Introduction:

Industry is the segment

of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
Industry is the segment
of economy concerned
with production of goods.
Small scale
industry (SMALL SCALE AND
MEDIUM SCALE INDUSTRY) is a
term which applies to the small
entrepreneurs who are engaged
in manufacture and
CHAPTER 1
1.0 INTRODUCTION
Industry is the segment of economy concerned with production of goods. Small and medium
scale industry is a term which applies to the small entrepreneurs who are engaged in manufacture
and production on a micro scale. It mainly refers to agro- based rural industry which doesn't
require huge capital and large infrastructure. These industries also include the indigenous cottage
industry and the handicrafts industry. The development of small scale industries is very
important for a country like India which has mainly rural economy.

These industries which are mainly agro- based in nature would provide job for millions of
Indians and would contribute largely to the overall growth of the Indian economy. This sector
continues to remain an integral part of Indian economy with significant contribution to GDP,
industrial production and employment generation in India.

Meaning of Small and Medium Scale Industries

In 1955 Small Scale Industries Board defined small scale industry as “A unit employing less
than 50 persons, if using power and less than 100 persons without the use of power and with
capital assets not exceeding rupees five lakhs”
There is a silent revolution happening in India. In fact, if you look around the corner, you may
just about get a glimpse of an India that is changing right before your eyes. This is the India
powered by SMEs, more commonly known as Small & Medium Enterprises.

When we talk about companies that drive change, it is always the larger corporations that come
to mind. Billion dollar businesses that are driven to change, and may be even disrupt the existing
business models & practices. On the other hand, the SME sector with about 36 million units,
each trying to push the envelope a little further. It seems as if a few million drops of water have
joined together to form an ocean of change.

SMEs are defined differently in different parts of the world depending upon their net worth,
assets, employee strength, shareholders, and funding structure, etc

Role of SMEs in Indian Economy

Small scale industries play an important role for the development of Indian economy in many
ways. About 60 to 70 percent of the total innovations in India comes from the SMALL SCALE
AND MEDIUM SCALE INDUSTRYs. Many of the big businesses today were all started small
and then nurtured into big businesses. The roles of SMALL SCALE AND MEDIUM SCALE
INDUSTRYs in economic development of the country are briefly explained below.

1. Small Scale Industries Provides Employment

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY uses labour intensive techniques.
Hence, it provides employment opportunities to a large number of people. Thus, it reduces the
unemployment problem to a great extent.

2. SMALL SCALE AND MEDIUM SCALE INDUSTRY provides employment to artisans,

technically qualified persons and professionals . It also provides employment opportunities to
people engaged in traditional arts in India.
2. SMALL SCALE AND MEDIUM SCALE INDUSTRY Facilitates Women Growth

1. It provides employment opportunities to women in India.

2. It promotes entrepreneurial skills among women as special incentives are given to women
entrepreneurs.

3. SMALL SCALE AND MEDIUM SCALE INDUSTRY Brings Balanced Regional

Development

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY promotes decentralized development

of industries as most of the small scale industries are set up in backward and rural areas.

2. It removes regional disparities by industrializing rural and backward areas and brings balanced
regional development.

3. It promotes urban and rural growth in India.

4. It helps to reduce the problems of congestion, slums, sanitation and pollution in cities by
providing employment and income to people living in rural areas. It plays an important role by
initiating the government to build the infrastructural facilities in rural areas.

4. SMALL SCALE AND MEDIUM SCALE INDUSTRY Helps in Mobilization of Local

Resources

1. It helps to mobilize and utilize local resources like small savings, entrepreneurial talent, etc.,
of the entrepreneurs, which might otherwise remain idle and unutilized. Thus it helps in effective
utilization of resources.

2. It paves way for promoting traditional family skills and handicrafts. There is a great demand
for handicraft goods in foreign countries.

3. It helps to improve the growth of local entrepreneurs and self-employed in small towns and
villages in India.
5. SMALL SCALE AND MEDIUM SCALE INDUSTRY Paves for Optimization of Capital

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY requires less capital per unit of output.
It provides quick return on investment due to shorter gestation period. The pay back period is
quite short in small scale industries.

2. SMALL SCALE AND MEDIUM SCALE INDUSTRY functions as a stabilizing force by

providing high output capital ratio as well as high employment capital ratio.

3. It encourages the people living in rural areas and small towns to mobilize savings and
channelize them into industrial activities.

6. SMALL SCALE AND MEDIUM SCALE INDUSTRY Promotes Exports

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY does not require sophisticated
machinery. Hence, it is not necessary to import the machines from abroad. On the other hand,
there is a great demand for goods produced by small scale sector. Thus it reduces the pressure on
the country’s balance of payments.
2. small scale and medium scale industry earns valuable foreign exchange through exports from
India.

