Unit II

MSME stands for Micro, Small, and Medium Enterprise that was introduced by the
Government of India in agreement with the Micro, Small & Medium Enterprises Development
(MSMED) Act, 2006. MSME is initiated and managed under the Ministry of MSME
(MoMSME) are entities engaged in the production, manufacturing, processing or preservation of
goods and commodities.

MSME sector is considered the backbone of the Indian economy that has contributed
substantially to the socio-economic development of the nation. It generates employment
opportunities and works in the development of backward and rural areas.

The Micro- Small and Medium Enterprises (MSMEs) are small sized entities, defined in
terms of their size of investment. They are contributing significantly to output, employment
export etc. in the economy. They perform a critical role in the economy by providing
employment to a large number of unskilled and semi-skilled people, contributing to exports,
raising manufacturing sector production and extending support to bigger industries by supplying
raw material, basic goods, finished parts and components, etc.

MSME Classification

The distinction between the manufacturing and services enterprises has been removed by making
the investment amount and annual turnover similar for enterprises engaged in both sectors.

MSME – Merged Criteria: Investment and Annual Turnover

Sector/Enterprise Type Micro-Enterprise Small Enterprise Medium Enterprise

Investment less than Investment less Investment is less

Manufacturing &
Rs. 1 crore than Rs. 10 crore than Rs. 50 crore
Services Sector, Both
Turnover less than Turnover up to Rs. Turnover up to Rs.

Compiled by – Dr. Pradip M. Joshi Page 1

 Rs. 5 crore 50 crore 250 crore

• Collateral Free Loans to MSMEs

• Unsecured loans up to Rs. 1 crore
• Secured loans of up to Rs. 500 crore (Lease rental discounting)
• Moratorium period offered is 12 months, can exceed as per bank
• Manufacturing and Service MSMEs shall be considered as the same entities
• Repayment Tenure up to 60 months
• 100% Credit Guarantee, for several loan schemes
• Approx. 45 lakh MSMEs to benefit from Rs 3 Lakh Crore Loans, as per MoMSME

Importance of MSME

MSME has introduced in the year 2006 in India. There are still some service sector that was not
yet included in this sector was included in the definition of the Micro, Small and Medium-
sized Enterprises making a historic change to this Act. Therefore leveraging the scope of the
sector even now government simplified the MSME Registration online with the paperless work.
The further Importance of MSME in India has been described below:
1. It creates large-scale employment: Enterprises that are inclusive in this sector require
low capital to start up new business. Moreover, it creates a vast opportunity for the
unemployed people to avail. India produces about 1.2 million graduates per year out of
which the total number of engineers are around 0.8 million. There is no economy so far
that could provide that large number of freshers in one year only. MSME is the boon for
the fresh talent in India.
2. Economic stability in terms of Growth and leverage Exports: It is the most
significant driver in India contributing to the tune of 8% to GDP. Considering the
contribution of MSME to manufacturing, exports, and employment, other sectors are
also benefitting from it. Nowadays, MNCs are buying semi-finished, and auxiliary
products from small enterprises, for example, buying of clutches and brakes by
automobile companies. It is helpful in creating a linkage between MSME and big

Compiled by – Dr. Pradip M. Joshi Page 2

 companies even after the implementation of the GST 40% MSME sector also
applied GST Registration that plays an important role to increase the government
revenue by 11%.
3. Encourages Inclusive Growth: The inclusive growth is at the top of the agenda of
Ministry for Medium, and small and Medium-sized enterprises for several years. On the
other hand, poverty and deprivation are a deterrent to the development of India. Besides,
it includes marginalized sections of a society which is a key challenge lying before the
Ministry of MSME.
4. Cheap Labor and minimum overhead: While in the large-scale organizations, one of
the main challenge is to retain the human resource through an effective human resource
management professional manager. But, when it comes to MSME, the requirement of
labor is less and it does not need a highly skilled laborer. Therefore, the indirect
expenses incurred by the owner is also low.
5. Simple Management Structure for Enterprises: MSME can start with limited
resources within the control of the owner. From this decision making gets easy and
efficient. On the contrary, a large corporation requires a specialist for every
departmental functioning as it has a complex organizational structure. Whereas a small
enterprise does not need to hire an external specialist for its management. The owner
can manage himself. Hence, it could run single-handedly.
6. The main role in the mission of “Make in India”: The signature initiative by the
Prime Minister of India “Make in India” has been made easy with MSME. It is taken as
a backbone in making this dream a possibility. In addition, the government has directed
the financial institution to lend more credit to enterprises in the MSME sector.

