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R. B.

Institute of management studies

A COMPREHENSIVE PROJECT REPORT ON

ENTREPRENEURS PREFERENCES TOWARDS BANKS FOR

In Partial fulfillment of requirement of two years Master of Business Administration Programme of Gujarat Technological University, Ahmadabad

SUBMITTED TO: R.B. INSTITUTE OF MANAGEMENT STUDIES MBA PART II, SEM-IV

SUBMITTED BY: SIMRAN KAUR CHARMI SHAH

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ACKNOWLEDGEMENT
Our Silent thanks giving ever and ever to the kindly lights infinite grace and mercy that continues to light up every foot step till this grand project report end. The Multifarious features of this project could be successfully accomplished only by the persistent support, guidance and encouragement of all concerned. It is really a matter of pleasure for us to get an opportunity to thank all the persons who contributed directly or indirectly for the successful completion of the grand project report, Entrepreneurs Preferences towards Banks for SME loans with reference to the Entrepreneurs. First of all we are extremely thankful to our college R. B. Institute of Management Studies, Ahmadabad for providing us with this opportunity and for all its cooperation and contribution. We also express our gratitude to our faculty guides Ms. Heena Thanki & Mrs. Krishna Parmar and are highly thankful to them as for giving us the encouragement and freedom to conduct our grand project. Their calm demeanor and willingness to teach had been a great help to us for successfully completing the project. Our learning has been immeasurable and working under their guidance was a great experience. Many people have rendered timely support and shared invaluable information and experience, space constraints do not permit me to thank them individually but we acknowledge the help rendered as invaluable and without which this report would have been incomplete. We extend our sincere thanks to all the staff faculty members for providing a very hospitable and helpful work environment and making an exciting and memorable event with their valuable guidance and suggestions for our entire study.

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PREFACE
(Theory without Practice has no fruit. Practice without Theory has no root.)

Experience is the best teacher. This saying plays a guiding role in our lives and also in the grand project reports & those are an integral part of our PGDBM Curriculum.

Todays age is an age of management. Management is the backbone of any organization or any activity done. The real success of management lies in applying the professional management techniques in all managerial activities. As we move into an era of intense competition and high performance expectations, it is important that we develop the winning edge.

Practical study is eminent, and plays vital role for the students of management, because classroom coaching and theoretical study alone are not enough. To survive in this highly competitive world, practicality outweighs theoretic. Students are supposed to learn the various principles of business administration conceptually but accuracy and efficiency in their implementation is possible only through exposure to practical environment.

Hence, to attain these objectives and to have the outlook of all intricacies of the corporate world, we had undertaken our research study for ANALYZING THE
ENTREPRENEURS PREFERENCES TOWARDS BANKS WITH REFERENCE TO THE SME LOANS. We have tried our best and have applied all the efforts, knowledge

and sources available in this grand project report.

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CERTIFICATE

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DECLARATION

We hereby declare that the Grand Project titled Analyzing the Entrepreneurs Preferences towards Banks for SME Loans had been studied under the guidance & help of our respected guide Ms. Heena Thanki & Mrs. Krishna PARMAR, Professors at the R.B. Institute of Management Studies. It is our original work and has not been published elsewhere. This has been undertaken for the purpose of partial fulfillment of Gujarat University requirements for the award of the Degree of Master of Business Administration.