7. SMALL SCALE AND MEDIUM SCALE INDUSTRY Complements Large Scale

Industries

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY plays a complementary role to large
scale sector and supports the large scale industries.

2. SMALL SCALE AND MEDIUM SCALE INDUSTRY provides parts, components,

accessories to large scale industries and meets the requirements of large scale industries through
setting up units near the large scale units.

8. SMALL SCALE AND MEDIUM SCALE INDUSTRY Meets Consumer Demands

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY produces wide range of products
required by consumers in India.
2. SMALL SCALE AND MEDIUM SCALE INDUSTRY meets the demand of the consumers
without creating a shortage for goods. Hence, it serves as an anti-inflationary force by providing
goods of daily use.

9. SMALL SCALE AND MEDIUM SCALE INDUSTRY Ensures Social Advantage

1. SMALL SCALE AND MEDIUM SCALE INDUSTRY helps in the development of the
society by reducing concentration of income and wealth in few hands.

2. SMALL SCALE AND MEDIUM SCALE INDUSTRY provides employment to people and
pave for independent living.

3. SMALL SCALE AND MEDIUM SCALE INDUSTRY helps the people living in rural and
backward sector to participate in the process of development.

4. It encourages democracy and self-governance.

PROCEDURES FOR SETTING UP OF A SMALL SCALE AND MEDIUM SACLE

BUSINESS

A small scale and medium scale business provides more independence than the large scale
business and through this type of business one can fulfill their dream to become an entrepreneur.
It eliminates much of the overhead expense and extensive planning required in larger business
ventures. One can set up small-scale industries by following the simple procedures, which are as
follows:[2]

Decision Making: First of all, you need to prepare the description for small scale and medium
scale industry you want to set up. It is necessary to decide whether you wish to set up a
corporation, proprietorship or partnership. The potential entrepreneur has to analyze his strength,
weakness while deciding for entrepreneur career. This analysis helps in knowing what type and
size of business would be the most suitable.

Scanning Of Business Environment: Before setting up your industry, it is always essential to

study and understand the prevailing business environment in which they operate particularly the
industrial policy, economic policy, licensing policy, legal environment, and technological
environment. The environment impacts a lot in setting up a proper industry.

Product Selection: You need to decide the product you wish to manufacture or the service you
wish to offer. While choosing the product or service you want to offer, you must conduct a good
market research and learn about the prevailing competition in the market.

Location: You need to choose a location to set up your small scale industry. While choosing the
location such factors such as nearness to market, sources of material availability of raw
materials, labor, transportation services, modern infrastructural facilities and other things are
considered. Location determines the success or failure of the enterprise.

Technology: To manufacture any item, technology is used. The entrepreneur should collect
information on all available technologies, and the most suitable one should be identified. This
will also be useful to determine the type of machinery and equipment to be installed.

Project: Project appraisal means the assessment of a project. It is a technique for ex-ante
analysis of a scheme or project while preparing to set up an enterprise; the entrepreneur has to
appraise the project carefully from the standpoint of economic, financial, technical, market,
social and managerial aspects to arrive at the most socially-feasible enterprise.

Finance: Finance is the lifeblood of the enterprise. So, the next big step is to arrange for finance.
No business can be created, with zero capital. If you don’t have enough finance and then the best
way is to borrow or take a loan.
Provisional Registration: It is always worthwhile to get the unit registered with the government.
The entrepreneur has to obtain the prescribed application from DIC or Directorate of Industries.
After having duly filled in the application form, he has to submit the application with all relevant
documents in the local DIC or Directorate of Industries.

Production Management: Production management is the next step, once you can start your
small scale industry. This includes allocating space for different operations and choosing your
production methods. You are required to purchase machinery and hire employees and workers
for different departments.

Power And Water Connection: The sites where the enterprise will be located should either have
adequate power connections, or it should be arranged. The entrepreneur can calculate the total
power requirement and determine the nearest pole from which power will be given to the
enterprise, as it can materially affect the installation cost.

Installation Of Machinery: Once the above formalities have been completed; the next step is to
procure machinery and begin its installation as per the plant layout.

Insurance: It is necessary to have adequate insurance for fixed assets at this stage and later on
for the current assets as well.

Recruitment Of Manpower: Once machines are installed, the need for manpower arises to run
them. So, the quantum and type of manpower are to be decided. The sources of getting desired
labor are also important. This follows the recruitment, training, and placement.

Production: The unit established should have an organizational set-up. To operate optimally, the
organization should employ its manpower, machinery, and methods effectively. There should not
be any wastage of manpower, machinery, and materials. If items are exported, then the product
and its packaging must be attractive.

Marketing: Marketing is the most important activity as far as the entrepreneurial development is
concerned. Marketing and business advertising form the next big step of setting up a small scale
industry. Online business directories and various traditional forms of advertising can gain
exposure for your business. Prices for your products or services are decided to keep in mind the
profit margin.

