have relaxed the lending norms
to accelerate the credit flow. The crux of the issue in financing SMEs is
126
BIBLIOGRAPHY
2002.
Publications, Mumbai
15.Policy Measures for promoting & Strengthening Small, Tiny & Village
1991.
ARTICLES
44.
5. SSI Reservations over New Guidelines, The Hindu, Tues, Mar, 2003,97
Management.
Hyd, India, Sri Ram. M.S., Phansalkar S.J. Small Enterprise Development,
128
9. Stock Market for the small and medium industries: Is the Market informally
10. Need for easy capital to make SSI's Viable, Indian Express, 1998, Jul,26,
P.5.
11. Abolition of Reservation for SSIs : Panel moots cluster approach, Indian
13. Efficacy & effectiveness of single window scheme of SIDBI for working
capital finance of Tiny & Small Industrial Units in Karnataka. Dr. S.S.
Hugar.
14. Export orientation for small and medium enterprises: Yojana, Sep, 2000.
Shilpa Bichitra
129
ANNEXURE - 1
MICRO, SMALL AND MEDIUM, ENTERPRISES DEVELOPMENT (MSMED)
ACT, 2006 SALIENT FEATURES
2. Classification of Enterprises
The earlier concept of' Industries' has been changed to 'Enterprises'.
• Enterprises have been classified broadly into:
(i) Enterprises engaged in the manufacture I production of goods
pertaining to any industry; &
(ii) Enterprises engaged in providing I rendering of services.
• Manufacturing enterprises have been defined in terms of investment in
plant and machinery (excluding land and buildings), and further
classified into:
(i) Micro Enterprises - investment up to Rs.25 lakh
130
(ii) Small Enterprises - investment above Rs.25 lakh & up to Rs.5 crore
(iii) Medium Enterprises - investment above Rs.5 crore & up to Rs.I 0
crore.
• Service enterprises have been defined in terms of their investment in
equipment (excluding land & buildings), and further classified into:
– Micro Enterprises - investment up to Rs.l 0 lakh.
– Small Enterprises - investment above Rs.1 0 lakh & up to Rs.2
crore
– Medium Enterprises - investment above Rs.2 crore & up to 5 crore.
131
Functions of the National Board
• Examine the factors affecting the promotion and development of
MSMEs, and review the policies and programmes of Central
Government in this regard.
• Make recommendations on matters referred to as above or any other
matter referred to it by the Central Government.
• Advise the Central Government on the use of Fund or Funds
constituted under section 12.
5. Advisory Committee
• Headed by Central Government Secretary Vs of MSMEs, and including: .
Not more than five officers of the Central Government;
• Not more than three representatives of State Governments; &
• One representative each of the Associations of Micro, Small and Medium
Enterprises.
8. Procurement Policies
• Central Government or a State Government to notify preference policies
in respect of procurement of goods and services, produced and provided
by MSEs, by its Ministries, Departments or its aided institutions, and
public sector enterprises (non-statutory till now).
• Valid only for micro and small enterprises, and not for medium
enterprises.
• Services also covered.
Source: "Micro, Small and Medium Enterprises Development (MSMED) Act, 2006",
Laghu Udyog Samachar, 30 (9-12), April- July 2006, pp. 3-5.
134
ANNEXURE – 2
I. INTRODUCTION
1. Among the six basic principles of governance underlying the National
Common Minimum Programme (NCMP) of the Government, sustained
“economic growth in a manner that generates employment” has a pride of
place. The NCMP also describes the small scale industries as “the most
employment-intensive segment”.
2. This is indeed so. The small scale industries of India (including the tiny
industries and small scale service and business entities) have a long
history of promoting economic growth that is employment-oriented and
spatially widespread, and hence inclusive. At the beginning of the X Plan
(2002-03), the segment provided gainful employment to 24.9 million
people in the rural and urban areas of the country through 10.5 million
units, engaged in manufacturing and providing a wide range of goods and
services. Over the next four years (end 2005-06), they have grown to 12.3
million units providing employment to 29.5 million persons. This represents
an average annual growth rate of 4.33 per cent in the number of these
units and, what is more important, that of 4.57 per cent in employment. If
the units in the khadi, village industries and coir industries are also taken
into account, the employment is well over 332 million. This is thus rightly
called the segment which provides employment next only to agriculture. A
simple analysis shows that the employment intensity of the segment
(registered units) is 1 person for Page 1 of 10 every 1.49 lakh of rupees
135
invested in fixed assets, as against 1 person per Rs. 5.56 lakh in the large
organised sector. And, the rate of growth of employment in this segment is
well above that of the population of India (1.5 per cent) or, that in the large
industries segment (0.85 per cent).
4. Yet, the segment does not constitute a homogeneous universe and a large
majority of the units faces several challenges. In order to assist them in
fully harnessing their potential by availing of the increasing opportunities
generated by trade liberalisation, it is necessary to build not only an
enabling policy environment but also supplement the former with a specific
set of measures to address the continuing challenges. The NCMP
declares, therefore, that a “major promotional package” will be announced
for this segment to provide full support in the areas of credit, technological
upgradation, marketing and infrastructural upgradation in major industrial
infrastructure.