Challenges Faced by the MSME

1. Lack of Financial Knowledge: It is one of the most common challenges faced by the
MSME in India. Even as entrepreneurs keep making new plans & strategies for the
expansion of their present business, there is still an enormous number of entrepreneurs
who lack the financial expertise to guide the business in the correct direction. Those who

Compiled by – Dr. Pradip M. Joshi Page 3

 do not have enough financial knowledge may not be able to make vital business decisions
concerning MSME loans. In the absence of financial expertise, you may finish by taking
incorrect decisions that may harm the business unless you are looking for any external
help. Also, finance knowledge is essential because you have to depend on an MSME loan
to survive the crisis that may knock at the door anytime. Therefore, it is vital to know
everything regarding MSME loans, determine the interest rate of MSME loans and
compare the same in the market before getting a loan.
2. Technology Remains a Major Prevention: Most businesses in India fail to collect the
advantages of the advanced technology developments in their sector due to the
requirement of awareness and knowledge. Thus, MSMEs need to be informed of the
technological advancements that are vital for their business growth. It is essential for
scientific research bodies to remain involved with the local MSME clusters and take
notice of their technology-related issues. But, there have been united efforts to provide
solutions to MSMEs in such matters as the Government is working towards the launch of
an e-commerce portal known as “Bharat Craft” that will act as a direct interface between
buyers & sellers.
3. Absence of Security in Loan: Some businesses in India may find it hard to get MSME
loans as an outcome of a severe collateral or security protocol. Since small entities may
not have the property to validate the criteria to get a loan, business owners may choose
for unsecured business loans from lenders & not fret over providing security or assets to
obtain the MSME loan consent.
4. Labour Problems: Most Small, Medium Enterprises (SMEs) face common labour
problems and especially in the new normal times, the ongoing migrant crisis has
demonstrated itself as one of the most complicated areas for industries to run in such
times of Covid-19 pandemic. Despite labour problems, businesses also need to highlight
skill development, training and ensuring market linkages to provide both rural & urban
micro-entrepreneurs. The highlighting on skill development can benefit the sector
considerably & more so at the crisis time.
5. Lack of Access to Financing Solutions: Most businesses in India face recurrent
problems of accessing financing or obtaining an MSME loan even as the Government has
executed measures to make credit for businesses readily available to promote

Compiled by – Dr. Pradip M. Joshi Page 4

 entrepreneurship. The regulatory excuses that cause a delay in getting certifications,
licenses, and insurance also hinder the forecasts of MSMEs. Most businesses face
problems concerning manufacturing, timely purchase of raw materials, or even access to
advanced technologies or obtain new skills due to the lack of funding.
6. Unavailability of Credit: Another obstruction that limits the possibility of this sector is
its inability to get timely credit at a nominal interest rate. According to some experts,
MSMEs working in PAN India lack the expediency of getting easy credit from financial
institutions. Now, this mitigates their urge for development and long-term growth. The
Covid-19 pandemic has impacted MSMEs to a great deal. The outburst has left them
distributed by eroding their present resources. As an outcome, the majority of entities are
now out of human resources adequate resources. At current, the liquidity crisis is one of
the pressing challenges faced by the MSME.
7. Lack of Trust: It has been observed that banks desist from extending MSME loans since
the amount remains small, and also banks think MSMEs lack the required repayment
capacity. In such a condition, they finish up by executing stringent regulations on these
start-ups. Some businesses in India fail to observe their credit rating that obstructs the
outlook of getting loans. Further, traditional lending options make it hard for business
owners to meet criteria besides the extended procedure of MSME loan consent further
dampens their spirits.

Forms of Business Organizations

Sole Proprietorship
Sole proprietorship means a business owned, financed and controlled by a single person who is
recipient of all profit and bearer of all risks.

It is suitable in areas of personalized service like beauty parlour, hair cutting saloons & small
scale activities like retail shops.

Compiled by – Dr. Pradip M. Joshi Page 5

Features
1. Single ownership: It is wholly owned by one individual.
2. Control: Sole proprietor has full power of decision making.
3. No separate legal entity: Legally there is no difference between business& businessmen.
4. Unlimited liability: The liability of owner is unlimited. In case the assets of business are
not sufficient to meet its debts, the personal property of owner can be used for paying
debts
5. No legal formalities: Not required to start, manage and dissolve such business
organization.
6. Sole risk bearer and profit recipient: He bears the complete risk and there is no body to
share profit/loss with him.
Merits
1. Easy to start and close: It can be easily started and closed without any legal formalities.
2. Quick decision making: As sole trader is not required to consult or inform anybody
about his decisions.
3. Sense of accomplishment: There is a sense of personal satisfaction.
4. Unlimited liability: The liability of owner is unlimited. In case the assets of business are
not sufficient to meet its debts, the personal property of owner can be used for paying
debts.
5. No legal formalities: are required to start, manage and dissolve such business
organization.
6. Sole risk bearer and profit recipient: He bears the complete risk and there is no body to
share profit/loss with him.

