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Credit lending Towards SME sector

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INSTITUTE FOR TECHNOLOGY AND MANAGEMENT
PGDM-FM
2013-2015

Summer project Report on
CREDIT LENDING TOWORDS SME SECTOR
A detailed study done in
Essel Finance
In the partial fulfilment of PGDM-FM 2013-2015 programme
By
Rahul
Roll No.201350092

Under the guidance of

Mr. Ramdas Acharya
Credit head
Essel Finance
And
Mrs. Latha Chari
Deputy director
ITM-Institute of Financial Markets


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CERTIFICATE

This is to certify that the project work entitled Credit Lending Towards SME
Sector has been carried out by the student Rahul of the Institute for Technology and
Management Financial Markets, Navi Mumbai doing the Post-Graduation Diploma
in Management Financial Markets 2013-2015, during his summer placement in
organisation between 21
st
June 2014 to 31
st
August 2014.

Submitted by: Rahul in partial fulfilment of the Post-Graduation Diploma in
Management Financial Markets 2013-2015 course.



Mr. Ramdas Acharya
Head Credit
Essel Finance.





Mrs. Latha Chari
Deputy Director
ITM-Institute of Financial Markets.













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Acknowledgement
It is my privilege to work on the project Credit Lending towards SME Sector . At the very
outset, I am obliged to Essel Finance for the permission to undertake training program and
provide me with the basic infrastructure and facilities.
I express my sincere sentiments of gratitude to Mr. Ramdas Acarya (Head Credit) who
guided me throughout this project
It is the spirit of being associated with the Credit department particular and Essel Finance in
general who inspired me to complete this project successfully.
I am indebted to my mentor Mrs Latha Chari for extending his untiring guidance to me, by
constantly discussing the project matter and helping me in clarifying my thinking in several
pertinent issues and providing a meaning full insight into the subject.
Last but not the least; I also thank Mr. Ruchir Kapoor (Business Head) who has been a
source of inspiration through his constant guidance, personal interest, encouragement and help
& has made my stay in the company such a pleasant memory. In spite of his busy schedule he
have always found time to guide me through the project. I am also grateful to all of them for
reposing confidence in my abilities and giving me the freedom to work on my project.
I owe my deep sense of gratitude and sincere thanks to all of them
Thank you.



Signature of the Student
Name: Rahul
Roll No.201350092
PGDM-FM(2013-15)
Institute of Financial Markets





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CONTENTS
SR.No Topic PAGE NO.

1. Tittle Page 1.
2. Certificate 2.
3. Acknowledgement 3.
4. Contents 4.



Project Report
1. Introduction .....05

2. MSME around the globe.....14

3. MSME in India....17

4. Company profile.24

5. Literature Review....34

6. How SME perceive financial Institution...36

7. Findings...45

8. Limitation ....46

9. Conclusion ...47

10. Recommendation ......48

11. Reference.....49

12. Annexures.....50




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INTRODUCTION

Small and Medium Enterprise (SMEs) have played a significant role world over in the
economic development of various countries. Over a period of time, it has been proved that
SMEs are dynamic, innovative and most importantly, the employer of first resort to millions
of people in the country. The sector is breeding ground for entrepreneurship.
The importance of SME sector is well-recognized world over owing to its significant
contribution in achieving various socio-economic objectives , such as employment generation
,contribution towards national GDP output and export , fostering new entrepreneurship and
to provide depth to the industrial base to the economy .Small and medium size enterprise
are the back bone of all economics and are a key source of economic growth , dynamism and
flexibility in advanced industrialized countries as well as in emerging and developing
economies
SMEs
[1]
constitute the dominant form of business organization, accounting for over 85% and
up to 90% of enterprise depending up on the country. They are responsible for between 50%-
60%

*
net job creation in developing countries. Small business is particularly important for
bringing innovative products or techniques to the market.
SMEs are vital for economic growth and development in both industrialized and developing
countries, by playing a key role in creating new jobs. Financing is necessary to help them to
set up and expand their operations, develop new products and invest in new staff or
production facilities .Many business starts as an idea from one or two people, who invest
their own money and probably turn to family and friends for financial help in return for a
share in the business. But if they are successful, there comes a time for all developing SMEs
when they need new investment to expand or innovate further. That is where they often run
into problems, because they find it much harder than larger businesses to obtain financing
from banks, capital markets or the other supplier of credit.



[1] World economic forum annual meeting 2014
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Overview

The Micro, Small and Medium Enterprise

sector is crucial to Indias economy. There are 36.17
million
[2]
enterprises in various industries, employing 80.52 million people. The sector
includes 2.61 million women-led

enterprises and 15.4 million rural enterprises. In all, the
MSME sector accounts for 45 percent of Indian industrial output and 40 percent of exports.
Although 94.5 percent of MSMEs are unregistered
[3]
, the contribution of the sector to Indias
GDP has been growing consistently at 11.5 percent a year, which is higher than the overall
GDP growth of 5.7 percent. Poor infrastructure and inadequate market linkages are key
factors that have constrained growth of the sector. The lack of adequate and timely access to
finance has been the biggest challenge. The financing needs of the sector depend on the size
of operation, industry, customer segment, and stage of development. Financial institutions
have limited their exposure to the sector due to a higher risk perception and limited access of
MSMEs to immovable collateral.


Figure 1: Broad Classification of the MSMEs in India









Source: MSME Census, NCEUS



[2]Ministry of Micro, Small and Medium Enterprise, Government of India estimates the population of Micro, Small and
Medium Enterprise in India to be 36.18 Million, the sector may also have a larger number of micro livelihood enterprises,
estimated to be 25-30 million.
[3]Registered Enterprise: MSMEs that file business information such as investment, nature of operations and manpower with
District Industry Centers (DICs) of the state/Union Territory are considered as registered enterprises.
Unregistered Enterprises: MSMEs that do not file business information with District Industry Centers (DICs) of the State/
Union Territory; the data on enterprise output performance is not adequately tracked by the government agencies.

There is a total finance requirement of INR 32.5 trillion ($650 billion) in the MSME sector,
which comprises of INR 26 trillion ($ 520 Billion) of debt demand and INR 6.5 trillion ($130
Billion) of equity demand. To estimate the debt demand that Financial Institutions would
consider financing in the near term, the study does not take into account the demand from
Total Number of
MSMEs 36.17
Million
Unorganized Sector
31 Million
Unregistered
MSMEs 34.17
Million
Registered Sector
2 Million
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the enterprises that are either not considered commercially viable by formal financial
institutions, or those enterprises that voluntarily exclude themselves from formal financial
services. Thus, after excluding (a) sick enterprises, (b) new enterprises (those with less than a
year in operation), (c) enterprises rejected by financial institutions (d) micro enterprises that
prefer finance from the informal sector, the viable and addressable debt demand is
estimated to be INR 9.9 trillion ($198 billion),which is 38 percent of the total debt demand.
The viable and addressable equity demand is estimated to be INR 0.67 trillion ($13.4 billion),
after excluding: (a) entrepreneurs equity contribution to enterprises estimated at INR 4.6
trillion ($92 billion) and, (b) equity demand from micro and small enterprises that are
structured as proprietorship or partnership[4], and are unable to absorb equity from external
sources. The second is estimated to be worth INR 1.23 trillion ($24.6 billion),

Flow of Finance to the MSME Sector

This study shows that of the overall finance demand of INR 32.5 trillion[5] ($650 billion), 78
percent, or INR 25.5 trillion ($510 billion) is either self-financed or from informal sources.
Formal sources cater to only 22 percent or INR 7 trillion ($140 billion) of the total MSME debt
financing. Within the formal financial sector, banks account for nearly 85 percent of debt
supply to the MSME sector, with Scheduled Commercial Banks comprising INR 5.9 Trillion
(USD 118 Billion). Non-Banking Finance Companies and smaller banks such as Regional Rural
Banks (RRBs), Urban Cooperative Banks (UCBs) and government financial institutions
(including State Financial Corporation and State Industrial Development Corporations)
constitute the rest of the formal MSME debt flow. Within the informal financial sector non-
institutional sources include family, friends, and family business, while institutional sources
comprise moneylenders and chit funds