Date:-

Place:-

(Signature) ___________ BANDAI SIMRAN KAUR CHARMI SHAH

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EXECUTIVE SUMMARY
Money is a fluid commodity and like all other fluids, its movement is governed by different flow parameters. A successful financial marketer would be one who can understand these flows, their seasonality and then adapt his product to capitalize on them. The rise of Retail lending in emerging economies like India has been of recent origin. Asia Pacifics vast population, combined with high savings rates, explosive economic growth, and underdeveloped retail banking services, provide the most significant growth opportunities for banks. Banks will have to serve the retail banking segment effectively in order to utilize the growth opportunity. Banking Strategies are presently undergoing various transformations, as the overall scenario has changed over the last couple of years. Till the recent past, most of the Banks had adopted fierce cost cutting measures to sustain their competitiveness. This strategy however has become obsolete in the new light of immense growth opportunities for banking industry. Most bankers are now confident about their high performance in terms of organic growth and in realizing high returns. Nowadays, the growth strategies of banks revolve around customer satisfaction. Improved Customer relationship management can only lead to fulfillment of long-term, as well as, short-term objectives of the bankers. This requires, efficient and accurate customer database management and development of well-trained sales force to develop and sustain long-term profitable customer relationship. The Banking System in India is significantly different from that of the other Asian nations, because of the countrys unique geographic, social, and economic characteristics. Though the sector opened up quite late in India compared to other developed nations, like the US and the UK, the profitability of Indian banking sector is at par with that of the developed countries and at times even better on some parameters. Banks in India are mainly classified into Scheduled Banks and Non-Scheduled Banks. Scheduled Banks are the ones, which are included in the second schedule of the RBI Act 1934 and they comply with the minimum statutory requirements. Non-Scheduled Banks are joint stock banks, which are not included in the second Schedule of the RBI Act 134, on account of the failure to comply with the minimum requirements for being scheduled. Small & Medium Business Development Chamber of India puts efforts for the development and growth of SMEs by organizing various activities to accomplish its objectives. The Chamber provides information and guidance to new and existing entrepreneurs in effectively managing and growing their business.

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The Chamber has developed key strategies to promote and support the SME sector. The Chamber also gives importance to and encourages SMEs to adopt innovative ideas and concepts for the promotion of their business. The Chamber organizes many Seminars, Conferences, Workshops and Training Programs and other trade promotional activities to educate & create awareness amongst the SMEs. Small and Medium Enterprises play a vital role for the growth of Indian economy by contributing 45% of the industrial output, 40% of exports, 42 million in employment, create one million jobs every year and produces more than 8000 quality products for the Indian and international markets. The Indian Market is growing rapidly and Indian industry is making remarkable progress in various Industries like Manufacturing, Precision Engineering, Food Processing, Pharmaceuticals, Textile & Garments, Retail, IT, Agro and Service sectors. SMEs are finding increasing opportunities to enhance their business activities in core sectors. In this project we would research on Entrepreneurs Perception towards Private Banks & Public banks for Small & Medium Enterprise Loan Process. For that we have criteria to select some small & medium scale entrepreneurs & also some public & private sector banks. In our research we would include process & code of conducts that are necessary to acquire loans by SME Entrepreneurs. The Multifarious features of this project could be successfully accomplished only by the persistent support, guidance and encouragement of all concerned. What are SME loans, its overall background, and its importance from entrepreneurs perception in Ahmadabad city? How easy to get SME loans by entrepreneur from public & private bank is our main concentration to our research study. For our Research we would prepare well design questionnaire that is feasible for studying Entrepreneurs Perception for SMEs Loans from Private & Public Banks. What are the driving forces to acquire the SMEs Loans from Particular banks & what are the Pros & Cons of acquiring loan from public or private banks is also the part of our research study. Another Part of Study is imparted that what are the scope, advantages & limitations of SME Banking Loans to Entrepreneur as well as banks. What are the rates of interest that are charged by different private or public sector banks? The secondary works on the research study is to knowhow that is from customer observation SME loans providing process that is the myth to get the loans easily or not? The Scope of our project will be limited only to SME loans with perception of SME entrepreneurs for acquiring loans from public & private banks based on the Ahmadabad City.

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TABLE OF CONTENT
SR.NO.
1. a) b) c) d) e) f)

CONTENTS

PG.NO.