LIMITATIONS
1. Limited financial resources: Funds are limited to the owner’s personal savings and his
borrowing capacity.
2. Limited Managerial ability: Sole trader can’t be good in all aspects of business and he
can’t afford to employ experts also.
3. Unlimited liability: Ofcourse, sole trader compels him to avoid risky and bold business
decisions.

Compiled by – Dr. Pradip M. Joshi Page 6

 4. Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects the business
and can lead to its closure.
5. Limited scope for expansion:- Due to limited capital and managerial skills, it cannot
expand to a large scale.

JOINT HINDU FAMILY BUSINESS

It is owned by the members of undivided joint Hindu family and managed by the eldest member
of the family known as KARTA. It is governed by the provisions of Hindu law. The basis of
membership is birth in a particular family.

FEATURES
1. Formation – For a joint Hindu family business there should be at least two members in the
family and some ancestral property to be inherited by them.
2. Membership by birth – There are two systems which govern membership
Dayabhaga System- It prevails in west Bengal and allows both male and female member
to co-parcencers.
Mitakshara System- It prevails all over India except West Bengal and allows only male
members to be coparceners.
3. Liability – Liability of Karta is unlimited but of all other members is limited to the extent of
their share in property
4. Continuity – The business is not affected by death or incapacity of Karta in such cases the
next senior male member becomes the Karta.
5. Minor members – A minor can also become full fledged member of Family business.

MERITS
1. Effective control- The Karta can promptly take decisions as he has the absolute decision
making power.
2. Continued business existence- The death, Lunacy of Karta will not affect the business
as next eldest member will then take up the position.
3. Limited liability – The liability of all members except Karta is limited. It gives them a
relief.

Compiled by – Dr. Pradip M. Joshi Page 7

 4. Secrecy – Complete secrecy regarding business decisions can be maintained by Karta.
5. Loyalty and Co-operation: It helps in securing better co-operation and greater loyalty
from all the members who run the business.

LIMITATION
1. Limited capital: There is shortage of capital as it is limited to the ancestral property.
2. Unlimited liability of karta – It makes him less enterprising.
3. Dominance of karta – Karta manages the business and sometimes he ignores the
valuable advice of other members. This may cause conflict among the members and may
lead to break down of the family limit.
4. Hasty decisions: As karta is overburdened with work, he may take hasty and unbalanced
decisions.
5. Limited managerial skills of karta also pose a serious problem. The Joint Hindu family
business is on decline because of the diminishing no. of joint Hindu families in the
country.

PARTNERSHIP

Meaning: Partnership is a voluntary association of two or more persons who agree to carry on
some business jointly and share its profits and losses.

FEATURES
1. Two or more persons: There must be at least two persons to form a partnership. The
maximum no. of persons is 10 in banking business and 20 in non-banking business.
2. Agreement: It is an outcome of an agreement among partners which may be oral or in
writing.
3. Lawful business- It can be formed only for the purpose of carrying on some lawful
business.

Compiled by – Dr. Pradip M. Joshi Page 8

 4. Decision making & control – Every partner has a right to participate in management &
decision making of the organisations.
5. Unlimited liability – Partners have unlimited liability.
6. Mutual Agency – Every partner is an implied agent of the other partners and of the firm.
Every partner is liable for acts performed by other partners on behalf of the firm.
7. Lack of continuity – Firms existence is affected by the death, Lunacy and insolvency of
any of its partner. It suffers from lack of continuity.

MERITS
1. Ease of formation & closure – It can be easily formed. Only an agreement among the
partners is required.
2. Larger financial resources – There are more funds as capital is contributed by no. of
partners.
3. Balanced Decisions – As decisions are taken jointly by partners after consulting each
other.
4. Sharing of Risks – In it, risk get distributed among partners which reduces anxiety,
burden and stress on individual partner.
5. Secrecy – Secrecy can be easily maintained about business affairs as they are not
required to publish their accounts or to file any report to the govt.