[4] Proprietorship and partnership structures are not amenable to external equity without change in legal
structure
[5] RBI, SIDBI, Annual Reports of NBFCs and government of India on MSME, SME Times-2010, Primary Research, IFC-
Intellecap Analysis







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Figure 2: MSME Finance Demand Flowchart
[6]





MSME Finance Gap in the Sector

Despite the increase in financing to MSMEs in recent years, there is still a considerable
institutional finance gap of INR 20.9
[7]
trillion ($418 billion). After exclusions in the debt
demand (62 percent of the overall demand) and the equity demand (from MSMEs that are
structured as proprietorship or partnership), there is still a demand-supply gap of INR 3.57
trillion ($ 71.4 billion), which formal financial institutions can viably finance in the near term.
This is the demand-supply gap for approximately 11.3 million enterprises. While a large
number of these already receive some form of formal finance, they are significantly
underserved with only 40-70
[8]
percent of their demand currently being met. With
appropriate policy interventions and support to the MSME sector, a considerable part of the
currently excluded demand can be made financially viable for the formal financial sector. Of
the viable and addressable demand-supply gap, the debt gap is INR 2.93 trillion ($58.6 billion)
and the equity gap is INR 0.64 trillion ($12.8 billion). The micro, small, and medium enterprise
segments respectively account for INR 2.25 trillion ($45 billion), INR 0.5 trillion ($10 billion)
and INR 0.18 trillion ($3.6 billion), of the debt gap that is viable and can be addressed by
financial institutions in the near term. Micro and small enterprises together account for 97
Percent of the viable debt gap and can be addressed by financial institutions in the near term.
Available data and primary interviews indicate that medium enterprises in India are relatively

Estimated population of unorganized enterprise 30 million
[6] International finance crop (World Bank, 2013)
[7]Excludes entrepreneurs finance contribution of INR 4.6 Trillion (USD 92 Billion) (IFC-Intellecap Analysis)
[8]Different across Enterprise Type, Geographies and sectors
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well financed. The equity gap in the sector is a combined result of demand-side challenges
such as the legal structures of enterprises, as well as supply-side gaps, such as a lack of
investment funds focused on MSMEs.

Figure 3: Overall Finance Gap in MSME Sector (in INR Trillion)*



Geography & Type of Enterprise

An overview of the MSMEs spread across the country indicates that although the Low-
Income States
[9]
(LIS) have 32.6 percent of Indias total MSMEs, the viable debt gap is
disproportionately high at INR 1.93 trillion ($38.6 billion) or ~66 percent of the countrys
total. On the other hand, only ~3 percent MSMEs are based in the North-Eastern States,
accounting for a viable debt gap of INR 0.09 trillion ($1.8 billion). The rest of India accounts
for the remaining ~65 percent of MSMEs, with a viable and addressable debt-supply gap of
INR 0.9 trillion ($18.2 billion) or ~31 percent. Across India, there are significantly more service
sector enterprises than manufacturing units (~ 71 percent versus a 29 percent split
respectively). However, manufacturing enterprises are more capital-intensive with longer
working capital cycles, and consequently have higher working capital requirements.
Therefore, nearly 60 percent of the demand for finance arises from the manufacturing sector.
The share of the debt gap in the manufacturing sector is also considerably higher at 73
percent of the total gap.

Figures in brackets is in USD (billion)
Sources: MSME Census, RBI, SIDBI, Annual Reports World Bank
[9]Bihar, Chattisgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan, Uttar Pradesh,West Bengal, and the north-eastern
states including Sikkim as low-income states with a high-potential.
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Enabling Environment for Growth of Finance in the MSME Sector

The three main pillars of the enabling environment analyzed in the study are: (a) legal and
regulatory framework (b) government support (c) financial infrastructure support. MSMEs
function in a highly competitive environment and require an enabling environment to sustain
growth. Well-rounded fiscal support, a strong policy framework, and incentives promoting
innovation by financial institutions can significantly increase the penetration of formal
financial services to the MSME sector.

Figure 4: Schematic of Key Elements of the Enabling Environment*



Problems & Challenges of MSME Sector

Despite its commendable contribution to the Nations economy, SME sector does not get the
required support from the concerned government departments, banking sectors, Financial
Institutions and corporate body, which is handicapped in becoming more competitive in the
National and International Markets and which needs to be taken up for immediate and

*Source: IFC-Intellecap Analysis (World Bank)
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proper reversal. SME faces a number of problems absence of adequate and timely banking
finance, limited knowledge and non-availability of sustainable technology, low production
capacity, follow up with various agencies in solving regular activities and lack of interaction
with government agencies on various matters.

In terms of the finding of the 4
th
census of SMEs 2006
[10]
, some of the major problems and
challenges faced by the SMEs and the factors responsible for the sickness are:
Infrastructure constraints/ bottlenecks
Delayed realization of receivables
Delayed or inadequate credit
High cost of fund
Obsolete technology, low R&D and technology up-gradation efforts
Complicated procedures of banks/NBFC regarding credit.

What MSME sector wants?
Growth and better Return On Capital Employed (ROCE)
Not lose an opportunity/bag maximum order
Financial requirement
Timely credit
Adequate credit
Latest technology for competitive edge
Better infrastructure
Information symmetry
A healthy growth of SME sector will definitely ensure sustenance and acceleration of Indian
economy in general and industrial growth in particular. Potential Interventions to Increase
Access to MSME Finance Building on the efforts already underway, there are several
potential interventions that can be undertaken to expand the access to MSME finance in
India through enabling infrastructure, liquidity management and risk management. Some of
these potential interventions include:

Enabling infrastructure
Encourage securitization of trade-receivables in the sector through conducive legal
infrastructure.
Promote institutions to syndicate finance and provide advisory support to MSMEs in rural
and semi-urban areas.
Incentivize formation of new MSME-specific venture funds by allowing existing government
equity funds to make anchor investment in venture funds

[10] MSME Annual Report 2012-13(government of India)

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Liquidity management

Improve debt access to non-banking finance companies focused on these enterprises and
provide regulatory incentives for participation in the sector.
Develop an IT-enabled platform to track MSME receivables to facilitate securitization of
these trade receivables, or alternatively expand the scope of SIDBI and NSEs IT-platform
NTREES
*
to facilitate securitization.
Provide credit guarantee support for MSME finance to non-banking finance companies.

Risk management

Develop a better understanding of financing patterns of service enterprises in the sector.
Expand the scope of the sectors credit information bureau to collate and process
important transaction data, including utility bill payment.
Strengthen the recently established collateral registry and create stronger linkages with
other financial infrastructure.


Methodology

In the process of completing this study several credible sources of data, including existing
research literature and industry publications annual reports has been referred. In addition, a
series of primary interviews and surveys were carried out to understand and evaluate the
size of the MSME finance market.











* NSE Trade Receivables Engine for E-discounting




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Conclusion

The common theme through this research and the interviews is the future potential of
MSME as sector, gap in credit , problems facing by MSME and to promote greater finance for
MSMEs in India and looking for innovative ways to overcome the current challenges to the
growth of this market, critical for national economic growth. Given the size and scope of this
market, the financial sector has a significant role to play in expanding their research to this
underserved and untapped segment in an enabling environment, facilitating sustainable
growth.