Permanent Registration: After the small scale unit goes into production and marketing, it
becomes eligible to get permanent registration based on its provisional registration from the DIC
or Directorate of Industries.

Monitoring: Periodical monitoring and evaluation not only of markets but also production,
quality, and profitability help in knowing where the firm stands in comparison to performance
envisaged in the business plan. It also identifies the direction of future growth
 Characteristics of of Small Scale and Medium
Scale Industries:

(i) Management and control: Small Scale and Medium Scale Industries unit is normally a
one man show and even in case of partnership the activities are mainly carried out by
the active partner and the rest are generally sleeping partners. These units are managed
in a personalized fashion. The owner is activity involved in all the decisions concerning
business.

(ii) (iii) Area of operation: The area of operation of Small Scale and Medium Scale
Industries is generally localized catering to the local or regional demand. The overall
resources at the disposal of Small Scale and Medium Scale Industries are limited and as
a result of this, it is forced to confine its activities to the local level.

(iii) (iv) Technology: Small Scale and Medium Scale Industries are fairly labour intensive
with comparatively smaller capital investment than the larger units. Therefore, these
units are more suited for economics where capital is scarce and there is abundant
supply of labour.

(iv) (v) Gestation period: Gestation period is that period after which teething problems are
over and return on investment starts. Gestation period of Small Scale and Medium
Scale Industries is less as compared to large scale unit.

(v) (vi) Flexibility: Small Scale and Medium Scale Industries as compared to large scale
units are more change susceptible and highly reactive and responsive to socio-economic
conditions. They are more flexible to adopt changes like new method of production,
introduction of new products etc.
 Objectives of Small Scale and Medium Scale Industries::

1. To create more employment opportunities with less investment.

2. To remove economic backwardness of rural and less developed regions of the economy

. 3. To reduce regional imbalances

. 4. To mobilise and ensure optimum utilisation of unexploited resources of the country.

5. To improve standard of living of people

. 6. To ensure equitable distribution of income and wealth.

7. To solve unemployment problem.

8. To attain self-reliance

. 9. To adopt latest technology aimed at producing better quality products at lower costs.
 Benefits of SMEs

SMEs being less mobile than large corporations are more likely to have ties of dependence and
familiarities to their communities which insure they protect their reputation and relationships
among customers and neighbors. One study of European SMEs notes that 67.5 % of them
regularly practice forms of social responsibilities such as supporting local charity activities.

The presence of a developed SME environment correlates with several economic factors
including the growth of national GDP. There are many acknowledged benefits of SMEs in
growing an economy. Researchers have shown the following findings for SMEs:

 Are labor-intensive, providing job opportunities for low-skilled employees

 Are correlated with lower inequality in the income distribution

 Are an important part of the supply chain for MNCs

 Are necessary for nations being under the transition phase from agriculture-oriented to
industrial and service oriented economies

 Are excellent for innovation and sustainable initiatives due to their flexibility and risk-
taking qualities

 Serve as a train of knowledge spillover

 Expand the competition for new ideas and human capital

 Expand market diversity and productivity.

 SMEs play significant contribution in the transition of agriculture-led economies to

industrial ones furnishing plain opportunities for proceSMALL SCALE AND MEDIUM
SCALE INDUSTRYng activities which can generate sustainable source of revenue and
enhance the development process.
  SMEs are more efficient in resource allocation as compare to that of large scale
companies from a social point of view. They provide for and facilitate for a more number
of people.

Challenges for SMEs Growth

SMEs sector can bring great benefits to developing countries however emerging economies
private sectors tend to be dominated by large enterprises or micro-enterprises which employ 5 to
fewer people creating substantial barriers to SME growth.

SMEs face and bureaucratic practices which solidify the dominance of large corporations in the
formally regulated economy. This factor creates incentives for entrepreneurs to operate
informally out of government’s regulatory reach.

Majority of SMEs refuse to utilize the organization’s environment standards because of

inadequate support, time consuming, paperwork burdens and general distrust of external
intrusion. Government regulations which are designed for big corporations cannot be fit to the
small corporations therefore limiting their ability to follow and implement them.

SMEs are significantly underfinanced mainly caused by the logistical difficulties related to
lending money to small business. Banks tend to offer loans to SMEs at unfavorable terms
because of high fix costs related to transactions.

SMEs have a greater risk of failure particularly because the company directors have less
experience, education or business experience.

In addition, future development of SMEs and their contribution in the national economy is
closely related to globalization and its effects. Globalization, aided by rapid developments in
information and communication technologies, improved transport facilities, behind the border
regulatory reform, and tariff reductions affect SMEs and large multinational enterprises
differently. The current phase of globalization, characterized by the globalization of production
processes, has required important modifications in the relationships among partners throughout
the value chain.