LIMITATIONS
1. Limited resources – There is a restriction on the number of partners and hence capital
contributed by them is also limited.
2. Unlimited liability- The liability of partners is unlimited and they are liable individually
as well as jointly. It may prove to be a big drawback for those partners who have greater
personal wealth. They will have to repay the entire debt in case the other partners are
unable to do so.
3. Lack of continuity – Partnership comes to an end with the death, retirement, insolvency
or lunacy of any of its partner.

Compiled by – Dr. Pradip M. Joshi Page 9

 4. Lack of public confidence – Partnership firms are not required to publish their reports
and accounts. Thus they lack public confidence.

Co-operative Society
A co-operative society is a voluntary association of persons of moderate means who unite
together to protect & promote their common economic interests.

FEATURES
1. Voluntary association: Every one having a common interest is free to join a co-operative
society and can also leave the society after giving proper notice.
2. Legal status: Its registration is compulsory and it gives it a separate legal identity.
3. Limited liability: The liability of the member is limited to the extent of their capital
contribution in the society.
4. Democratic control: Management & Control lies with the managing committee elected by the
members by giving vote. Every member has one vote irrespective of the number of shares held
by him.
5. Service motive: The main aim is to serve its members and not to maximize the profit.
6. Bound by govt.’s rules: They have to be tide by the rules and regulations framed by govt. for
them.
7. Distribution of surplus: The profit is distributed on the basis of volume of business
transacted by a member and not on the basis of capital contribution of members.

MERITS
1. Excise of formation: It can be started with minimum of 10 members. Registration is also easy
as it requires very few legal formations.
2. Limited Liability: The liability of members is limited to the extent of their capital
contribution.
3. Stable existence: Due to registration it is a separate legal entity and is not affected by the
death, luxury or insolvency of any of its member.

Compiled by – Dr. Pradip M. Joshi Page 10

4. Economy in operations: Due to elimination of middlemen and voluntary services provided by
its members.
5. Government Support: Govt. provides support by giving loans at lower interest rates,
subsidies & by charging less taxes.
6. Social utility: It promotes personal liberty, social justice and mutual cooperation. They help to
prevent concentration of economic power in few hands.

LIMITATIONS
1. Shortage of capital – It suffers from shortage of capital as it is usually formed by people with
limited means.
2. Inefficient management – Co-operative society is managed by elected members who may not
be competent and experienced. Moreover, it can’t afford to employ expert and experienced
people at high salaries.
3. Lack of motivation – Members are not inclined to put their best efforts as there is no direct
link between efforts and reward.
4. Lack of Secrecy – Its affairs are openly discussed in its meeting which makes it difficult to
maintain secrecy.
5. Excessive govt. control – it suffers from excessive rules and regulations of the govt. It has to
get its accounts audited by the auditor and has to submit a copy of its accounts to registrar.
6. Conflict among members – The members are from different sections of society with different
viewpoints. Sometimes when some members become rigid, the result is conflict.

JOINT STOCK COMPANY

Meaning – Joint stock company is a voluntary association of persons for profit, having a capital
divided into transferable shares, the ownership of which is the condition of membership.

FEATURES
1. Incorporated association – The company must be incorporated or registered tender the
companies Act 1956. Without registration no company can come into existence.

Compiled by – Dr. Pradip M. Joshi Page 11

2. Separate Legal Existence – It is created by law and it is a distinct legal entity independent of
its members. It can own property, enter into contracts, can file suits in its own name.
3. Perpetual Existence – Death, insolvency and insanity or change of members as no effect on
the life of a company. It can come to an end only through the prescribed legal procedure.
4. Limited Liability – The liability of every member is limited to the nominal value of the
shares bought by him or to the amt. guaranteed by him. Transferability of shares – Shares of
public Co. are easily transferable. But there are certain restrictions on transfer of share of private
Co. Common Seal- It is the official signature of the company and it is affixed on all important
documents of company.
5. Separation of ownership and control – Management of company is in the hands of elected
representatives of shareholders known individually as director and collectively as board of
directors.

MERITS
1. Limited Liability – Limited liability of shareholder reduces the degree of risk borne by him.
2. Transfer of Interest – Easy transferability of shares increases the attractiveness of shares for
investment.
3. Perpetual Existence – Existence of a company is not affected by the death, insanity,
Insolvency of member or change of membership. Company can be liquidated only as per the
provisions of companies Act.

4. Scope for expansion – A company can collect huge amount of capital from unlimited no. of
members who are ready to invest because of limited liability, easy transferability and chances of
high return.
5. Professional management – A company can afford to employ highly qualified experts in
different areas of business management.