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MSME AROUND THE GLOBE

Introduction of MSME around the globe:

The financing of small and medium-size enterprises (SMEs) has been a subject of great
interest both to policy-makers and researchers because of the significance of SMEs in private
sectors around the world. Despite the non-prevalence of single universal definition, MSMEs
are clearly distinguishable in any country, be it a developed or a developing country. The
features that set them apart may broadly be classified into qualitative and comparative. On
the qualitative and comparative. On the qualitative side, the features may include decision-
making process, financial practices, internal management structure, trading styles, etc. Most
of the MSMEs are run by the single or few individuals or by their family or relatives. There is a
narrow line of discrimination between private and business assets, subjective and personal
factors play a larger role in decision-making. The comparative features have to do with the
way MSMEs are positioned vis-a-vis the large enterprises. They are small and medium sized in
comparison with the large corporate with which they share a given economic space. MSMEs,
therefore in varying sizes; MSMEs in one country may be larger than corporate defined in
another country. The interesting features is that, notwithstanding their absolute size, the
challenges confronting MSMEs appear to be similar n most countries whether developing or
developed country.
As the world economies are recovering from the financial crisis of 2008-09(popularly known
as Sub-Prime crisis), many economies need to create employment opportunities for their
growing citizen. So, in this respect, creation and the growth of SMEs is an important item on
the policy agenda of almost all the economies because of its significant contribution to the
economic growth of the nation. In addition, regulatory measures are necessary to ease
access to the formal financial services by SMEs. Historically, SMEs have been more likely
larger than firms to be denied new loans during a financial crisis.
Given the importance of SMEs in supporting sustainable, diversified, long-term economic
growth, they have indeed attracted renewed attention in the wake of 2008-09 financial
crises. In the year 2012 at Pittsburg G-20 summit, the G-20 members have committed to
identifying the lesson from the innovative approaches. Now in present scenario, SME
development is high on the reform agenda of many governments. Despite the importance of
SMEs for job creation and production, but the real fact is still that small and medium firm
face higher barriers to external financing compared with the large firms, which limits their
growth and development.





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World Banks MSME Programme:

Multilateral Investment Guarantee Agency (MIGA) of world Bank Group has developed a
guarantee programme called Small Investment Program (SIP) that is specially designed for
Small and Medium Enterprises(SMEs), MIGA helps the SME sector in emerging economies I
the following two ways:-
By providing political risk insurance to foreign investor directly who wish to invest
in SMEs
By providing political risk insurance to financial institution that in turn will lead to
small and medium sized business through local affiliates.
MIGAs SIP offers standard package of risk coverage including currency inconvertibility and
transfer restriction, expropriation, and war and civil disturbance. SIP guarantees have a term
of upto 10 years (3 year minimum), with the responsibility of an extension of upto 5 years at
the end of the original term, at MIGAs desecration. SIP covers upto 90% of the investment
for the equity and upto 95%for debt. For guarantee request programme .MIGA defines SMEs
that are eligible for coverage under this programme as units which fulfill the following
criteria:-
Not more than 300 employees.
Not more than $15 million of total assets.
Not more than $15 million of total annual sales.















Source: World Bank



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Definition of MSMEs in the emerging economies:

One of the major challenges for the MSMEs around the countries is the absence of universal
definition of what is MSME? Or what constitute of MSME? A number of efforts have been
aimed to streamline and harmonize SMEs definition, although the heterogeneity of SMEs
themselves and the nature of economy in which they operate-in might mean that
establishing a global definition is not feasible. The common definitions used by the regulators
for policy making decision are based on the number of employees, annual turnover and
investment in plant and machinery.

Table: 1 Definition of SMEs (figure shown are the maximum limit)
[11]

Country
Celling on o. of
Employees


Celling on Turnover
(US$ million )

Celling on Investment
(US$ million )
India 2.00*
Mexico 250 250 -
Brazil 250 - -
Jamaica 50 1.73 -
Laos PDR 99 0.25 0.15
South Africa 200 6.67 2.50
Kenya 100 9.65 -
China 2000 47.67 63.56
Taiwan 200 - 2.70
Japan 300 3.62
Indonesia 100 - -
Pakistan 250 2.75 0.30
South Korea 300 - 8.00
Malaysia 150 8.20 -
Philippines 150 - 2.30
Thailand 200 - 6.48
Singapore 200 - 12.00
Israel

100 - -
Bangladesh 99 - 1.22
UAE 250 68.00 -
EU 250 66.76 -
Srilanka 200 - 1.88
*For India Investment is calculated @1US$=Rs 50
[11] EXIM research & Policy Research Working Paper by World Bank
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MSMEs IN INDIA
As per the MSMED Act 2006 (Micro Small & Medium Enterprises Development Act); Micro Small and
Medium Enterprises were defined as an enterprise engaged in manufacturing/production or
preservation of goods subject to ceiling on investment in plant and machinery.
The same is now been modified vide RBI Master circular No.
RPCD.SME&NFS.BC.No.9/.06.02.31/2011-12 dated 1
st
July 2011.
An enterprise engaged in the manufacturing/production or preservation of goods or employing
plant and machinery in the process of value addition to the final product having a distinct name or
character to use.
In India the enterprises are classified broadly in two categories:
Manufacturing
Those engaged in providing/rendering of services
Both categories of enterprise have been further classified into micro, small and medium enterprises
based on their investment in plant and machinery (for manufacturing enterprises) or on equipments
(in case of enterprise providing or rendering services). The present celling on investment to be
classified as micro, small or medium enterprises is as under

Table: 2 Definition of MSME in India
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees
Medium
Enterprises
More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises Investment in equipment
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium
Enterprises
More than two crore rupees but does not exceed five core rupees
Source: Ministry of MSME
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Table: 3 MSMED Act and its impact
Clause Salient Features Impact
Establishment of National and
Medium Enterprises Board with
maximum 47 members
Specific representation for
women.
Mandatory quarterly meetings
Statutory status, compact board
and quarterly meetings will
address problems of SMEs
immediately to take corrective
actions.

Concept of Enterprise Clear cut demarcation of
manufacturing/ production and
rendering services
Facilitate SMEs to enter into
service enterprise aggressively
Definition of Enterprise Specific celling limits of
manufacturing and service
enterprise.
Definition of medium enterprise
Existing small units can
graduate into medium and
facilities under the act
Source: Ministry of MSME&www.scribd.com


Performance:

The MSME sector in India contributes 45% of the manufacturing output and 49% of the total export
of our country. The country estimated to employ about 80.52 million in over 36.17 million uits
throughout the country. According to the Fourth All India Census of MSME sector, the size of
registered MSME was about 2 million units. This comprises 0f 67% of manufacturing enterprises and
33% of service enterprise. About 45% units were located in rural areas. Of the total working
enterprises, the proportion of micro, small and medium enterprises were 94.94%, 4.89% and 0.17%
respectively. Total export for the year from MSME sector stood at Rs.128,162* a lttele less than
previous year
[12]
.










* In US$ Million
[12] Press information bureau, Government of India, MSME
MSMEs performance over the years are showed separately at Annexure:A

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Figure.5. Distribution of MSME Enterprise across INDIA




SOURCE:IFC Intellecap Analysis (World Bank)





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Contribution in GDP of India

Table: 4 contribution of MSMEs in GDP

Contribution of MSEs(%)at an 1999-2000 pricces
Year
Total industrial production Gross Domestic Production(GDP)
2004-2005* 38.63 5.84
2005-2006* 38.56 5.83
2006-2007 45.62 7.20
2007-2008 45.24 8.00
2008-2009 44.86 8.72

The data upto 2005-2006 is for the SSI .




