SMEs’ PERFORMANCE IN
INDIA
The growth rates of SMEs in
terms of number of units,
generation of employment
and exports for the
years 1980s and 1990s
were considerably good. It
was accepted that the
growth of SMEs in the
period
of 1990s has come down in
terms of not only units and
employment but also in
terms of exports. This
was symptoms of
competition in the global
market and adverse effect
on the growth of Indian
SMEs.
The SMEs has shown
consistent growth by 11
percent till 2010-11. The
best performance in terms
of
growth rate was during
2011-12 recorded 18.45
percent. The same was
retained with slight
decrease
during year 2012-13 and
2013-14 around 14
percent to 12 percent. It
was all the way raised to
17
percent during 2014-15.
However, the recent data
for 2015 highlighted
impreSMALL SCALE AND
MEDIUM SCALE
INDUSTRYve growth of
18.74
percent which is described
in the Graph 1.
SMEs’ PERFORMANCE IN
INDIA
The growth rates of SMEs in
terms of number of units,
generation of employment
and exports for the
years 1980s and 1990s
were considerably good. It
was accepted that the
growth of SMEs in the
period
of 1990s has come down in
terms of not only units and
employment but also in
terms of exports. This
was symptoms of
competition in the global
market and adverse effect
on the growth of Indian
SMEs.
The SMEs has shown
consistent growth by 11
percent till 2010-11. The
best performance in terms
of
growth rate was during
2011-12 recorded 18.45
percent. The same was
retained with slight
decrease
during year 2012-13 and
2013-14 around 14
percent to 12 percent. It
was all the way raised to
17
percent during 2014-15.
However, the recent data
for 2015 highlighted
impreSMALL SCALE AND
MEDIUM SCALE
INDUSTRYve growth of
18.74
percent which is described
in the Graph 1.
SMEs’ PERFORMANCE IN
INDIA
The growth rates of SMEs in
terms of number of units,
generation of employment
and exports for the
years 1980s and 1990s
were considerably good. It
was accepted that the
growth of SMEs in the
period
of 1990s has come down in
terms of not only units and
employment but also in
terms of exports. This
was symptoms of
competition in the global
market and adverse effect
on the growth of Indian
SMEs.
The SMEs has shown
consistent growth by 11
percent till 2010-11. The
best performance in terms
of
growth rate was during
2011-12 recorded 18.45
percent. The same was
retained with slight
decrease
during year 2012-13 and
2013-14 around 14
percent to 12 percent. It
was all the way raised to
17
percent during 2014-15.
However, the recent data
for 2015 highlighted
impreSMALL SCALE AND
MEDIUM SCALE
INDUSTRYve growth of
18.74
percent which is described
in the Graph 1.
SMEs’ PERFORMANCE IN
INDIA
The growth rates of SMEs in
terms of number of units,
generation of employment
and exports for the
years 1980s and 1990s
were considerably good. It
was accepted that the
growth of SMEs in the
period
of 1990s has come down in
terms of not only units and
employment but also in
terms of exports. This
was symptoms of
competition in the global
market and adverse effect
on the growth of Indian
SMEs.
The SMEs has shown
consistent growth by 11
percent till 2010-11. The
best performance in terms
of
growth rate was during
2011-12 recorded 18.45
percent. The same was
retained with slight
decrease
during year 2012-13 and
2013-14 around 14
percent to 12 percent. It
was all the way raised to
17
percent during 2014-15.
However, the recent data
for 2015 highlighted
impreSMALL SCALE AND
MEDIUM SCALE
INDUSTRYve growth of
18.74
percent which is described
in the Graph 1.
SMEs’ PERFORMANCE IN
INDIA
The growth rates of SMEs in
terms of number of units,
generation of employment
and exports for the
years 1980s and 1990s
were considerably good. It
was accepted that the
growth of SMEs in the
period
of 1990s has come down in
terms of not only units and
employment but also in
terms of exports. This
was symptoms of
competition in the global
market and adverse effect
on the growth of Indian
SMEs.
The SMEs has shown
consistent growth by 11
percent till 2010-11. The
best performance in terms
of
growth rate was during
2011-12 recorded 18.45
percent. The same was
retained with slight
decrease
during year 2012-13 and
2013-14 around 14
percent to 12 percent. It
was all the way raised to
17
percent during 2014-15.
However, the recent data
for 2015 highlighted
impreSMALL SCALE AND
MEDIUM SCALE
INDUSTRYve growth of
18.74
percent which is described
in the Graph 1.
Support of Indian government in SME growth

Political support amalgamated with financial aid is helping the SMEs to grow. But the question
that comes to the mind is, “What’s drawing so much attention to the SMEs sector, that even
Prime Minister of India Mr. Narendra Modi has announced a separate initiative – ‘Make in
India’?” The answer lies somewhere in its numbers!