Introduction To SME
Over View & Background Of SME Industrial Scenario Of SME SME Loans Type of SME Loans Government Framework for the policy of this Loan Benefits of SME Loans 09

23 31 34 40 66 67 70 71 73
75 79 103 104 105 106 107 108

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Detailed Survey Of Literature Need & Objective of Study SWOT Analysis Michael Porters Five Force Model Research & Methodology Data Analysis & Interpretation Job Profile In Detail Findings & Conclusions Limitations Recommendations Bibliography Appendices

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INTRODUCTION

OVERVIEW of SME

Small Industry has been one of the major planks of India's economic development strategy since Independence. Small and Medium Enterprises (SMEs) also known as Small and Medium Scale Enterprises are the essential part of healthy economy. The SME sector represents over 90 percent of enterprises in most of the developing countries and contributes 40-60 percent of the total output or value added to the national economy.

In India, Small and Medium Enterprises (SME) are the generic term used to describe Small Scale Industrial (SSI) units and Medium-Scale Industrial Units. Any Industrial Unit with a total investment in its fixed assets or leased assets or hire-purchase asset up to Rs10 million is considered as a SSI unit and investment up to Rs. 100 million is considered a medium unit. In addition, an SSI unit should neither be a subsidiary of any other industrial unit nor can it be owned or controlled by any other industrial unit. The SME sector produces a wide range of Industrial Products such as food products, beverage, tobacco and tobacco products, cotton textiles, wool, silk, synthetic products, jute, hemp & jute products, wood & wood products, furniture and fixtures, paper & paper products, printing publishing and allied industries, machinery, machines, apparatus, appliances and electrical machinery. SME sector also has a large number of Service Industries. The Small Scale Sector in India comprises of a diverse range of units from traditional crafts to high-tech industries. The

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Number of SSI Working Units (registered & unregistered) in India totaled 11.4 million in 2003-04.80.5 per cent of which are proprietary concerns and 16.8 per cent are Partnership Firms and Private Limited Companies. SME sector in India is the key driver of the nation's economic growth with a contribution of over 40 percent of the country's industrial output and about 35 percent of direct exports and another 15 percent of indirect exports. In terms of employment it is a very crucial sector being the second largest sector after agriculture. The growth recorded by SSI in India is 2% more than any other sector; it accounts for 40% of the countrys GDP, 35% of Direct exports, 15% of Indirect Exports (through Merchant Exporters, Trading Houses & Export Houses) and employs more than 20 million people . SME Sector faces a number of problems - absence of adequate and timely banking finance, limited knowledge and non-availability of suitable technology, low production capacity, ineffective marketing and identification of new markets, constraints on modernization and expansions, non availability of highly skilled labour at affordable cost, follow up with various agencies in solving regular activities and lack of interaction with government agencies on various matters. SMEs have strong technological base, international business outlook, competitive spirit and willingness to restructure them shall withstand the present challenges and come out with shining colors to make their own contribution to the Indian economy.

Background of SME

The Financing of Small and Medium Enterprises (SMEs) have attracted much attention in recent years and has become an important topic for economists and policymakers working on financial and economic development. This interest is driven in part by the fact that SMEs account for the majority of firms in an economy and a significant share of employment. Furthermore, most large Companies usually start as small enterprises, so the ability of SMEs to develop and invest becomes crucial to any economy wishing to prosper. The Recent Attention on SME Financing also comes from the perception that SMEs lack appropriate financing and need to receive special assistance, like Government Programs that increase with the lending. Various Studies support this perception. A number of research papers find that SMEs are more financially constrained than large firms. On the policy side, there are a large number of initiatives across developed & developing