LIMITATIONS
1. Legal formalities – The procedure of formation of Co. is very long, time consuming,
expensive and requires lot of legal formalities to be fulfilled.
2. Lack of secrecy – It is very difficult to maintain secrecy in case of public company, as
company is required to publish and file its annual accounts and reports.

Compiled by – Dr. Pradip M. Joshi Page 12

3. Lack of Motivation – Divorce between ownership and control and absence of a direct link
between efforts and reward lead to lack of personal interest and incentive.
4. Delay in decision making – Red papism and bureaucracy do not permit quick decisions and
prompt actions. There is little scope for personal initiative.
5. Oligarchic management – Co. is said to be democratically managed but actually managed by
few people i.e. board of directors. Sometimes they take decisions keeping in mind their personal
interests and benefit, ignoring the interests of shareholders and Co.

Women Entrepreneurs

Women Entrepreneurs means the women or a group of women who initiate, organize and
operate a business enterprise.

A woman entrepreneur is therefore a confident, creative and innovative woman desiring

economic independence individually and simultaneously creating employment opportunities for
others

Definitions:

“An enterprise owned and controlled by woman having a minimum financial interest of 51% of
the capital and giving at least 51% employment generated to women” -By Government of India

“Women who innovate initiate or adopt business actively are called women entrepreneurs.” -
J.Schumpeter

“Women entrepreneurship is based on women participation in equity and employment of a

business enterprise.”

-Ruhani J. Alice

Indian women are changing and they are fast emerging as potential entrepreneurs. Role
modeling of women in non-traditional business sectors to break through traditional views on
men’s and women’s sectors.

Compiled by – Dr. Pradip M. Joshi Page 13

 Women companies are fast-growing economies in almost all countries. The latent
entrepreneurial potential of women have changed little by little by the growing awareness of the
role and status of economic society. Skills, knowledge and adaptability of the economy led to a
major reason for women in business.

Women are coming forth to the business arena with ideas to start small and medium
enterprises. They are willing to be inspired by role models- the experience of other women in the
business arena.

Features:

1. They should be educated and skillful.

2. Must have professional education to become better entrepreneur.
3. She should be capable enough to do innovations and be able to bear risks and
uncertainties.
4. Able to make utilisation of various schemes, and aids given by government.
5. She should be capable enough to face male competitors and should possess guts to
moveahead.
6. She should be capable enough to make autonomous investment.
7. She must possess some ethics and egoism and should be egotist as well.

Problems of Women Entrepreneurs

Basic problem of a woman entrepreneur is that she is a woman. Women entrepreneurs face two
sets of problems specific to women entrepreneurs. These are summarized as follows.

• Shortage of Finance: Women and small entrepreneurs always suffer from inadequate fixed
and working capital. Owing to lack of confidence in women’s ability, male members in the
family do not like to risk their capital in ventures run by women. Banks have also taken
negative attitude while lending to women entrepreneurs. Thus women entrepreneurs rely
often on personal saving and loans from family and friends.
• Shortage of Raw Material: Women entrepreneurs find it difficult to procure material and
other necessary inputs. The prices of many raw materials are quite high.

Compiled by – Dr. Pradip M. Joshi Page 14

• Inadequate Marketing Facilities: Most of the women entrepreneurs depend on
intermediaries for marketing their products. It is very difficult for the women entrepreneurs to
explore the market and to make their product popular. For women, market is a ‘chakravyuh’.
• Keen Competition: Women entrepreneurs face tough competition from male entrepreneurs
and also from organized industries. They cannot afford to spend large sums of advertisement.
• High Cost of Production: High prices of material, low productivity. Under utilisation of
capacity etc. account for high cost of production. The government assistance and subsidies
would not be sufficient for the survival.
• Family Responsibilities: Management of family may be more complicated than the
management of the business. Hence she cannot put her full involvement in the business
.Occupational backgrounds of the family and education level of husband has a direct impact
on the development of women entrepreneurship.
• Low Mobility: One of the biggest handicaps for women entrepreneur is her inability to travel
from one place to another for business purposes. A single women asking for room is looked
upon with suspicion. Sometimes licensing authorities, labour officials and sales tax officials
may harass them.
• Lack of Education: About 60% of women are still illiterate in India. There exists a belief that
investing in woman’s education is a liability, not an asset. Lack of knowledge and experience
creates further problems in the setting up and operation of business.
• Low Capacity to Bear Risks: Women lead a protected life dominated by the family
members. She is not economically independent. She may not have confidence to bear the risk
alone. If she cannot bear risks, she can never be an entrepreneur.
• Social Attitudes: Women do not get equal treatment in a male-dominated society. Wherever
she goes, she faces discrimination. The male ego stands in the way of success of women
entrepreneurs. Thus, the rigid social attitudes prevent a woman from becoming a successful
entrepreneur.
• Low Need for Achievement: Generally, a woman will not have strong need for achievement.
Every women suffers from the painful feeling that she is forced to depend on others in her
life. Her preconceived notions about her role in life inhibit achievement and independence.