SMEs contribute to around 45% of India’s total GDP, which is three times of what big – fat
corporates of India do. This sector employs around 46 crore people i.e. almost 35% of India’s
population; and is growing at 11.5% annually. Though these numbers are staggering, the
importance of SMEs is much more than these numbers to the well-being of India.

With the initiatives like Start-up India and Make in India, Government is clearly putting it out
loud and clear that they are here to help the biggest GDP contributor grow by leaps and bounds.

Government initiatives have been majorly trying to cover the key areas of current importance for
SMEs.

– Offering credit for technology upgrades,

– Helping manufacturing units with national manufacturing competitiveness program,

– with better awareness of intellectual property rights increasing the competitiveness,

– helping the SMEs tap and develop the overseas market for further growth.

SME lending – Fintech start-ups

All said and done, when it comes to actually moving things and getting working capital for
running of your company/SMEs, traditional banks don’t buzz from their age old method of
massive paper-work and collaterals. It’s a fact that SMEs face a lot of challenges while trying to
secure a working capital loan and credit line. As the banks/large financial institutions have these
lengthy procedures and collateral based capital lending, which reduces the loan or credit line
accessibility for SMEs. Fintech startups are the new age digital platforms aimed at offering
unsecured business loans and credit lines to SMEs with precise credit processing. All this is done
with data based algorithms which provide a faster view of an SMEs health and assist with
impartial credit distributionThe benefits of securing working capital through fin-tech start-ups
v/s traditional lenders are:

1. Accessibility – Fin-tech start-ups like OfBusiness, Capitalfloat, Indifi etc are making it
extremely easy for the SMEs to address their working capital requirement. Unlike traditional
lenders like banks and distributors, it’s quick and hassle-free. Most of the companies claim to
process credit applications within 3-5 workings days.

2. Impartial credit allotment – Data-driven algorithms for credit approval have made the
process faster and impartial. The layman procedure involving paperwork and collateral
submission has also been simplified.

3. Competitive interest rates – Fin-tech start-ups like OfBusiness offer unsecured credit line
up to 2 crores at lower interest rates. Moreover, SMEs pay interest only on disbursed amount
despite having bigger credit lines at disposal and only for period used.
4. Complementary services – In addition to financing, OfBusiness helps the SMEs procure
bulk raw-material like steel, polymer, cement etc. from trusted suppliers; to improve service
quality and prevent any credit failure.

5. Retaining ownership – Unlike banks, fin-tech start-ups let SMEs retain the ownership of
their company by offering collateral free credit line. The transaction outlines every detail of the
process with no hidden charges or any pre-payment for registration.

Companies like Power2SME and OfBusiness offer specific customized credit lines to meet
urgent working capital requirement and assistance in sourcing bulk raw-material material. This
has been extremely helpful for infrastructure and manufacturing companies. Infact, OfBusiness
is going to another level by aggregating new business opportunities for SMEs
on Bidassist.com. As of date they publish only government tenders for SMEs to access it for
free, but they claim that they will be adding private opportunities to the platform in another 3-6
months.

Future for SME’s in India

With so many reforms and policies being released by the Government of India, the future clearly
looks bullish for the SMEs. They are only headed upwards to get massive growth for their
business and expansion to more regions and territories.

To add to that, Fintech start-ups are further helping SMEs by offering them the collateral-free
working capital. SME’s will be seeing an evolution in their own growth journey by stabilizing
their costs and hence growing their business steadily and consistently; and with a helping hand
from companies like Bidassist.com or tendertiger or any similar tender aggregation platform,
they will also get better at bidding for tenders winning them, and hence be able to take a bite of
the government tenders pie.

With the Indian economy becoming $5 trillion by the year 2025, SMEs are bound to be the
largest contributor to that grown economy; not just with the economic contribution, but also with
more jobs, more skills and talent, betterment of entire region and towns, and hence the socio-
economic health of our country.

Last 3 Decades to last 3 years

SMEs have been budding and running the economy of India for more than 5 decades now. In last
3 decades i.e. from the early 90’s, when the Indian government changed the reforms, SMEs too
picked up pace and more and more people started setting up their own business. SMEs industry
grew across many verticals like manufacturing, services, textile & clothing, gems & jewellery,
packaged food and many more.

Last 3 years have seen some really drastic changes for the SMEs sector on many fronts. Be it
the government’s policies supporting and encouraging the SMEs growth; like Make in
India, Startup India and Skill India. These policies and programs have been implemented to
boost the SMEs growth by the Indian government.

At the same time, the present government’s another focus area – Digital India is also helping the
small players get aligned with m-payments and e-commerce.

While the SMEs are trying to grow their business, and with government working on contributing
to the same goal, the new Fintech sector has come up and around very rapidly. Fintech start-ups

are helping in improving the SME lending for the SMEs.