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countries in order to foster SME financing including government subsidized lines of credit and public guarantee funds. But then also the Banks found SMEs profitable through a combination of services; and these places cross-selling at the heart of the banks SME business strategy. In effect, Banks have developed a wide range of fee-based non-lending products and financial services for SMEs. These Products and Services can be very attractive in terms of profitability; in fact, the evidence suggests that Lending is not always the main or the first product offered to SMEs and that it is often offered as a way to eventually cross-sell other lucrative fee based Products and Services, including payments, saving, and advisory services. Moreover, Selling Products and Services to SMEs deepens the engagement of banks with SMEs, which is part of the efforts of banks to become the Principal Bank to the SME, and may thus facilitate doing more lending to the same SME while attracting other clients (like the SME employees and owners family). To the extent that these Products and Services gain importance, the institutional environment relevant to credit contract writing and enforcing becomes less of a constraint. Some of the technologies applied to lending to SMEs (other than relationship lending) benefit from the effects of economies of scale and scope. For example, Credit Scoring Models that rely on statistical properties to assess risk need a large number of clients and loans, which tend to increase with bank size. Also, Dealing with Large Corporations allows banks to reach out and offer loans to good SMEs that have long-term relations with those corporations (thereby reducing principal-agent problems and improving risk management). Moreover, large Banks can seize the benefits from scale in supplying non-lending products and services to a large number of firms, taking advantage of their service platforms, technical expertise, and IT and back-office infrastructures needed to offer them. Finally, large banks are better able than small banks to use sophisticated business models (e.g., business centers, branches, SME account managers, and marketing campaigns) and risk management systems, so as to combine and integrate centralized and de-centralized processes as appropriate to realize efficiency gains in managing both costs and risks. In sum, the ability of covering many SMEs (and for international banks also several countries) with large services platforms and branch networks and with sophisticated business models and risk management systems gives large banks a competitive edge, enabling them to more easily compensate for the fixed costs and switching costs of developing Products and Services to engage SMEs while exploiting economies of scale and scope. Current Buzzword in Banking Industry is "SME Financing" after Government of India's initiatives to step up credit flow to Small and Medium Enterprises through bringing out

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a new legislation named Micro, Small and Medium Enterprise Development (MSMED) Act 2006. Unlike large industries, which have access to various domestic and international sources of finance, SMEs are dependent largely on Bank Credit. In India, the Enterprises have been classified broadly into two categories: (i) Those engaged in Manufacturing and (ii) Those engaged in providing / rendering of services. Both categories of enterprises have been further classified into Micro, Small and Medium Enterprises based on their Investment in Plant and Machinery (for Manufacturing Enterprises) or on Equipments (in case of Enterprises providing or rendering Services).These criteria required to the Entrepreneurs for their Business Firms that based on the Investment to the Plant, Machinery or Equipments from the overall banks perspective which is as follows:-

Classification

Investment Criteria for Investment Criteria Manufacturing / Commerce Services Enterprises & Trade Enterprises
Upto Rs 25 Lacs Above Rs 25 Lacs & Upto Rs 5 Crores Above Rs 5 Crores & Upto Rs 10 Crores Upto Rs 10 Lacs

for

Micro Small Medium

Above Rs 10 Lacs & Upto Rs 2 Crores Above Rs 2 Crores & Upto Rs 5 Crores

The Small and Medium Enterprises as classified above are required to file Entrepreneurs Memorandum (EM) Part-I to District Industries Centre for starting an Industrial Project. On completion of the project, the Entrepreneur concerned is required to file Entrepreneurs Memorandum (EM) Part-II. Earlier there was a system of granting registration to Small Scale Industrial Units by the District Industries Centre. These Units are now required to file EM Part-II as Micro, Small or Medium Enterprises that had mentioned above.

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Importance of SMEs
SMEs are the Engine of Growth: - SME sector is the largest provider of employment
in most countries, especially of new jobs SMEs are a major source of technological innovation and new products

SMEs are Essential for a Competitive and Efficient Market: - SMEs with high
turnover and adaptability play a major role in removing regional and sector imbalances in the economy. Easy entry and exit of SMEs make economies more flexible and more competitive. Large number of SMEs creates competitive market pressure. SMEs also play an essential role as subcontractors in the downsizing, privatization and restructuring of large companies.

SMEs are Critical for Poverty Reduction: - SMEs tend to employ poor and lowincome workers. SMEs are sometimes the only source of employment in poor regions and rural areas. Self-employment is the only source of income for many poor. SMEs play a particularly important role in developing countries where poverty is most severe

SMEs Play a Particularly Important Role in Developing Countries.

Need of SMEs

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Vital Role Played by SMEs in Economic Development

Financial Sources of SMEs by Stage of Development

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Sources to SME Finance


Major means of financing Small, Micro and Medium-Sized Businesses are:1. Internal funds:Internal funds are the largest single source of SME Business Finance so as to fulfill the criteria for working capital

2.