Compiled by – Dr. Pradip M. Joshi Page 15

• Lack of Training: A women entrepreneur from middle class starts her first entrepreneurial
venture in her late thirties or early forties due to her commitments towards children. Her
biggest problem is the lack of sufficient business training.
• Lack of Information: Women entrepreneurs sometimes are not aware of technological
developments and other information on subsidies and concessions available to them. They
may not know how to get loans, industrial estates, raw materials, etc.

Rural Entrepreneurship

Rural entrepreneurship is a term that relates to the establishment of new business units and
industries in rural areas. It involves carrying out entrepreneurship activities in the rural economy
which results in the overall development of the nation. Rural entrepreneurship has its root lying
in non-urban areas and has a lot of potential for undertaking numerous endeavors in business,
industry, agriculture, etc. Generally, industries and business enterprises in rural areas are
involved in agriculture and its allied activities. These activities support the livelihood of the
majority of the population living in rural areas.

Rural entrepreneurship helps countries in achieving the equitable advancement and development
of all areas. It serves as a key tool for overcoming all gaps in between urban and non-urban areas
whether in terms of infrastructure, job opportunities, health, education etc. The similar growth
and development opportunities are provided to the people of village as one available to peoples
of cities.

Need for Rural Entrepreneurship

The reasons for rural entrepreneurship can be well-understood from points discussed below: –

1. High potential of creating employment- Rural entrepreneurship brings in large number

of employment opportunities for people living in rural areas. Industries in rural parts are
mostly labor-intensive where many people are engaged in distinct activities both directly
and indirectly. Rise in unemployment is one of the basic and most highlighted problem of

Compiled by – Dr. Pradip M. Joshi Page 16

 every nation in today’s era. Rural entrepreneurship can be very effective in tackling this
problem in positive way by bringing in more job opportunities for people.
2. Brings down income disparity- Rural industries possess a high potential of generating
large amount of income for rural population. When people living in non-urban areas get
equal opportunity for earning income as similar to one living in urban areas, the
disparities in income earned gets reduced. Establishment of new business setup and
industries result in giving better job opportunities with adequate salaries and wages.
3. Proper utilization of resources- The rural entrepreneurship helps in effective utilization
of resources available in remote areas. The resources are present in sufficient quantity
among rural areas which may remain lie idle if rural entrepreneurship does not exist.
When industries will run via rural entrepreneurship programme, then the use of all these
resources will enhance productivity thereby favoring nation in some way. In addition to
this, labor available in villages also get some work in these types of entrepreneurships.
4. Reduce migration of villagers- Migration of people from rural areas to urban areas is
one of the critical issues being faced by every nation in today’s time. People migrate to
cities in search of job opportunities, better life and various other infrastructural facilities
which are missing in rural areas. Rural urbanization works on removing this gap in terms
of development among urban and non-urban areas. It helps in creating similar growth and
development opportunities for peoples of villages as are available in urban areas. When
people have access to job opportunities in their native areas, they would like to remain at
their home instead of migrating to some other places.
5. Earns foreign exchange- Rural market serve as an important source of earning foreign
revenue for nation. The products which are manufactured in rural areas are in high
demand and exported to several countries all over the world. These products comprise of
handicrafts, artifact, handlooms and various other agricultural products. All transactions
are settled in international currencies which leads to increase the foreign currency reserve
of country.
6. Enhance traditional culture- Rural entrepreneurship not only protects but also promote
the art, creativity and culture of particular region on wider scale. It is seen that people
from rural areas have great talent in terms of culture and tradition. Also, all sort of
historic artistic activities were originated from rural areas only. Rural entrepreneurship

Compiled by – Dr. Pradip M. Joshi Page 17

 paves the way for promotion of these activities, thereby enabling villagers to create
wonderful handicraft items and earn their bread and butter via selling them.
7. Foster economic development- The economic development of remote areas across the
nation is increased to great extent by rural entrepreneurship. It focuses on achieving
equitable growth and development in both urban and rural areas. More capital is brought
into the rural market by establishing new ventures and industries. All this also results in
eliminating the differentiation among areas as slums, town, cities etc.