 Success stories from global manufacturing

SMEs
Germany SMEs - key growth contributor to economy German SME‟s, locally known as
Mittelstand companies, are small-and mediumsized enterprises which are mainly family-owned.
These units have less than 500 employees and an annual revenue below EUR50 million. The
importance of these units can be reckoned by the quantum of their contribution to the economy;
Mittelstand companies account for nearly 50 per cent of the country‟s GDP employing
approximately 70 per cent of the nation‟s workforce. Their success is noteworthy, mainly
because they constitute 99.7 per cent of the companies in Germany, and have enabled the country
to emerge as the world‟s second largest exporter of manufactured goods in spite of a strong euro
and with one of the world‟s largest wage pay scales.

Italy’s SME - clusters strengthening economy According to the president of Federazione

dei Distretti Italiani (Association of Italian Clusters), SMEs concentrated in clusters have played
a major role in helping Italy to overcome the economic crisis of 2008. As per Osservatorio della
Federazione Distretti, the cluster observatory, Italian exports from these units grew 10.5 per cent
during January–September 2011 compared to the same period last year. Notably, the industrial
clusters grew at a slightly faster pace of over 16 per cent compared to non-clusters (15.6 per
cent) – a trend seen after many years in Italy‟s industrial history. Furthermore, most of the
clusters envisage a rise in exports during 2011; a meagre 4.9 per cent of these units projected a
decline in exports during this period.

Review of Literature
Abdul Latif (2011) In his paper on "Women entrepreneur play a significant role in the
economic development by contributing 3% in GDP share of Pakistan”. It is also present in the
labor-intensive industries of the traditional Small Enterprise sector and in the services that
support it. It is a worldwide phenomenon that Small Enterprises are an important part of a
nation's economic and social structure. "Enterprise is the antithesis of command and control”.
Small Enterprises are increasingly a major force for national economic growth. The
entrepreneurs who drive them are receiving serious attention from economists, planners,
multilateral agencies and governments all over the world. The SMEs has recorded the highest
growth rate during the last decade almost half of the total population.
Adeyemi, Sidikat Laraba, Dr. Aremu, Mukaila Ayanda,(2011) In this paper
on “small and medium enterprises is the engine of economic growth and for promoting equitable
development.” The major advantage of the sector is its employment potential at low capital cost.
The labour intensity of the SME sector is much higher than that of the large enterprises. The role
of small and medium enterprises in the economic and social development of the country is well
established. The sector is a nursery of entrepreneurship, often driven by individual creativity and
innovation. The growth potential of the sector and its critical role in the manufacturing and value
chains. There wide spread in Nigeria and the multiplier effects they have on the rest of the
economy enable them to be the engine of economic progress. It was also noted that the SME
sector is the main driving force behind job creation, poverty reduction, wealth creation, income
distribution and reduction in income disparities.
Ayozie Daniel Ogechukwul (2010) In this paper on “Small scale industries have a lot
of important contributions to make to the economic development of the country.” By its less
capital intensive and high labour absorption nature, SSI sector has made significant contribution
to employment generation and also to the rural industrialization. This sector is ideally suited to
build on the strength of the traditional skill and knowledge, capital and innovative marketing
practices. So, the importance of small scale enterprise is a global phenomenon encompassing
both the developing and developed countries. In both developed and developing countries, the
government is turning to small and medium scale industries and entrepreneurs, as a means of
economic development and a veritable means of solving problems
Banujam K.V.(1998) , in his study entitled, “Poverty Alleviation through Rural
Industrialization” suggested that appropriate technology should be developed to promote the
rural small industries.
Berna,(2001), in his study entitled, “Entrepreneurship in Madras State” highlighted the
main characteristics found in the entrepreneurs such as capital, experience of business, technical
knowledge and family background”. These factors alone promote the growth of entrepreneurship
CHEN Lixia, MENG Bo (2011), The small & medium-sized enterprises (SMEs) in Jilin
Province play more and more important role for the economic development of Jilin. Although the
SMEs in Jilin have developed greatly in recent years, their difficulties in financing seriously
hamper their development. As the symbiotic units, the SMEs and banks are mutually beneficial
in the process of cooperation. On one side, along with the development of SMEs in scale and
number, their financing requirements increase correspondingly, as the main way for enterprises’
financing, banks can provide various finance supports for them to ensure their development and
get interest on loans and other related financial service revenue, the new energy comes from the
symbiotic relationship flows to the banks; on the other hand, the SMEs get bank loans used for
expansion, scientific and technological innovation to improve product quality and quantity, and
therefore gain more income, and these increased income comes from the symbiotic relationship
flows to the SMEs.
Chuthamas Chittithaworn,(2011), Business success is usually the outcome of the way
of doing business and cooperation. Inter-firm cooperation, consultation, performance
measurement, and flexibility may play an important role in business success. Inter-firm
cooperation contributes positively to gaining organizational legitimacy and to developing a
desirable marketplace reputation. Cooperation also may enable the small firm to improve its
strategic position, focus on its core business, enter international markets, reduce transaction
costs, learn new skills, and cope positively with rapid technological changes
Ali (1999), in his study entitled, “Help makes small scale industries viable” revealed that big
and small industries have their share in the development of a nation and the prosperity of its
masses. A balance must be struck in the development of these industries. The thrust on the
development of SSI through successive Five year plans and Government Policies had helped this

sector.