Overdrafts and Bank Loans:Commercial Banks are the main formal Suppliers of External Finance to Smalland Medium-Sized Businesses. Large numbers of Firms nowadays use nonbank institutions as well as or instead of banks for equipment loans, other forms of credit, and savings and investment accounts. Non-bank institutions either dominate or have substantial portions of such major specialist business-financial markets as financial leasing, motor vehicle loans, and brokerage services. In these and other financing areas, comparatively low-cost high-technology centralized suppliers have exploited the benefits of specialization and economies of scale often with the backing of strong parent organizations and advanced marketing and distribution systems to take business away from the banks.

3.

Leasing and Hire Purchase Arrangements:These criteria for the entrepreneurs based on the documentation for the certain period & limits on the time duration to their business firms. Stock Market Equity and Corporate Bond Issues:Major attractions to Companies of Stock Market Listing are the capacity to raise large amounts of risk capital to finance growth (etc.) and to avoid substantial debts and earnings-unrelated repayment obligations that could threaten their stability and survival for these criteria. On the other hand, significant obstacles to stock market listing on the part of companies are:-a) reluctance on the part of owner-managers to dilute their own equity holdings by sales of shares to third parties; b) the involvement of outsiders in the ordering of firms' investment priorities, long-term strategies, and managerial decision-making generally; and c) professional and administrative fees and legal-bureaucratic hassle. For their part, stock market investors are often reluctant to buy shares in new small companies without track records, shares that are comparatively illiquid or low growth/low earning shares. Venture Capital or Private Equity:Venture capital or private equity is available from a wide range of organizations and individuals that includes: - specialist independent venture finance or private equity companies and investment and unit trust; ad hoc consortia, private individuals or business angels, and major manufacturing and

4.

5.

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other industrial-commercial companies with surplus funds for investment in new ventures; and banks and subsidiaries of banks, insurance companies, and pension funds (etc.). 6. Asset-Based Finance such as Factoring and Invoice Discounting:It based on the mortgaging of the assets in order to get the funds for the initialization of the Business Firms. It works as the intermediaries to the SME financing. Trade Finance:It based of the import-export sources for raising the funds for the SME Businesses that comprises to the economic growth as well to the companys growth at the initialization & expansion level.

7.

Role of the Banks for developing the SME Sector

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Approaches to SME Finance Collateral Based Lending offered by Traditional Banks and Finance Companies is
usually made up of a combination of Asset-based finance, Contribution based finance, and Factoring based finance, Using reliable Debtors or Contracts, etc. credit scoring, and relationship lending.

Information Based Lending usually incorporates financial statement lending, Viability Based Financing is especially associated with Venture Capital.

How Government Works as Source to SME Sector?


The US Government works with the intermediaries, banks & other lending institutions to provide loans & venture capital financing to small businesses unable to secure financing through normal lending channels that allows many people to find with an easy source for finding flexible governmental Small Business Loans to initialize or to expand for their own business firms.

Management of SME Business Lending


The Effective Management of Lending to SMEs can contribute significantly to the overall growth and profitability of Banking Sector. There has been considerable research and analysis into the methods by which Banks assess and monitor business loans, manage business financing risks, and price their products and how these methods might be further developed and improved. There has been particularly intensive scrutiny of the kinds of business financial information that Banks use in making lending decisions, and how reliable that information actually is. Banks have traditionally relied on a combination of documentary sources of information, interviews and visits, and the personal knowledge and expertise of managers in assessing and monitoring business loans. However, when assessing comparatively small and straightforward business credit applications, banks may largely rely on standardized credit scoring techniques (quantifying such things as the characteristics, assets, and cash flows of businesses/owners). By using such techniques and also by centralizing or rationalizing business-banking operations generally can significantly reduce processing costs. Standardized computer-based assessment may also be more accurate and fairer than reliance on the personal judgments of local bank managers. As a result, Banks may now be able to offer more loans, faster and in larger amounts, and reduce previously high security requirements.