Problems of Rural Entrepreneurship

There are lots of challenges and hardships which are faced while rolling out entrepreneurship
programmes in rural areas. They are as listed below: –

1. Lack of funds- Absence of adequate amount of funds is one of the major issues faced by
rural entrepreneurs. Finance is termed as backbone of every business and no business can
perform if there is no availability of funds. Entrepreneurs in rural areas face great
hardships in securing external funds due to the absence of credit in market as well as
tangible security.
2. Poor infrastructure facilities- Entrepreneurs in rural areas suffered a lot due to the poor
infrastructure facilities. They are unable to attain better growth rate in absence of basic
infrastructure such as transport, communication and power supply which all are very bad
when compared with cities facilities. All these are much needed things in order to run a
business in smoothly manner.
3. Competition- Rural entrepreneurs faces a tough competition in market from large scale
organizations and urban enterprises. They lack in terms of products quality, effective
branding and proper standardization. All these factors make rural entrepreneurs
inefficient in competing with these large-scale organizations.
4. Unavailability of skilled labor- Absence of skilled labor in remote areas is another
critical issue faced by rural entrepreneurs. It is difficult to find skilled personnel in non-
urban areas as most of them are willing to work in urban areas where they get high
salaries and access to better amenities.

Compiled by – Dr. Pradip M. Joshi Page 18

 5. Poor quality of products- Rural entrepreneurs lack in better standard tool and
equipments for regulating the product quality. This results in production of inferior
quality of products. Customers are more quality sensitive in today’s era and may boycott
the brand which is not focusing on quality control.
6. Exploitation by middlemen- Rural entrepreneurs largely get exploited by middlemen. In
order to perform the marketing of products, rural entrepreneurs are heavily dependent
upon middlemen who charges a huge profit. Absence of storage facilities and adequate
transport services are another marketing issues faced in remote areas.
7. Legal formalities- A rural entrepreneur need to fulfill several legal formalities prior to
establishing a business unit. These formalities include attaining a business license,
pollution certificate and various other forms of clearance. The entrepreneur may find
difficulty in completely all these tasks due to the low-level of education.

Types of Rural Entrepreneurship

Various types of rural entrepreneurship are as listed below: –

1. Agro based enterprises- Agro based enterprises are one which are engaged in
processing and selling of agricultural products. These products include fruit juice, sugar,
wheat, rice, dairy products, jaggery, oil from oil seeds and many more.
2. Mineral based industries- Mineral based industries uses minerals ores as primary raw
material for producing their range of products. Iron and steel industry, cement industry,
aluminum industry, wall coating powders etc. are included in mineral based industries.
3. Handicrafts- Handicrafts are artistic items which are made from glass, jute, bamboo,
soil, wood etc. In addition to this, antiques, traditional decoration items and toys are also
covered here.
4. Textile industry- Textile industries include all those industries which are involved in
spinning, weaving, tie and dye, and coloring and bleaching of textile.
5. Engineering services- Engineering services comprise of tool and equipments that are
used in pumps, tractors, pipes and fittings, repairs, etc.

Compiled by – Dr. Pradip M. Joshi Page 19

 6. Forest-based industries- Forest based industries are involved in bamboo products,
honey making, beedi industry, supply of wood and wood products, etc.

Family Business

Meaning:
Family business has been as common in the Indian economy like elsewhere in the world,
it is perceived in a common sense. Various terms like ‘family-owned,’ family controlled,’
‘family managed,’ ‘business houses,’ and ‘industrial houses’ are used to refer to family business.

Thus, the term family business conjures up different meanings to different people. While
some view it as traditional business, others consider it as community business, and still others
mean it as home-based business.

“Family business is a firm which has been closely identified with at least two generations of a
family and when this link has had a mutual influence on company policy and on the interests and
objectives of the family.” — R. G. Donnelley

“Family businesses are those where policy and decision are subject to significant influence by
one or more family units. This influence is exercised through ownership and sometime through
the participation of family members in management. It is the interaction between two sets of
organizations, family and business, that establishes the basic character of the family business and
defines its uniqueness.” — P. Davis

Some researchers argue that a broad definition of a family business should incorporate some
degree of control over strategic decisions by the family and the intention to leave the business in
the family. Shankar and Astrachan (1996) note that the criteria used to define a family business
can include: Percentage of ownership; Voting control; Power over strategic decisions;
Involvement of multiple generations; and Active management of family members.