H.S. Parekh (2004), in his paper, review “the role of financial institutions and state
agencies in extending credit to small scale units and pin points their attitude of indifference in
catering to the needs of the tiny units”. He was of the view that financial distributions have to
attain their lending policies in consonance with the need of the small sector in general and the
smaller among the small scale units in particular Jayshri J Kadam,
Prof. Dr. V.N. Laturkar,(2011), in his paper“ Small Scale industries encompass vast
scope covering activities like manufacturing, servicing, financing, construction, infrastructure
etc”. In view of Government of India’s ever increasing importance given to the small scale
industries in the national economy more & more small scale industries are to be set up in the
years to come. By contributing it’s increasing share to the national production, employment &
exports, small scale industries also contribute to the economic development of the country.
However, these industries are also plagued by the problems of raw material, finance, marketing,
underutilization of capacity, etc. cash has become a big problem for small & even big businesses
today. Lack of finance has driven many small business units into bankruptcy. Unfortunately
many small businesses will become bankrupt because their owners have neglected the principal
of cash management which normally determines their successes or failure.
K.T. Ramakrishna (2005) , his study analysis the financial assistance provided by the
State in the shape of direct credit order the state aid to Industries Act, non-technical assistance in
the form of external aids and credit from State Financial Corporation, State Bank of India and
other commercial banks.
Kehinde James Sunday (2011), “The small and medium scale business have been
Identified as the pivot of growth in the economy”. The management of working capital impacts
on liquidity, investment portfolio and profitability. All these three factors are decisive in the
growth or failure of a business. Hence, good performances in working capital management
affects these decisive factors favorably and thus, contribute to growth and success of the
business. His work is based on the theory that efficient management of working capital is very
vital for a business survival. In 2002, the government in the annual budget also instructed the
commercial bank to set aside certain proportion of the profit before tax of their firm as equity
participation in the small business. Today, many and almost the large proportion of SMEs are
financed by the corporative society. Most people join the corporative society to raise short and
long term finance
. Ludovica Ioana (2011), “The role of small and medium enterprises is worldwide
acknowledged for their unique contribution to the economic development”. Both the developed
countries and the ones in course of development realise that the SMEs and the entrepreneurs play
a vital role in the industrial development of a country. So there is no surprise that the political
strategists have often thought that the SMEs can become the “seed” of economic revival. It is
necessary that while the observance of thresholds regarding the average number of employees is
compulsory, a SME can choose between observing either the threshold regarding the turnover in
a year or the one regarding the total assets. It is not necessary to satisfy both criteria and one of
them can e exceeded without losing the status of SME.
Malga Weker,(1997), in his study entitled, “Problems of small Industry in Andhra
Pradesh” has found the lack of infrastructure as a general problem.The industrial estate alone
cannot overcome the vocational disadvantages. The infrastructure facilities are either very weak
or non existent in rural areas. In urban areas with necessary industrial climate and infrastructure
facilities, the growth of industries is relatively faster. The scarcity of indigenous raw materials
has been a serious bottleneck. Scarce raw materials supplied through quotas are not sufficient to
meet the demands of the units. There is a delay in the disbursement of the loans due to the
existence of procedural delays and instances of tangible securities.
Mecrory, (1999), in his study entitled, “Latent Industrial Potential”, suggested policies for
improving the utilization of resources in the small industrial sector.
Musara Mazanai, Olawale Fatoki (2011), in their study “Perceptions of Start-
up Small and Medium-Sized Enterprises (SMEs) on the Importance of Business Development
Services Providers (BDS) on Improving Access to Finance in South Africa” have explained the
effectiveness of efforts to address challenges facing start-up SMEs in South Africa is an area of
controversy. South Africa is characterized by one of the highest start-up SME failure rates
despite several institutional and policy arrangements to address the challenges. The present
study investigated the perceptions of start-up SME owners, managers and owner-managers
about the services they receive from Business Development Services providers (BDS). In
particular,the opinions about the need for access to finance dedicated services, the relevance
of government subsidies, and their experiences with BDS providers and the risk perceptions
of financial institutions were investigated. The results of the