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However, Business Lending as a whole is substantially more diverse and complex than personal and residential mortgage lending. This, coupled with the large size and inherently risky nature of many business loans, tend to limit the scope and desirability of computerized credit scoring in assessment and monitoring.

SME Financing a WinWin Situation for the Banks

Challenges Faced by the SME Sector

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Technologies that worked with SMEs

Customer Relationship Management Tools that companies use to interact with the customers which includes employee training & specific purpose CRM Software. Enterprise Resource Planning Systems It is intended for managing all the information & functions of a business/company from shared data stores. Knowledge Management Systems Tools for management knowledge in the organization for supporting creation, capture, storage, & dissemination of information to enable employees to have ready access to the organizations documented base of facts, sources of information, & solutions. Online Collaboration Tool It help with the complicated tasks involving multiple people, deadlines, & activities. Information Security:- Tools which helps to secure the data & protecting information systems from unauthorized access, use, disclosure, disruption, modification, or destruction. Social Networking Sites: - Excellent Low Cost Marketing Tool that helps to reach to the customers like twitter, linkedin, face book, etc. Payroll Management Tools: - It helps to handle the complicated payroll systems & create an effective compensation system. Search Engine Optimization Tools: - Techniques that helps in improving the volume or quality of traffic to a website from search engines via natural or unpaid search results. Online Conferencing & Communication: - Uses internet in conference venue which means that participants can access the conference from anywhere in the world and can do this at any time using standard browser software. SAAS/PAAS ( Software as a Service or Platform as a Service ) : - A pay per use model where companies may host the application on their own web servers or download the application to the consumer device, disabling it after use or after the on demand contract expires which makes it highly cost effective.

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Problems for Financing SMEs


SME sector faces a number of problems to facilitate institutional credit. These problems were looked into from the perspective of both borrower and lenders:-

Problems from Borrowers Perspective:


Access to the loan Collateral Complexity increases cost of the Loan Extremely short grace period Absence of Comprehensive Guidelines Longer Loan Processing time and associate Cost of Uncertainty. Lack of basic infrastructure, inputs, managerial efficiency and inadequate sanction

Problems from Lenders Perspective:


1. Lack of information on loan application requirement among the SME loan seekers. 2. Absences of an appropriate and clear-cut legal framework for enforcing quick recovery.

Problems that are identified in the SME sector:


a. Inadequate allocation of fund for public sector. b. Lack of co-ordination among lending agencies. c. Shortage of long-term credit. d. Unstable share market. e. Lack of technological information. f. Lack of uniform delivery model and training. g. Absences of utilization of BSCIC services of NCBs for utilization of surplus fund. h. Lack of technology assessment, innovation and adaptation of technology. i. Lack of marketing effort and exploring new markets. j. Competitive product market because of market economy.

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Issues of SME Financing


As every coin has two sides, similarly, even SME financing has a share in the overall financing. The following are It is difficult for it to capture market opportunities, which require large production facilities and thus could not achieve economies of scale, homogenous standards and regular supply. This sector experiencing difficulties in purchase of inputs such as raw materials, machinery and equipments, finance, consulting services, new technology, highly skilled labor etc. Small size hinders the internalization of functions such as market research, market intelligence, supply chain, technology innovation, training, and division of labor that impedes productivity. Emphasis to preserve narrow profit margins makes the SMEs myopic about the innovative improvements to their product and processes and to capture new markets. They are unable to compete with big players in terms of product quality, range of products, marketing abilities and cost. And most importantly, absence of a wide range of Financing and other services those are available to raise money and sustain the business. Absence of Infrastructure, quality labor, Business acumen and limited options / opportunities to widen the business. Due to the Poor IT and Knowledge Infrastructure. To overcome all these difficulties, Indian SMEs and rural artisans deserves all the policy support the Government can offer. What they need is, not protection but institutional support to fund modernization and technology up gradation, infrastructure support and adequate working capital finance. Also they have to have professional inputs and knowledge about various happenings in their own industries in and around the country. This brings in the concept of SME networks and clusters that stimulate innovative and competitive SMEs. These concepts essentially bring together various stakeholders like technology providers, labor force, financing arms, consultants, marketing arms, and others, for a common good that will help in enhancing the strength of SMEs. THE Indian SME (small and medium enterprise) market seems to be emerging a promising hunting ground for banks and financial institutions because it poised for tremendous growth. As the access of SMEs to capital markets is very limited, they largely depend on borrowed funds from banks and financial institutions. In majority of the economies, while the investment credit to SMEs was being provided by financial institutions, commercial banks extended working capital. In the recent past, with growing demand for universal banking services, the term loan and working capital are becoming available from the same source. Besides the traditional needs of finance for asset creation and working capital, the changing global