In an effort to resolve the definitional ambiguity surrounding family business research, Litz
suggests that a business can be defined as a family business when its ownership and management
are concentrated within a family unit. Furthermore, he argues that to be considered a family

Compiled by – Dr. Pradip M. Joshi Page 20

business; the business’ members must strive to achieve, maintain, and/or increase intra-
organizational family-based relatedness.

In sum and substance, a family business can simply be defined as a business one that includes
two or more members of a family with financial control of the company. In other words, a family
business is one actively owned and/or managed by more than one member of the same family.

Characteristics:
The definitions of family business given above indicate the following characteristics of
family business:
a. A group of people belonging to one or more families run one business enterprise.

b. Position in family business is influenced by the relationship the family members

enjoy among themselves.

c. Family exercises control over business in the form of ownership or in the form of
management of the firm where family members are employed on key positions.

d. Family exercises the influence on the firm’s policy direction in the mutual interest
of family and business.

e. The succession of family business goes to the next generation.

f. Every caste enjoys a dominant culture which gets duly reflected in their family
businesses also.

First Generation Entrepreneur

A first generation entrepreneur did not grow up in a family of entrepreneurs. Most

commonly, their close friends, mentors or role models are not business owners. They do not
interact with anyone regularly for whom successful entrepreneurship is the norm. They may have
interacted with aspiring entrepreneurs who never dedicated themselves to a business idea or who
did not succeed and went back to a day job.

Compiled by – Dr. Pradip M. Joshi Page 21

 First generation entrepreneurs are those who have started their business through
their innovative ideas and skillsets. Typically, they do not have any entrepreneurial background.
They are innovative, possess quick decision-making abilities, have leadership traits, and carry an
intuitive capacity to take appropriate risks.

First-Generation Entrepreneur Needs To Know:

1. Once you take a leap there’s no looking back

Many businessmen focus on the exit strategy. Remember it’s a one way traffic. There’s no going
back. Once you decide that you want to do a business you have to keep going. There might be times
you think that you made a wrong decision, but always know that this is part and parcel of the
businessman’s life to think so. You are not alone. You have to survive your worst days.

2. Manage your finances well

Money is always short and it will never be enough. But you have to pay the bills. Focus on your
monthly finances. See to it to have adequate cash for the next month to pay all your expenses for that
month. If you have excess cash, don’t keep it idle. Invest it till you need it. You have to keep
investing your surpluses. These investments will help you get through the bad periods.

3. Be debt free

As far as possible don’t take any debt capital. Don’t take loans to run your business unless there is no
other option. Use your cash flows to run your business. Key is to increase your monthly cash flows.
If this happens you won’t need any debt. Expansion plans also should be debt free. Remember
borrowers make their bankers rich and not the other way round.

4. No fast expansion

Many successful businesses failed because they expanded too quickly. Don’t make that mistake. You
have to build a solid business before you can expand. Your current business might be on a small
scale but the key is not to make it large scale as fast as possible but to sustain it over a long period.
The longer you are in business the more invincible you will become. That is when you expand.

Compiled by – Dr. Pradip M. Joshi Page 22

5. Avoid Fund Raising from Venture Capitalists

Nowadays every startup is looking for an investor to fund their businesses. This sounds cool but is
definitely not. You lose control of your business when you take on an investor. Then it is all about
managing the investor’s expectations and keeping them happy. If you have a good business idea, try
to grow it on your own. If you want funds you can raise them from your family & friends. Give them
a small stake in your company. They will be happy & you will be in control. It might take longer to
scale your business but at least it would be yours. When you have built a solid business, you can
think of raising funds through the capital markets to fund your expansion plans.

6. Profitability

Businesses survive on profits. One of the mistakes entrepreneurs make is they focus on profits from
day one. In the initial years focus on the revenue. Try to increase your sales and keep your costs low.

In the first 3 years of your business don’t look for profits, but try to grow your cash inflows. Avoid
unnecessary business expenses. You will start making profits sooner than you expect.

7. Marketing

People do business with people they know. If people don’t know you, how will they buy from you.
Marketing your business on the right platforms will give you a brand presence. Not every post on
your facebook page needs to get you a lead. People should keep seeing your business name. They
should know that you exist & what are your offerings. They will come to you eventually. And
ultimately your customers will get you more customers if they are happy with your service. Nothing
beats a good reference. And good references are always shared.

Business is like a jungle. Here only the fittest survive. You have to be strong & smart here. The best
business education is not in the business schools but in observing and learning about things
happening around you. A person has to be a good observer to do a good business. He needs to learn
new things every day to stay ahead in the game.

It is a hustle that never ends. But it is the hustle that takes you places.

Compiled by – Dr. Pradip M. Joshi Page 23