Source:MSME Annual Report 2012-2013, Ministry of MSME

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Classification of MSME Sector:
There are over 6000 products ranging from traditional to high-tech items, which are beig
manufactured by the MSMEs in India

Figure: 6 Leading Industries: MSMEs Sector


Source:MSME Annual reports 2012-13, Ministry of MSME.
PRODUCTS of MSMEs
More than 6000 products
Food products & Beverages
Retail Trade, Except of Motor Vehicles
And Motorcycles; Repair of Personal
and househol Goods
Manufacturing of Wearing
Apparel;Dressing And Dyeing
Other Sevices
Other Service Activities
Other Business Activity
Hotel and Restaurants
Sales, Maintenance And Repair of
Motor Vehicles And
Motorcycles;retail sales of
Automotive Fuel
Manufacture of
Furniture;Manufacturing N.E.C
Manufacturing of Fabricated Meta
Products, Except Machinery and
Equipement
Manufacturing of textiles
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Sickness of SMEs in India:

Growing incidence of sickness is yet another area of concern. When the sickness prolongs it
leads to the closure of units and unemployment. The mortality of the SSI units is high. This
has wider implications including locking of funds of the leading institutions, loss of scarce
material resources and loss of employment.

Table: 5 Data showing number of sick units

Source: Inter Ministerial Committee for MSME, September 2013







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Figure: 6 Reason for sickness of SMEs






Source: Smechamberofindia.com
















0
10
20
30
40
50
60
70
80
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Company Overview

Introduction

Essel Group is an Indian conglomerate company headed by Subhash Chandra based in
Mumbai, Maharashtra .Essel Group has been a leading business conglomerate having diverse
business presence across finance, media, entertainment, packaging, infrastructure,
education, precious metals and technology sectors. It is headed by Mr. Subhash Chandra. It
has created an impressive track record of value creation in all around businesses that
compares well with their respective industry peers. Essel group strive to bring the latest
innovations and the best value offerings to all their consumers in the quest to deliver the
best in class. "Faith in innovative and organized growth" works as the guiding principle
behind every business at Essel and keeps committed to enhancing operational excellence
through greater focus on innovation and efficient resource utilization. With worldwide
operations and a workforce of over 8000 employees, Essel Group is growing in strength day
by day.
Founded in 1976 with a commodity trading and export firm. With its ardent passion and a
clear and focused vision, Essel has not only built and expanded new businesses but has built a
formidable and exemplary position in all these businesses in a short span of time. Essel has
grown to become a strong integrated media network in India with presence across the entire
value chain, developing and adopting new technologies to remain ahead of the growth curve.
Essel offers a strong portfolio of numerous entertainment and news channels, reaching
millions of viewers in India and internationally. "ZEE" is considered as one of the strongest
Indian Media brands across the world. Essels print venture "DNA" an English daily, provides
responsible journalism to its readers.
Essel's distribution arms 'Dish TV' and 'WWIL' with their vast reach across the country
provides quality viewership experience to millions of subscribers and is well poised to take
advantage of the mandatory digitization of the distribution platforms in the country.
Essel has made a successful foray into socially relevant business ventures such as
infrastructure and education. Essel Infrastructure is engaged into construction of roads,
power plants and urban infrastructure development and has built an impressive order book.
Essel has established a vast network of preschools across the country shaping young minds to
drive Indias future. Essel is currently building its network of K-12 schools and vocational
training centres expanding its reach to millions of students in the country.
Another Group venture - "Essel Propack", a laminated tube manufacturer, is considered to be
one of the largest in the world. Essel has also undertaken new ventures such as precious
metals which has a promising outlook.
Our companies are at an exciting juncture of their business journey, as they continue to
expand their product offerings and explore new markets. Having attained respectable scales
in most of its businesses, Essel is now pursuing the next level of growth. We are committed
Credit lending Towards SME sector
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to adopt and develop new technologies to provide a wider range of offerings and a better
experience to our consumers. Given Essels growth potential and increasing international
outlook, the promoters as well as the entities in the Group continue to pursue fund-raising
opportunities both domestically and in the international markets. Essel with its experience
and resources will keep tapping new growth opportunities.
GROUP PROFILE

MEDIA
Zee Entertainment Enterprises Ltd - Zee Entertainment Enterprises Limited is one of India's
leading television media and entertainment companies. It is amongst the largest producers
and aggregators of Hindi programming in the world, with an extensive library housing over
120,000 hours of television content.

Zee Media Corporation Ltd - Zee Media Corporation Limited is India's largest News Network,
with 10 channels, reaching out to over 130 million viewers through its national and regional
channels across India as well as those of its digital properties like zeenews.com and
dnaindia.com.

dna
dna is a daily, English-language broadsheet owned by Diligent Media Corporation Limited, an
Essel Group company. In a short span of 9 years, dna has entrenched itself into the lives of
the young and dynamic readers through its news, views, analyses and interactivity with a
composite unbiased picture of the city, the country and the world around them.

TECHNOLOGY
Dish TV - Asia's largest Direct to Home Entertainment Company, DishTV is the pioneer when
it comes to digital entertainment.
SITI Cable Network Ltd - SITI Cable Network Limited is one of India's leading Multi System
Operators (MSO)
Cyquator Technologies Limited - an IT infrastructure outsourcing company that provides end-
to-end Internet Data center and high-end managed hosting services.

PACKAGING
Essel Propack - It is the largest specialty packaging company manufacturing laminated
and seamless or extruded plastic tubes. With over 2500 people representing 25 different
nationalities, Essel Propack functions through 24 state of the art facilities in twelve countries,
selling more than 5 billion tubes and continuing to grow every year.



Credit lending Towards SME sector
26

ENTERTAINMENT
Pan India Network Pvt Ltd - Playwin, India's first and largest online gaming company, provides
infrastructure, data communication, marketing support and service to facilitate a secure
online lottery network.

Pan India Paryatan Private Limited - PIPPL owns and operates India's most favourite
entertainment parks, 'EsselWorld' and 'Water Kingdom' located at Gorai, Mumbai.
'EsselWorld' - launched in 1989 is the largest amusement park in the country & 'Water
Kingdom' - commissioned in 1998 adjacent to the EsselWorld, are the largest Theme Water
Parks in Asia.

E-City Bioscope Entertainment Pvt Ltd - A chain of multiplex cinema cum- family activity
centers across non-metro towns in India.

Fun Multiplex Pvt Ltd - One of the premier cinema chains in India, Fun Cinemas has a Pan-
India footprint covering 82 screens across 20 cities. FMPL garners about 10% of market share
among top national chains despite the huge growth in the category with numerous new
players.

E-City Digital Cinemas - E-City Digital Cinemas is committed to revolutionising the
Indian movie business by implementing state-of-the-art digital technology at the various
independent cinema houses in this fragmented industry.


INFRASTRUCTURE
Essel Infraprojects Limited - One of the fastest growing companies having diversified interests
in infrastructure projects, Essel Infraprojects Ltd. is a successful venture with three key
Strategic Business Units in areas of Core Infrastructure, Green Solutions & Integrated Utilities
Services.

Smart Utilities - Smart Utilities is India's first integrated utilities brand- a consumer-centric
integrated utility services brand delivering smart value and efficiency.

E-City Real Estate Pvt. Ltd - The Company behind the successful lifestyle brand Fun Republic -
currently operates 4 lifestyle malls in Mumbai, Chandigarh, Lucknow and Coimbatore. The
Company aims to operate successful retail formats that align the interests of operators,
retailers and consumers providing an ideal size and brand mix.

Siti Energy Limited (SEL) - It is incorporated under Companies Act 1956 to inter-alia,
implement the Piped Natural Gas (PNG) and Compressed Natural Gas (CNG) project for
Credit lending Towards SME sector
27

various application in the Domestic, Commercial, Industrial & Automotive sectors in Indian
cities.

E-City Property Management Systems - EPMS is an E-City Venture that provides the most
comprehensive and reliable property management services in India, including overall
operations, marketing, consultancy, occupant management, retail leasing services and
advisory services.


EDUCATION
Zee Learn - The education arm, through its chain of pre-schools (Kidzee), K-12 schools (Mount
Litera) and youth institutes (ZICA and ZIMA) promises to give light to the paths of children
and youngsters who wish to realise their potential in order to set foot on the path of
development. Zee Learn's purpose is to improve human capital via quality education.