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environment has generated demand for introduction of new financial and support services by SMEs.

SMEs V/S Corporate Approaches & Structure

SMEs are an important force in the national economy, on the national Economic plays an increasingly important role. As e-commerce continues to develop, more and more intense competition among enterprises, small and medium enterprises in order to survive in the fierce competition and strengthen the implementation of e-commerce has become a necessity. Following represents the scenario for this sector that based on the market economy.

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME) SECTOR:

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CURRENT PROFILE
Estimates for Present Census (INDIA) Number of MSMEs Number of Manufacturing Enterprises Number of Service Enterprises Number of Women Enterprises Number of Rural Enterprises Employment Per unit Employment Per unit Fixed Investment Per unit Original Value of Plant & Machinery Per unit Gross Output Employment per one lakh Fixed Investment 26.1 million 7.3 million 18.8 million 2.1 million (8%) 14.2 million (54.4%) 59.7 million 6.24 Rs.33.78 lakh Rs.9.66 lakh Rs.46.13 lakh 0.19

MICRO, SMALL AND MEDIUM ENTERPRISES (MSME) SECTOR: GUJARAT PRESENT SCENARIO
Over a period of time, Gujarat has registered a sizeable growth of SME sector. There were only 2169 small industries in 1961 at the time formation of the state. The number of SSIs increased continuously and has reached to over to 3, 12,000 by September 2006. This may be observed from the following table:-

Year 1960 1970 1980 1990 2000 2005 2006(up to September)

No. of SSI Units 2,169 15,849 43,742 1,15,384 2,51,088 3,06,646 3,12,782

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Industrial Scenario
Gujarat has registered an impressive Industrial development since its formation as a separate state in 1960. The Industrial Sector at present comprises of over 1200 large industries and over 3, 45,000 Micro, Small and Medium Industries. As per the results of the Annual Survey of Industry (ASI), 2005-06 carried out by the Central Statistical Organization (CSO), under Ministry of Statistics and Program Implementation, Government of India, Gujarat accounts for 19.69% of Fixed Capital Investment, 16.13% of gross output and 15.35% of net value added in Industrial Sector in India. This Survey further reinforced the position of Gujarat as the most industrially developed state in India in respect of first ranking in Industrial Investment and second in terms of value of Production and value addition in Industrial Sector. Over the years, Gujarat has diversified its Industrial base substantially. In the year 1960-61, Textiles and Auxiliaries were the major contributor to Industrial Economy of the state. In the Span of over 49 years, the Industrial spectrum has completely transformed and today 12 major Industry Groups together account for 86% of Factories, 96% of Fixed Capital Investment, 94% of Value of Output and 95% of Value Addition in the states Industrial Economy. In the recent years, refined Petroleum Products has emerged as one of the largest Industrial Groups having 33% share, followed by Chemicals having 21% share. Other important groups include Agro and Food Products (8.5%), Textiles and Apparel (6.9%), Basic Metals (6.2%), Machinery and Equipment (2.7%), Non-Metallic Mineral based Products (2.5%), Plastic and Rubber Products (1.8%), Furniture industry (1.4%), Fabricated Metal Products (1.4%), Electrical Machinery (1.2%) and Paper and Paper Products (1.1%). The Industries in Gujarat produce a wide variety of Products. The Products which have substantial contribution in terms of Production in India include: Soda Ash having 94% share, Salt (80%), Processed Diamond (80%), Polyester Filament Yarn (63%), Caustic Soda (42%), Phosphatic Fertilizers (37%), Sponge iron (35%), Textile Fabrics (34%), Refined Petroleum Products (33%), Nitrogenous Fertilizers (19.5%), Cement (10%) and many other involved for the dealings of the business firms in these industries. Over a period of time, Gujarat has also succeeded in widening its Industrial base. At the time of inception in 1960, the Industrial Development was confined only to four major cities namely Ahmadabad,

