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Faizan
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| Solve Funding Issues to Finance SME's Growth Plans |
Funding sources are the strengthening pillars for such small and medium-sized enterprises.
SME (small to medium enterprise) is a convenient term for categorizing businesses and other organizations that are somewhere between "small office-home office" (SOHO) size and the larger enterprise.
Unavailability of timely and adequate funds has an immense adverse effect on the growth of these SME's which in turn affects the growth of the Indian economy. Such insufficient funding sources serve as the crucial barrier in the development and sustenance of SME's.
The economic development in India is hugely dependent on the performance of small or micro and medium enterprises. They are the powerhouse of innovation, entrepreneurial spirit and enormous talent, which is required for the nation's development in the economic sector.
Indian SME sector:
This sector contributes to the industrial output, provides employment to masses. They also contribute widely in exports. These organizations produce quality products for national and international markets.
The presence of SME's is greatly acknowledged. The manufacturing sector is rapidly advancing because of the contribution of these organizations.
Undoubtedly, these SME's are performing their best, despite their limited sources. Still, there are multiple cases of these organizations facing funding issues.
The solution for funding issues faced by SME's:
The government has been taking initiatives like setting up the National Manufacturing Competitiveness Council, announcing National Manufacturing Policy (NMP) and much more to energize and boost the manufacturing sector.
Banks have made stable strides to support SME's. However, such approaches by banks for funding are limited and restricted because by controlling and managing risk, they ultimately create value. Thus, banks are not always a rightful solution as a funding source.Access to capital markets is rare, in the case of SME's. Therefore, such organizations hugely depend on borrowed funds from some financial institutions and banks.
Mostly commercial banks provide extended working capital and financial institutions provide investment credits. Universal banking services, working capital, and term loans are becoming available for SME's for funding.Meanwhile, the traditional requirements of finance are still actively in use, for creating the asset and working capital.Globalization is generating a demand for introduction and development new financial and support services.
The RBI should issue necessary guidelines to all banks on credit flow. Moreover, the Government should work rigorously to create an environment conducive for growth for the SMEs that restrains the need for capital and debt.
Setting up SME-targeted banks that provide priority to lending to the SME sector.
Financing schemes for SMEs can be formulated and be beneficial. These might be highly risky, but promises great returns. There is also a need for a reduction in the interest rates. SMEs has been paying high-interest rates for bank loans. The loan structure should restructure, on an urgent basis as lower interest rates are an extremely important need for SME's.
Delayed payments are yet another major area of concern for SME's that lead to reduced working capital.
Recycling of funds and various business operations are majorly affected due to delay in dues settlement. Defaulting customers are mostly large enterprises and the SMEs due to fear of losing business are not able to report against them.
An automated portal could be established by the government, wherein SMEs makes available their customer detailings.The government can also send automated reminders to defaulting organizations, in the cases of payment defaults.
Posted in: business