HEALTHY LIFESTYLE & WELLNESS
Veria Living - Veria Living is a leading media brand devoted to showcasing healthy lifestyle
and wellness programming and related content across multiple media platforms in the
United States and beyond.


PRECIOUS METALS
Shirpur Gold Refinery Ltd - It is one of the leading players in the precious metals market in
India. With state-of-the-art refining & minting processes and professionally driven
management coupled with experienced manpower, SGRL takes pride in producing gold &
silver bars and coins which meet the strictest international standards in quality.


FINANCIAL SERVICES
Essel Finance - Essel Finance is a customer-centric, pioneer financial services firm arranged
into three business groups - commercial finance, investment banking and private equity.




Credit lending Towards SME sector
28

EESEL FINANCE BUSSINESS LOAN LTD.
Essel Finance Business Loans Limited, a registered Non Banking Finance Company (NBFC)
with Reserve Bank of India (RBI) is the lending arm of Essel Finance, providing innovative
financial services to micro, small, and medium enterprises.
The micro, small and medium enterprise (MSME) sector has often been termed the engine of
growth for developing economies.
Even though the success of small and medium enterprises in India constitutes one of the key
drivers of GDP growth and employment, the access to finance in this segment has often been
limited.
Essel Finance Business Loans is founded to cater to this underserved segment. With its highly
specialized financial solutions that focus on green field micro entrepreneurs and small and mid
segment growth oriented enterprises, Essel Finance inspires SMEs to dream big and grow.
Whether you need to fund a commercial property purchase or invest in plant and machinery,
avail working capital facilities or corporate backed supply chain solutions, or are looking to
discount receivables or lease rentals, Essel Finance will help you catalyze each one of your
business aspirations aligned to your particular needs.
Understanding credentials that extend beyond financial statements and taking a comprehensive
approach to evaluating business, we at Essel Finance help enterprises reach their true potential.










Credit lending Towards SME sector
29

EFBLL offers two Products. Mortgage Finance and Equipment Finance.
Mortgage Finance.
SME Mortgage Finance Product focuses on providing long term finance to entities for the
purpose of business expansion and to create self-owned infrastructure. Financing is offered
for Purchasing of Commercial or Industrial Premises, Construction of Commercial/Industrial
Premises and Loan against Residential Premises. The guidelines for this product will be
approved by the Risk Management Committee as per the Risk Management Committee
charter and subsequently ratified by the Board of Directors.
Equipment Finance.
SME Equipment Finance Product extends the financing for the purpose of acquiring new or
refurbished machines/equipment from the manufacturer or the dealer. Financing is offered
for Purchase of New Machinery/Equipment(Domestic & Imported), Purchase of Refurbished
Machinery/Equipment(Domestic & Imported) and Refinance Loan-Financing of Existing Free
asset in form of Machinery/Equipment. The guidelines for this product will be approved by
the Risk Management Committee as per the Risk Management Committee charter and
subsequently ratified by the Board of Directors.

UNDERWRITING APPROACHES
EFBLL adopts a holistic approach to the credit assessment of the customer. One of the key
ratios in its assessment methodology pertains to Fixed Obligation to Income Ratio(FOIR).
Fixed obligations refer to all the loan obligations in the form of EMI including the obligation
being created out of the proposed loan. Income is the amount derived from various
approaches of income estimation given in the policy. The obligations are only loan obligations
and do not include PF, Professional Tax, LIC premium, Recurring Deposit scheme charity to
trust etc.




Credit lending Towards SME sector
30

Key Credit Appraisal Methodologies.
1) Past Financial Assessment.
This method establishes the customers eligibility on the basis of his past financial
documents like Salary Slip, Balance Sheet, P&L Statements, Income Tax Returns (ITR),
Audit Reports etc. This is the most common method and the loans advanced under
this method have a lower margin on the asset vis--vis any other method. External
Credit Ratings also tend to use traditional analysis as basis for arriving at their Credit
Rating.
There are two methods to calculate eligible income under Past Financial Assessment.
Cash Profit Method and Top Line Assessment

2) Projections Based Approach
The method uses only future projections generated by the customer. Techno
economic feasibility is carried out to validate the projections. Once validated DSCR
concept is used to establish loan repayment capability of the borrower especially in
Project Funding

3) Hybrid Approach
This method is applicable to existing SMEs going for expansion or purchase of value
generating equipments which adds to the Balance Sheet and P & L directly after
utilization of such funds. In this approach a reference to past financials is taken, CAGR
concept is applied for projection and repayment capability is calculated based on the
average DSCR.

4) Revenue Generating Approach
Under this approach appraisal is done on the revenue generating ability of the
collateral. The charge may or may not be created on the rentals from the asset
depending on the contractual nature of the revenue and asset being financed. In such
methods financial assessment of the entity assumes negligible importance.
Lease Rental Discounting, where the collateral which is coming for the funding is
generating revenue in terms of rentals and the rents received from this property are
considered as the base for income assessment of the customer. The charge is created
on the rentals from the property and the same is escrowed into an account on which
the lender has a first charge.
Credit lending Towards SME sector
31

5) Cash Flow/ Receivable/ Bill Discounting Approach
The approach is used to fund invoices raised by the customer (producer of goods or
services) or on the customer with or without recourse. Assessment of credit
worthiness of the payee depends on the rating of such institution. This may be applied
on sales side or purchase side under different variants of the product. In this method
the asset ceases to be in existence with the revenue / cash receipt. Financial appraisal
of the entity depends on the Payees strength and whether a transaction is with or
without recourse. Products under this method: Factoring, Supply Chain Solutions,
Forfaiting. Fee Receivables Discounting, where the collateral is in the form of an
escrow on the fees receivable from students of the Educational Institution which has
availed of the funding for any expansion purposes. The fees receivable are considered
as base for income assessment whiles the property is taken as additional collateral.

6) Surrogate Income Approach
In SME cases, the documentation available such as IT returns, profit and loss accounts
may not be reflective of the actual income of the borrower. Accordingly, the loan
eligibility of the borrower is determined based on evaluation of alternate criteria to
determine the his repayment capacity & corresponding loan eligibility. Products under
this method: Retail Consumer Loans under Repayment track, banking surrogate,
subjective assessment of income by in-house or outsourced credit.
Banking Surrogate (BS)/Banking Turnover Surrogate (BTS) Under this method, the
customers bank records for the past 12 months are taken. The bank statement of the
customer is an indicator of his ability and intention to pay (bounces), inflows,
outflows, average bank balance which is a reflection of the customers turnover, cash
flows which may not necessarily be documented in the reported financials of the
customer. This product has worked well with players who have launched this scheme
and delinquencies are very low in this scheme. Besides, the pricing on these loans is
much better that the Cash flow /income based method and also margins are higher
that the cash flow/ income based method.
Repayment Track Record (RTR) Under this method, the customers ability and
intention to pay is derived from loans that he has been paying over a reasonable
period of time. The customers eligibility is derived by giving him a multiplier on the
loans that he has been servicing for a reasonable period of time. The rationale is that
since the customer has been paying a certain amount of repayment every month for a
Credit lending Towards SME sector
32

reasonably long period, he will continue to do so we grant him a loan such that his
obligations increase by a maximum of 15-25% over his existing loans. The margin on
the asset is much higher than the banking surrogate scheme and the pricing as well.
Debt Consolidation (DC) This scheme is used under SME Mortgage Loans wherein
the customer has various loans running and at higher rates of interest. The customer
with the intention of consolidating these multiple loans into a single loan and to
leverage on the property value avails of this facility. This enables the customer to get a
better rate than the previous loan and also for a longer tenor and all the existing loans
as directly closed by the financier against the loan sanctioned to the customer. The
pricing is higher than the regular Loan against Property (LAP) loans based on Cash
profit/income based method.
EMI Consolidation (EC) This scheme is used under for LAP wherein the customer has
various loans running and at higher rates of interest. The customer with the intention
of consolidating these multiple loans into a single loan and to leverage on the property
value avails of this facility. This enables in ease of debt management and also
decreases his financial burden. EMI which are being considered are closed by the
financier against the loan sanctioned to the customer. The pricing is higher than the
regular LAP loans based on Cash profit/income based method.