1.2 The Government will also soon enact a law on Limited Liability
Partnerships covering, among others, micro, small and medium enterprises,
137
with a view, inter alia, to facilitating infusion of equity and venture capital
funding in these enterprises.
2. CREDIT SUPPORT
2.1 In line with the Policy Package for Stepping up Credit to Small and
Medium Enterprises(SME), the Reserve Bank of India (RBI) has already
issued guidelines to the public sector banks to ensure 20 per cent yearon-
year growth in credit to the SME. Action has also been initiated to
operationalise other elements of the said Policy Package. Implementation of
these measures will be closely monitored by the RBI
and the Government.
2.2 The Small Industries Development Bank of India (SIDBI) will scale up and
strengthen its credit operations for micro enterprises and cover 50 lakh
additional beneficiaries over five years beginning 2006-07. Government will
provide grant to SIDBI to augment SIDBI’s Portfolio Risk Fund for this
purpose.
2.3 Government will also provide grant to SIDBI to enable it to create a Risk
Capital Fund (as a pilot scheme in 2006-07) so as to provide, directly or
through intermediaries, demand-based small loans to micro enterprises.
2.5.1 The eligible loan limit under the Credit Guarantee Fund Scheme will be
raised to Rs.50 lakh. The credit guarantee cover will be raised from 75 per
cent to 80 per cent for micro enterprises for loans up to Rs.5 lakh. Accordingly,
to strengthen the Credit Guarantee Fund, the corpus of the Fund will be
raised from Rs.1189 crore as on 01 April 2006 to Rs.2500 crore over a period
of five years (with contribution by the Government and SIDBI in the existing
ratio of 4:1).
138
2.5.2 Moreover, to encourage public sector banks and public financial
institutions to contribute to the corpus of the Fund, the feasibility of allowing
deduction of their contributions to the Fund for income tax purposes would be
examined.
2.5.3 The Fund will continue to be maintained with and managed by the Credit
Guarantee Fund Trust for Small Industries (CGTSI). The Trust will be
renamed as “Credit Guarantee Fund Trust for Micro and Small Enterprises”
(CGTMSE).
3. FISCAL SUPPORT
Taking into consideration all the relevant factors, including the new
definition of small manufacturing enterprises, under the Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006, the Government will
examine the feasibility of:
3.1 increase in the General Excise Exemption (GEE) limit and the existing
eligibility limit for GEE;
3.2 extending the time limit for payment of excise duty by micro and small
enterprises; and
3.3 extending the GEE benefits to small enterprises on their graduation to
medium enterprises for a limited period.
139
assets in the public-private partnership mode. The ceiling on project cost will
be raised to Rs.10 crore.
140
5. TECHNOLOGIES AND QUALITY UPGRADATION SUPPORT
5.1 Four Training-cum-Product Development Centres (TPDCs) for agro & food
processing industries would be set up at identified existing Small Industries
Service Institutes (SISIs) to facilitate promotion and development of micro and
small enterprises in the food processing sector.
5.2 The two existing Central Footwear Training Institutes (CFTIs) (at Chennai
and Agra) will be further strengthened to expand their outreach and assist the
MSE in upgrading their technology.
5.3 Vertical Shaft Brick Kiln (VSBK) Technology would be promoted for
adoption by MSEs engaged in manufacturing bricks to make them energy
efficient and eco-friendly. For this, one-time capital subsidy (limited to 30 per
cent of the cost or Rs.2 lakh, whichever is less) will be provided to micro and
small brick manufacturing enterprises.
5.4 With a view to promoting energy efficiency in electrical pumps and motors
manufactured by MSEs, a special programme of assistance will be launched
after a detailed technical study.
5.5 The existing scheme of assisting the attainment of ISO 9000 and 14001
standards will be operated as a continuing scheme during the 11th Five Year
Plan.
141
6. MARKETING SUPPORT
The National Manufacturing Competitiveness Programme (NMCP)
announced in the Budget Speech of 2006-07 will include components relating
to marketing support to MSE. Implementation of the NMCP will be taken up
soon.
7.6 A comprehensive study will be conducted to assess the needs and scope
of Government intervention required for enhancing the competitiveness of
micro and small enterprises in the service/ business sector.
142
8. EMPOWERMENT OF WOMEN ONED ENTERPRISES
8.1 Under the Credit Guarantee Fund Scheme, 80 per cent guarantee cover
will be provided to micro and small enterprises operated and/or owned by
women.
143
selection, etc., will be improved with effect from 2007- 08, keeping in view the
findings of the review.
10. STRENGTHENING OF DATA BASE FOR MSME SECTOR
10.1 To strengthen the data base for the MSME sector, statistics and
information will be collected in respect of number of units, employment, rate of
growth, share of GDP, value of production, extent of sickness/closure and all
other relevant parameters of micro, small and medium enterprises, including
khadi and village industry units set up
under Rural Employment Generation Programme and Prime Minister’s
Rozgar Yojana as well as coir units, through annual sample surveys and
quinquennial census.
10.2 The quinquennial census and annual sample surveys of MSMEs will also
collect data on women-owned and/or managed enterprises.
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APPENDIX - II
148