MUDRA loans can transform the lives of many micro-enterprises at the lower end of economic strata, however, the delivery process requires to be toned up.

I have been tracking a story of a woman entrepreneur who had been running a small grocery shop with a major focus on milk vending business in our area. We have been here in this locality for more than five years. Till recently we have been buying milk from her. Unfortunately, she closed her shop recently due to non-availability of adequate finance and the inability to raise the required capital to have her own license to vend milk from KMF.

Many MSMEs treat disclosure in the financial statements  merely a statutory compliance than an opportunity to know more deep onto their finances.

Recently I came across an instance of an entrepreneur hauled up by Income tax authorities and  issued  demand notice for an huge amount for the previous assessment year. He has been into construction business and the business had been subdued in the last two years. Obviously the profitability is very low and paid less tax compared to previous assessment year.

There is clamouring for making MSMEs accepting formal processes than remain informal. However, the choice of timing (to become formal) is a matter of dilemma for many entrepreneurs.

Recently one of the close confident secured a limit of Rs 30 lakhs in the online platform www.psbloansin59minutes.com and it was a matter of intense jubilation for him. On the one hand, it was a great endorsement of his entrepreneurial journey which has witnessed steep upheavals in the past few years and on the other hand he secured stable source of funding for expanding his business.

RBI’s recent move to permit banks to restructure loans of MSMEs without classifying as NPA is seen as positive for stressed MSMEs  

In a significant step, RBI has allowed a one-time restructuring of existing MSME loans that have defaulted but are not non-performing as on  January 1, 2019. Such a debt restructuring, the central bank said, would not lead to a downgrade in asset classification. To be eligible for the debt restructuring scheme, the aggregate exposure, including non-fund based facilities of banks and non-banking financial companies (NBFCs), to a borrower should not exceed ₹25 crore as on January 1. Also, the restructuring has to be implemented by 31 March 2020.

Many  SMEs in the post startup stage face a dilemma of exploring new areas or exploiting the existing one to sustain their entrepreneurial journey.

Recently I met my college friend after a long time who has been successfully running his herbal extraction business for the last four years. The business has been fairly stable in terms of control on operating metrics, market reach and supply chain. Over a period of four years, he set up a good team to run the business. The business has beenfinanciallyrewarding with a stable cash flow. 

Policy shocks like Demonetisation and GST bring to the fore a need for a mechanism to assist distressed MSMEs to secure a new lease of life.

On November 8, 2016 Mr Naredra Modi, Hon’ble Prime Minster announced a policy measure of demonetisation.

The entrepreneur was not prepared for the kind of action undertook by the Govt. The industry (real estate) had a huge shock. There was utter chaos in the market. The planned business did not accrue. However, the loans raised to set up the new unit started coming up for servicing. As there is no liquidity to service the loans due to lower sales, he started feeling the heat of distress.

Many entrepreneurs accept a complex financing model without dwelling deep into it and ended up in a messy situation to deal with if slips to distress.

A few years back I witnessed one distressed SME in my known circle. He had been a very successful entrepreneur having a record of 20 years of successfully running his business. He was into manufacturing of packaging materials and major FMCGs were his clients. As the existing unit peaked its performance and, he started contemplating setting up the second unit with most modern technology sourced from abroad. It was necessitated because the industry was becoming very competitive due to clients demand for better quality and superior visual presentation of packaging materials.

Universal access to Credit guarantee schemes for MSMEs can be an effective instrument for human capital development in India

Recently Karnataka State Finance Corporation(KSFC) came out with a scheme to extend loans at 4% interest rate up to 5 cores for the manufacturing sector and up to Rs 2 crores for the services sector.

Recently Govt announced setting up a digital platform to bring lenders closer to SMEs in India. It is a welcome initiative to improve the access to credit and make it timely.

The Union Minister of Finance and Corporate Affairs, Shri Arun Jaitley recently launched the web portal www.psbloansin59minutes.com  This will enable in principle approval for MSME loans up to Rs. 1 crore within 59 minutes from SIDBI and 5 Public Sector Banks (PSBs).

Many SMEs believe in an infusion of more funds to revive the failing business. The fact is the solution lies beyond money.

In the previous blog, we analysed a business in cotton ginning business, which went into distress in just two years of its inception. We identified the reasons for failure are poor thought process and absence of detailed planning at the beginning, lack of internal control, poor quality control at the procurement stage which is the key success factor in the cotton ginning business, lack of oversight by the family elders over scion of the family who leads the business, etc.