7) Collateral Based Funding Approach
EMI Consolidation (EC) This scheme is used under for LAP wherein the customer has
various loans running and at higher rates of interest. The customer with the intention
of consolidating these multiple loans into a single loan and to leverage on the property
value avails of this facility. This enables in ease of debt management and also
decreases his financial burden. EMI which are being considered are closed by the
financier against the loan sanctioned to the customer. The pricing is higher than the
regular LAP loans based on Cash profit/income based method.




Credit lending Towards SME sector
33

Literature review
For the report on Credit lending Towards SME Sector, I have referred to different papers
published by the government as well as individual authors from time-to-time and drawn
inference from them-
1. Financing SMEs- An Industry Perspective by R. Seshasayee, July-Sept 2008
This paper emphasizes on the role played by the confederation of Indian Industry (CII).
Confederation of Indian Industry (CII) has been involved inn the promotion of SMEs sector
since inception. CII strongly believes that employment will be best served by promotion of
the small sector. Promotion of SME sector addresses other larger problems of regional
equity, income distribution and strain on urban infrastructure. Thus, approximately 80% of
CIIs members are from the SME sector. CII has been deeply involved in their development
and modernization including concept of quality management, energy conservation,
globalization and technology upgraditation to its members-companies. It also undertakes
dedicated measures for marketing linkages and access to export marketing for SME units.
1. Report of the Working Group for MSMEs growth for 12
th
five year plan(2012-
2017)
The National manufacturing Policy envisages increasing the sectorial share of Manufacturing
in GDP to 25% over next decade and generating additional 100 million jobs in manufacturing
sector through an annual average growth rate of 12-14% in manufacturing sector. MSME
sector is the major base of manufacturing sector in India with its contribution over 45% in
overall industrial output. To achieve these ambitious targets of National Manufacturing
Policy, the working group on MSME Growth looks forward to enhance the growth rate of
MSME sector substantially from the existing level 12-14% growth rate.
3. Bank financing for SMEs around the world by World Banks Development Research
Group.
This paper is based on the survey conducted by the Development Research Group of World
Bank. This survey is done by collecting the data from 91 banks around 41 countries in the
world. This survey is sub-divided in to three segments- First, how bank perceive SME
segment, discussing the factors driving and implementing SME finance. Second- the business
models banks have adopted to serve SMEs and finally- the extent and type of bank lending to
SMEs
Credit lending Towards SME sector
34


4. Micro, Small and Medium Enterprise finance in India by International Finance
Corporation, World Bank.
This paper aims to provide an assessment of the Micro, Small and Medium Enterprise sector
(MSME) finance in India. It highlights the key characteristics of the MSME sector, and assess
the demand for, and the flow of finance into the sector. The study also evaluates the
consequent gap in the financing needs of MSMEs. Finally, it explores potential interventions
to address the lack of access to formal finance for MSMEs.

5. Empowering MSMEs for financial Inclusion and Growth-role of Banks & Industry
Association by K.C. Chakraborty
This paper by Dr. K.C. Chakraborty explains the role of MSMEs toward the growth of financial
development of the country. This also deals with the roles of banks and other financial
Institutions for financing the need of the MSMEs.












Credit lending Towards SME sector
35

HOW SMEs PERCEIVE BANK/NBFC FINACE
About the survey and its objectives:
To gather information on bank finance to SMEs and the major issues faced by the SMEs in
raising money from financial institution. I have designed a survey questioner 13 different
questions focusing how the SMEs get funds to run their business, what are the major
obstacles they face in raising funds from financial institution and if they gets loan from the
bank/NBFC than for what purpose they use those funds. The survey was mainly focused on
the SMEs situated at MIDC Mahape, MIDC Taloja and several Industrial Associations in
Mumbai district. These areas was selected, because of its immense gathering of SMEs and
multiple industry operates in that area, so it has helped me to gather information from
different types of industries which becomes helpful in cross-industry analysis.
Result of Survey
In lieu of the above survey, I have visited more than 75 SME units but out of which 54 shared
the information and solved the questioner and 21 denied to share any data, so in percentage
terms I was able to collect data from 72% of the units I visited. The industry visited from
different sectors across the spectrum viz Heavy Metals, Rubber, Chemicals, Steels, Textile
prints, Paper, plastics and service industry etc. Sample survey conducted by me also proves
that there is a wide gap of fund flow between SME sector and financial Institution. The units
visited are basically Micro & Small enterprises. Survey also shown that MSMEs are unaware
of various schemes sponsored by the Government and other government agencies for the
betterment of SMEs. While talking to various Associations it was noted that every year there
are lots of cases relating to sickness of enterprises in that area. According to the CII in
Mumbai alone on an average 4 SME units are shut down alone in Mumbai area per week .
The main reason sighted by them is lack in technology innovation, old traditional followed to
run business or credit crunch.





Credit lending Towards SME sector
36

Table: 01.Demographic profile of sample
Demographic Number of Respondent Percentage of Respondent
Organizational Stricture
i. Proprietorship 32 60.00
ii. Partnership 19 35.50
iii. company 03 6.50
Total respondents 54
Industry Covered
i. Heavy metal 10 13.00
ii.Chemical 12 16.00
iii.Rubber 05 7.00
iv.Steel utensils 09 12.00
v.Textile Prints 06 8.00
vi. Paper 08 11.00
vii. Auto Accessories 02 3.00
viii. Electrical 06 8.00
ix. Service Industry 09 12.00
x. Plastic 01 1.00
xi. Food processing 01 1.00
xii. Printing 06 8.00
Total No. of Co. visited 75 100.00









Credit lending Towards SME sector
37

Data Analysis and Interpretation
1. Sources of finance
Table: 02. To know about the source of finance for SMEs
Sources of Fund Number of Respondent
Owners own fund 17
Bank Finance 10
Owners plus Bank Finance 14
Owners Fund plus Finance from other
sources
05
Finance from other sources 06
Total no. of respondent 52

Two of the respondent did not answer this question even asking few times to fill.

Interpretation: Form the survey; it is found that only 29% of SME situated in the above
mentioned area avail NBFC loan facilities. Whereas private banks have a good penetration
and channel through which they reaches to SMEs. It was also found that some of the banks
uses its NBFC sources to channelize the fund. The report also clarifies that though the area is
located in tier 1 city and too in an industrial zone still the people are not aware fo different
schemes sponsored by the Government and it bodies, thus therefore from this fact any one
can gauge what might be the condition of the SMEs across the country
Sources of finance
Owners own fund
Bank Finance
Owners plus Bank Finance
Owners Fund plus Finance
from other sources
Finance from other sources
Credit lending Towards SME sector
38

Comment: with the economy is reviving NBFC should try to cover the above un-tap market
and increase its credit portfolio with better dudeligence.

