Framework for Revival and Rehabilitation of MSMEs- An early stage support for SMEs showing signs of stress.
MSME framework creates breathing space for entrepreneurs who may be experiencing symptoms of distress in the business due to various internal and external reasons.
Recently I interacted with an entrepreneur who intended to acquire an ailing power equipment servicing business. The subject company has become an NPA in the bank recently. The company had slipped into distress mainly due to problems associated with power sector as power distribution companies were not placing the orders for servicing due to their own poor financial profile.Read more
Bank Scam: Impact on lending to MSMEs in India
Rs 13000 crores PNB scam is causing systemic damage to lending to businesses and it is feared that MSMEs may suffer the most.
Punjab National Bank(PNB) scam of Rs 13000 is still occupying centre stage of debate in political level and media leading to the prevalence of negative perception about the functioning of public sector banks(PSBs).Read more
Risk Management: An invisible act against harms for SMEs
Risk management plays a unique role in protecting and sustaining the business yet does not figure in performance metrics. It is invaluable to survive as going concern for SMEs.
Recently we all heard tragic event in Mumbai wherein 15 died in the fire incident in a bar. Upon investigating, it was found that fire safety measures were not in use and escape routes were not available in an emergency. The police have booked the case against owners of pub and owners are put behind bars. Sadly the owners who do not have any criminal record nor had any intention to do so, have to face criminal proceedings for culpable homicide. Upon analysis, one can find that they have not given enough attention to key risks and their mitigation in the event they become reality. In the nutshell, enough thoughts on potential risks and management strategies would have averted the crisis now they are in.Read more
“I need Term Loan urgently whereas Banker is insisting for Project Report”- A common grievance among many SMEs in India
Detailed Project Report (DPR) prepared before starting a new project can eliminate risks to a large extent, reduce the timeframe of execution and contribute significantly to
Recently I met an entrepreneur who has started a new project in food processing space. He started construction work and given advance to machinery supplier. He approached his bank for financial assistance. Since his record of the relationship was very good, they readily agreed to sanction the loan.Read more
Reclassification of MSMEs- A much-needed policy correction
Recently Govt of India had proposed to amend the classification of SMEs by linking solely to turnover. The move is a much-needed correction to address the policy needs of the segment.
Presently the MSMEs are classified as per Micro, Small and Medium Enterprises Development Act, 2006. As per this, the MSMEs are broadly classified into Manufacturing and series sector. These are further classified into micro, small and medium enterprises based on investment in plant & machinery for manufacturing and investment into equipment in respect of services sector.Read more
Altering the scale of the project in the middle of execution- A risk for SMEs in India
Many entrepreneurs while executing the new project, fall to the temptation of revision in the scale of the project without proper funding arrangement and cause misery for themselves.
Recently I came across a case of an entrepreneur who set up a new modern rice processing plant. The capacity envisaged initially at 10 tonnes per hour. They had bank loan sanctioned for this and in addition, the bank had also sanctioned the matching working capital facility to be made available upon commissioning of the new plant.Read more
Growing market share of private banks means dwindling space for social banking?
Private Banks are shunning the burden of participating in govt schemes and thereby depriving a section of the population of opportunity to avail credit linked facilities.
Recently I came across a case of a woman entrepreneur who has been sanctioned a loan of Rs 10 lakhs under PMEGP. The loan was forwarded to the bank notified by her. It was a private sector bank, where she has been maintaining her current account for a long time. When the application was received by the branch she had a shock. The branch head categorically told her that they would not be able to support her as they do not promote the govt sector schemes. She was flabbergasted at the reply as she has been having a very long-standing relationship with the bank. Her only undoing was it is a Govt sponsored scheme loan which that bank avoids to participate.Read more
Coping with Changing regulations- A challenge to SMEs in India
Regulations governing the trade, business practice, processes, or products are evolving and now stricter than previously. The speed of executions is posing a serious risk to SMEs.
Recently I had a call from an entrepreneur who has a fairly well-established business in edible oil segment from upper Assam region seeking advice on coping with a new amendment to allow blending of palm oil to mustard oil.Read more
Collateral based loans- A risky proposition to SMEs in India
Emphasis on the value of collateral security instead of the technical feasibility & economic viability of the project is leading to recklessness and resulting in distress.
Recently I had an interaction with one entrepreneur who has been reeling under distress. He is into manufacturing commodity product which by nature enjoys low margin and is highly vulnerable to the fortune of industry and economy. In other words, the scope for innovations to improve the profitability is extremely remote or nil. Many units in this industry have been going through the distressing time since last few years and demonetisation exercise undertaken in 2016 has just aggravated the problem.Read more
Working Capital – Crucial connect to success for SMEs
Running a potential business without sufficient working capital is heartbreaking for any entrepreneur. But a winning strategy has it at its core.
Recently I met an entrepreneur who has developed a very successful business model in a run-of-the-mill ordinary business. The industry-wide margin is just a single digit and entry barrier is quite low. However, he has developed a model wherein the operating margin is teens. The volume of orders on hand is quite substantial and visibility is quite high. He has successfully scaled up and operated at the higher end of value chain.Read more