study revealed mixed reaction about the perception of start-up SMEs about the effectiveness
of BDS.
R.C. Reddy. (2005), In his study based on “small scale industries in Vishakapatanam
district” K.C. Reddy conducted that bank finance in particular and institutional finance in general
have contributed significantly in the promotion of small scale industries.
Ramakrishna K.T.(2001), in his study entitled, “Finance for Small Scale Industries in
India” has described the nature of problems of finance with regard to small scale industries in
India and the role played by the government, State Financial Corporations and Banks in
financing the small scale units. His study highlighted the methods of financing followed by
several countries in North and South America, Asia and Europe.
Rethnam N.V.(1998), in his study entitled, “Rural Industrialization and IRDP” opined that
infrastructure development for industrialization in the rural areas and investment in basic
services designed to realize the full potential of human resources in the rural areas should receive
a high priority.
Rohana Ngah and Abdul Razak Ibrahim,(2011), in their study “The Influence of Intellectual
Capital on Knowledge Sharing: Small and Medium Enterprises Perspective” they described how
Knowledge is vital for most of the organizations nowadays; hence, organization must take a big
step to change. The first step to change from a traditional company into a knowledge company is
to be aware of the knowledge of the organization, known as intellectual capital (IC). Recently,
the concept of intellectual capital has been identified as a key resource and driver of
organizational performance and value creation (Marr et al., 2004). Organizations perform well
and create value when they implement strategies that respond to market opportunities by
exploiting their internal resources and capabilities. Knowledge sharing has been highly regarded
as an important process in enhancing organizational performance However; knowledge sharing is
not easy to be implemented. Sharing knowledge requires willingness, trust, conducive and
suitable environment Intellectual capital focuses on building and governing intellectual assets
from strategic and enterprise governance perspectives.

Roxana Gabriela (2011), “German SMEs Affected by the World Crisis” In Germany, the
financial and economic crisis, paradoxically, led to an unexpected development: the interest of
individuals in establishing a business, declining in the last years, began to grow. According to the
annual report regarding the SMEs(1), once the crisis was felt in all economic sectors, more and
more people turned to counseling services in order to open a business.
Sarma, R.K.(1998), in his study entitled, “Industrial development of Andhra Pradesh – A
Regional Study” has observed that the backward districts of the state improved their relative
positions in terms of units of employment and capital. Majority of the small units are confronted
with the problems of raw materials and finance.
Shouchao He (2011), in his study “The Influential Factors on Internationalization of the
SMEs in China: on Wenzhoui Shoe Industry and Policy Implications “ As a major center in the
world’s largest footwear producing and exporting country, China is trying to transform its labor
intensive manufacturing industry into a more competitive and internationalized one. However,
there are still many uncertainties in the process of internationalization. most of the SMEs face the
following challenges in their internationalization process: 1) the issues related to property rights
protection, which is related to the product and technology innovation and, 2) insufficient funding
sources. The SMEs may “burn out all their cash” in the internationalization process and be easily
wiped out by the existing multinational companies; and 3) the barriers to entry and strive in the
new markets. The phrase “international of SMEs” here is defined as either the “transformation of
attitude of the SMEs towards business activities in another country” or the “actual business
activities in other countries”. Of course there is a close relationship between attitudes and actual
behavior. The attitudes are the basis for decisions to undertake international ventures and the
experiences from international activities influence these attitudes.

Singh Nagendra,(2000), in his article entitled, “Type of Entrepreneurship” has focused

the growth of indigenous entrepreneurship after independence in the country as a whole. The
contribution of both public and private sectors, including large scale and small scale enterprises
for economic development, is discussed and evaluated.
Sushma Rani Verma (2010), in his study “Working Capital Management of SMES”
Working Capital Management refers to all management decision and action that ordinary
influences the size and effectiveness of the working capital. The basic objective of Working
Capital Management is to provide adequate support for the smooth functioning of the normal
business operation of any firm / company / industry. The study has also shows various
components of current assets and current liability of small scale industries. Percentage ratio and
index method have been applied for the analysis. The result of analysis shows working capital of
the sample firm have grown up rapidly and have got doubled in the respective time period. The
highest part of total current assets has been contributed by stock and debtors. It was observed
from the analysis of that a very high proportion of long term fund are being used to finance
current assets.
SYED VASITH HUSSAIN (2004), in his study “ growth of SSI sector”. The SSI sector,
manufacturing a wide range of more than 7500 products, not only caters to the need of the lower
income groups, but also acts as a nursery for the development of entrepreneurial talent. It
produces mass consumption items such as leather goods, plastic parts, and ready-made garments
as well as sophisticated items such as television sets, electro-medical system, hearing aids, tape
recorders, process electro instruments, etc. Ancillary units in the small scale sector supply a wide
diversity of products to original equipment manufacturers producing bicycles, scooters,
automobiles, tractors, etc. Simple machine tools such as leather, drilling machines printing
machines and cutting machines are also being made in the small scale sector. Its contribution is
next only to agriculture in India. The growth of SSI sector in the overall industrial sector in the
past eight years on an average is 8.9 per cent while in industrial sector it is 6.7 per cent.