2. Obstacles faced in growth of the enterprises:
Table: 03. To know about the Obstacles faced in growth
Major Obstacles No. of Respondent
Frequent need to renew the equipment 09
Instability of demand of products & supply 08
Obtaining adequate fianc 18
Low profitability of the sector 10
Taxation level 9
Total No. of Respondent 54


Interpretation: The survey shows that one of the major problem SMEs faces in the growth of
its firm is adequate finance to 18 out of 52 units. Many MSME industry people doesnt know
the various schemes run by the government and its agencies.
Comment: One of the biggest issues in the growth is related to finance, moreover SIDBI and
various Regional Rural Banks who are instructed to finance by the government are outsource
Major problem faced by the MSME
Frequent need to renew the
equipment
Instability of demand of
products & supply
Obtaining adequate fianc
Low profitability of the sector
Taxation level
Credit lending Towards SME sector
39

their funding to private NBFCs, who funds them at higher rate of interest and takes long time
to disperse the loan

3. Ever raised funds from Banks & other Financial Institution
Table: 04. To know whether SME raised funds
Raised Funds No. of Respondent
Yes 25
No 29
Total number 54


Interpretation: From the 54 respondents, only 25 had raised funds from the organized
sectors i.e; banks and other financial institution while 28 said either they have raised from
their friends or relative or invested their own savings.
Comment: Financial should provide attractive financing schemes with lower rate of interest
and timely credit to the SME borrowers. The loan procedure should be hassle free and should
take least time to disperse the fund.

23
24
25
26
27
28
29
30
Yes No
Ever raised funds
Ever raised funds
Credit lending Towards SME sector
40

4. Type of loan taken
Table: 05.Type of loan taken
Type of loan Number of respondent
Term loan 05
Working Capital/CC 14
Letter of credit 0
Others 06



Interpretation: From the above data, it can be noted that cc is the most common form f loan
taken by the SMEs instead of instead of higher rate of interest rate resulting 14 SMEs
choosing out of 29. It can also be noted down that the government through in its budget
keep a huge amount of corpus fund with SIDBI for financing SMEs under its sponsored
schemes of CGTMSE; it is less popular among SMEs. Only one respondent was aware about
the schemes as he has tale loan from SIDBI at lower rate of interest.
Comment: Financial Institution should promote its different schemes with a lower rate of
interest.
Type of laon taken
Term loan
Working Capital/CC
Letter of credit
Others
Credit lending Towards SME sector
41

5. Purpose of the loan
Table: 06.To know the purpose of the loan
Purpose Number of Respondent
Increase in production 07
Modernization & upgraditation of Technology 10
Storing of raw materials 08
Real Estate acquisition 0
Total 25


Interpretation: Modernization & upgraditation of technology need more funds for the SMEs
and hence the loan taken from the banks is used basically for this purpose, since most firms
become sick due to lack of improvisation in technology. Warehousing of raw materials to
carry out the production also need huge funds for the firm because of volatile market
condition and fare raising input cost.
Comment: Financial institution should give loan to SMEs for technology upgraditation at a
lower rate based on the life of the machinery and also promote the various technology
upgraditation loans present in their lending portfolio.

Purpose of loan
Increase in production
Modernization & upgraditation
of Technology
Storing of raw materials
Credit lending Towards SME sector
42

6. Satisfaction level after obtaining loan
Table: 07. to know the satisfaction level after various aspects of obtaining loan
Various Aspects PSBs Private Banks NBFC
The amount granted
by the bank relative
to the amount
requested
04 04 05
The simplicity of the
application form
04 03 05
Interest rate 04 04 05
Service or processing
fees
04 03 05
Time to obtain
approval
05 03 03
Documentation 05 04 04
Guarantees required
by the institution
05 05 05

This question was asked mainly because to know about the satisfaction level of the customer
after they avail the loan since they would be better to tell about the services of the bank
regarding various aspects of loan. The question was a ranking based and the borrower has to
rank 1 if he/she are strongly satisfied as 5 if he strongly dissatisfied.
Interpretation: from the above table it can be inferred that private banks emerges as the
favorable choice for the most of the borrowers because of their attractive financial schemes
and different other services. SMEs said that some co-operative banks negotiate with the
interest rates and even there is less documentation process which is also much higher in case
of PSBs and NBFCs as compared with private as well as co-operatives.
Comment: Here I have taken the majority in each category. From above we can see that
SMEs are not very happy with the financial institutions when it comes to funding. NBFCs
should look into early disbursement of loan. This can be done with proper coordination of
credit department with other departments and proper work flow of an application.


Credit lending Towards SME sector
43

7. Initiative government should take to improve SMEs
Table: 08.to know about what initiative GOI should take
Initiatives Number of Respondent
Decrease in the amount of tax 17
Support innovative technological companies 03
Guidance for upgrading skills and knowledge
of entrepreneurs
11
Assistance and support for revival sickness 05
Introduce a single window concept for
helping SMEs
18


Interpretation: the results clearly shows that the fact that SMEs are really frustrated with the
different department involved in the running of the SMEs, instead of concentrating
themselves in their work they have to run from office to office to get various approval. The
second point which need to highlights is to have different tax slab and not be treated as big
corporate.
Comments: The government should come up with single window help desk for the SMEs
where they can clear all their paper works, approval, registration etc. under one roof. To
provide awareness about the different skill development programme, government should do
Initiative should be taken by the government
Decrease in the amount of tax
Support innovative
technological companies
Guidance for upgrading skills
and knowledge of
entrepreneurs
Assistance and support for
revival sickness
Credit lending Towards SME sector
44

proper marketing of those programme, these can be done by the various chambers,
association etc.

8. Apart from financing other problems faced by the MSMEs
Table: 09.to know about other problem faced by the SMEs apart from finance
Issues Number of Respondent
Marketing/Publicity 18
Sales 06
Lack of skilled laborers 15
Procurement of raw materials 04
Government/level intervention 12


Interpretation: Marketing seems to be a major problem for survival, there is a huge cost
required to market a product which in turn put pressure on the balance sheet of the
company. Lack of skilled laborers is also a major problem faced by the small industries today.
Comments: government should provide marketing platform to the SMEs at a lower cost.
Though there are various schemes as related to marketing of a product but they needs to be
Problems other than finance faced by the
MSMEs
Marketing/Publicity
Sales
Lack of skilled laborers
Procurement of raw materials
Government/level intervention
Credit lending Towards SME sector
45

implemented properly. Government should arrange MSMEs expo in different part of the
countries.

9.Which financial institutions provide better services?
Table: 10.to know who provide better services?
Government banks 19
Private banks 21
NBFC 9
Others 5


Interpretation: Private Banks are preferred by the SMEs over government banks and NBFCs
as they aggressively target SMEs as important sector. Moreover they have specialized
branches and counters to solve their problems related to funding.
Comment: NBFCs should try to convince the confidence of SMEs that they are well enough
equipped to solve the problems with related to finance. NBFCs need to come up with new
schemes which attract the SMEs.

0
5
10
15
20
25
Government banks
Private banks
NBFC
Others
Better service provider
Credit lending Towards SME sector
46

10. Do you think change in government at center will bring favorable environment to run
business?
Yes 39
No 15


Interpretation: Majority of the respondent feel that a change in the government will bring
favorable condition to run business by change in the policies and attitude of government
towards SMEs.
Comment: With the change in government at center have given confidence to SME sector
that this government make some changes in policies and taxations which will make positive
environment to run their business.





0
5
10
15
20
25
30
35
40
45
Yes No
Change in government will brig favorble
enviornment to run business
Credit lending Towards SME sector
47

FINDINGS
After undertaking the study, the following findings were made about the SMEs in Navi-
Mumbai area.
Most of the SMEs rely on their on funds or on their friend or relatives for the business.
Since obtaining finance is one of the biggest nightmares for them.
Many a times when SMEs apply for loan, payment get delayed.
The most common reasons cited by financial institution of rejection of application by
them are
Balance sheet is not so attractive.
Not enough guarantee.
Document is not correct.
Poor credit rating.
Little income.
Co-applicant has a poor CIBIL record
People get de-motivated to apply for loan because of their lengthy process. Some
people also did not apply because of too much documentation and complicated
procedures applying for loan.
There is Lack of awareness among people running the SMEs.
Besides financial issues SMEs are also having problems like infrastructure and skill
development.









Credit lending Towards SME sector
48

Limitations
Due to constraints of time and resources, the study is likely to suffer from certain limitations.
The limitations are given below.
Data mining was a time consuming task. Useful data had to be extracted after careful
scrutinizing from the huge data gathered.
The research was carried out in a short period of time i.e; 20 days . therefore the
sample size and parameters were restricted and selected accordingly so as to finish
the work within the time given.
The information given by the respondent may be biased as some of them were not
interested in giving correct information.
Some of the respondents could not answer the question due to lack of proper
knowledge.
There were a few problems with the respondents as I was speaking Hindi and he was
speaking Marathi.
Many of the respondents did not shared information.
Some association did not entertained.
SME is a very vast topic to study and understood so all the aspects are difficult to
cover within the given time period.
There exits many more scope for further studies in this subject. Further study can be
done in cross-country analysis of SMEs or comparison of Indian SMEs with that of the
developed countries SMEs, their capital structure and banking model.











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Conclusion
The growing importance of SMEs, which account for about one-sixth of Indias total GDP, is
manifesting itself in various quarters of the economy. Government is trying to push it forward
with a number of plans to foster technology, innovation and quality in SMEs. Banks have
joined hands with private players to create a rating agency focused on SMEs in order to
improve the credit disbursal to them. Indian SMEs are increasingly organizing themselves in
clusters, which improve their access to business associations are technical assistance
providers. It also helps in building inter-firm cooperation that adds to productivity and
innovation. The MSMEs already account for 40 per cent of the nations industrial output and
35 per-cent of direct exports.
Indias manufacturing SME sector is well equipped to grow, and the fundamental drivers are
in the right place. The next level of growth in Indian economy will have to necessary come
from the MSME sector, which can propel Indias growth rate from 5 per-cent to 8-9 per-cent
and beyond in the medium and long-term. Therefore, all stakeholders in the development of
SMEs, viz., the government, banks and other agencies like MSME association/chambers and
large industry associations should gear up to provide an enabling environment to the SMEs
for taking them to a higher and sustained growth trajectory. SMEs, on their part, should
strive hard to take advantage of the available opportunities. In dealing with the needs of
small and medium enterprise, financial institution have to look for new delivery mechanisms,
they need to equip itself with the emerging challenges and are needed to be prepared to
cash in on the opportunities unleashed by higher growth.
Continued empowerment of SMEs will enable them to attain high and sustainable growth in
the long-run.









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Recommendation
With the focus in entertainment and packaging as a main source of business, Essel
Group has entered in the field of finance to cater the demand of finance. So for that
company should engage in some branding activity such as advertisement in print as
well as electronic media, one pager pamphlet, outdoor display, adds on websites of
various Associations
So
1. Company should open specialized SME/SSI branches near industrial areas.
2. Company should start In-house Credit Rating for SMEs as it will help SMEs to
know where they stands and how much amount loan they can expect from
Banks/NBFCs. Validation of rating can be done as per the guidelines of the
Credit Risk Management.
3. Many SSI/SMEs are directly linked to the large corporate as a suppliers, service
providers, etc. are usually successful. It is relatively easier for the Essel Finance
to finance various requirements including working capital, technology
upgraditation, etc. of these units. Promotions of clusters linked to large units,
thus, could help expansion of credits to small units.
4. Participation with Trade promotion organization and various Associations.








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REFERENCE
1. Bank Finance for SMEs around the world; a project by the World Bank Development
Research Group Finance and Private Sector.
2. Micro, Small and Medium Enterprise finance in India by International Finance
Corporation, World Bank.
3. Bank involvement with SMEs: Beyond Relationship by Augusto de la Torre, Maria
Scoledad Martinez peria& Sergio L. Schmukler.
4. Financing SMEs- An Industrial Prospective.
5. Empowering the Growth of Emerging Enterprises by Dr. K.C.Chakrabarty.
6. Empowering MSMEs for the Financial Inclusion and Growth Role of Banks and Industry
Associations by Dr. K.C.Chakrabarty.
7. Report on The Working Group on MSMEs Growth for 12
th
Five Year Plan (2012-2017)by
ministry of MSMEs, Government of India.
8. Small and Medium Enterprises (SMEs): Past, Present and Future in India by KD Raju.
9. Report of The Internal Group to Review Guidelines on Credit Flow to SME Sector by RBI.
10. Annual Report of MSME 2010-11,2011-12,2012-13, Ministry of MSME,GOI.
11. MSME in India: AN overview by Ministry of MSME, GOI.
12. Lending Policy to SMEs by Reserve Bank of India.











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Annexure :A
Questioner
I Rahul student of ITM-Institute of financial Market pursing PGDM, is conducting a
research on CREDIT LENDING TOWARDS SME SECTOR as a part of my summer
internship program. So I request you to spare few minutes from your busy schedule and fill
this form. I assure you that the information will be kept confidential.

1.What is the source of finance used by the enterprise? Kindly rank them on 7 point scale
being 1 as major source.
Owner fund Bank finance
Pvt. Financial Institution Equity finance
Venture capital Hire purchase & leasing
Business angel finance others
2. Rank the obstacles that are faced by enterprising in its growth from 1 to 5
The frequent need to renew the equipment
Instability of demand for product service
Obtaining adequate financing
Low profitability of sector
Tax levels
3. Have you ever raised finance?
YES No
If yes than fund raised from which sector
Public sector Pvt. Sector NBFC
4. What type of loan you have taken?
Surrogate Cash Profit Method
Working Capital overdraft/cash Credit



















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Letter of credit foreign letter of credit
Packaging credit limit others
5. what purpose your enterprise has taken loan ?
Buying /Modernization /upgraditation of technology
Working capital
Increase in production
6. Which financial sector provides better services?
Government banks Private banks NBFC
Others
7. Apart of financing what are the major problems faced by your enterprise
Marketing & Publicity Sales
Lack of skilled of raw material
Legal & government intervention
8. Please indicate your level of satisfaction with various aspects of obtaining finance from the
public/private banks/NBFC. Kindly rate them on 5 point scale basis. 5 being strongly satisfied
and 1 being strongly dissatisfied.
Strongly
Satisfied
Satisfied Neutral Dissatisfied Strongly
Dissatisfied
The amount granted by
the financial institution
to the amount requested

The simplicity of the
application form

Interest Rate
Service or Processing
fees

Time to obtain approval
Guarantees required by
the institution














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Behavior of the bank
staff



9. Apart from such schemes, what imitative GoI can take for improving SME business in
India ?
Decrease in amount of tax
Support innovative technological companies
Guidance for upgrading skills and knowledge of enterprise
Assistance and support for revival sickness
Introduce a single window concept for helping SMEs
10. Do you think change in government at center ll bring favorable environment to run
business?
Yes
11. remarks/suggestion/recommendations (if any)


Thank you for your co-operation and valuable time.

Surveyor Details
Rahul
ITM-Institute of Financial Markets
mobile. 9167510463
E-mail- Rahul@itm.edu









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Annexure:B
STEPS OF AVAILING MSME LOAN FROM ESSEL FINANCE
Select your objective

Step 1

1. Setting up units
2. Expansion/modernization or technology upgraditation in existing unit
3. Meeting working capital needs including pre-shipment and post-shipment credit
requirement
Prepare yourself with


Step 2

Detailed project Report with the following documents
1. Brief company profile and experience of the promoters/shareholders/directors
2. A detailed business plan
3. Ability of the project to generate return
4. Details of the project cost, assessment of financial requirement, means of financing the
project.
Organize the documents

Step 3


1. Applicants & co-applicants identify and address proof
2. Last 12 months banks statement
3. One passport size photograph
4. Past 3 years IT returns
5. Partnership deed in case of partnership/Memorandum& article of Association
6. Certificate of incorporation
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7. Transfer deed n case of property in hereditary
8. SSI registration
9. Financial statement from the past 3 years
10. Details of the current credit facilities enjoyed, if any
11. Existing sanction letter, account statement and credit information
Approach the Financial Institution

Step 4
Approach any branch



















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