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Baroda, Surat and Rajkot and some isolated locations such as Mithapur and Valsad. Today, almost all the districts of the state have witnessed Industrial development in varying degree. Such a massive scale of Industrial development has been possible on account of judicious exploitation of natural resources, such as minerals, oil and gas, marine, agriculture and animal wealth. The discovery of oil and gas in Gujarat in the decade of 60s has played an important role in setting up of petroleum refineries, fertilizer plants and petrochemical complexes. During the same period, the state government has also established a strong institutional network. Gujarat Industrial Development Corporation (GIDC), established industrial estates providing developed plots and ready built-up sheds to industries all across the state. Institutions were also set up to provide term finance, assistance for purchase of raw materials, plant and equipment and marketing of products. Later, District Industries Centers (DICs) were set up in all the districts to provide assistance in setting up industrial units in the form of support services. The state also developed infrastructure facilities required for industries, such as power, roads, ports, water supply and technical education institutions. The Government also introduced incentive schemes, from time to time, to promote industries mainly in the under-developed areas of the state to correct regional imbalances. All these initiatives have made Gujarat to emerge as the highly industrialized state in the country today.

Large Industries
Industrial units having investment exceeding Rs. 10 crore in Plant and Machinery are classified as Large Industrial Units. An Entrepreneur or a company desirous to set up a large project needs an approval in the form of industrial license from Government of India (GOI) under the provisions of Industries (Development and Regulations) Act, 1951. In July 1991, Government of India liberalized the Licensing Procedure and exempted almost all the Industries from the purview of Industrial Licensing, except a few Industries which are of Strategic Importance. As per the present Licensing Procedure, only two Industries are reserved for Public Sector and four Industries, which are of Strategic Importance, need an Industrial License. The rest of Industries are required to file Industrial Entrepreneurs Memorandum (IEM) with Secretariat for Industrial Approval, Ministry of Commerce & Industry, Government of India, on observing certain requirements with respect to location and environment. In the case of setting up of an Export Oriented Unit (EOU) or setting up a Project in Special Economic Zone (SEZ), a Letter of Permission (LoP) is required to be obtained from the Development Commissioner of the concerned SEZ. Thus, the Procedure for setting up a large Industrial Unit would be either filing of

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IEM, obtaining Letter of Intent (LOI)/ Industrial License or obtaining Letter of Permission (LoP) in the case of 100% EOU or SEZunit. The filing of IEM with Secretariat of Industrial Approvals (SIA), GoI is considered as an important parameter to assess the degree of Industrial development in a state. The details of IEMs filed for Gujarat since the introduction of liberalization process in August 1991 till the recent time are as follows:-

Progress of IEMs - Gujarat & Other States August 1991 to Nov 2009
State/UTs No. of Projects % Share Proposed Investment (Rs.Cr) 718542 741766 701599 543939 476195 425038 385106 351085 289741 236750 732058 5601819 % Share 12.83 13.24 12.52 9.71 8.50 7.59 6.87 6.27 5.17 4.23 13.07 100.00

Orissa Chhattisgarh Gujarat Maharashtra Andhra Pradesh Karnataka Jharkhand Madhya Pradesh West Bengal Tamil Nadu Other States All India

1424 2486 9324 14354 5837 3320 962 3149 4521 6783 27403 79563

1.79 3.12 11.72 18.04 7.34 4.17 1.21 3.96 5.68 8.53 34.44 100.00

As may be observed from the above table, 9,324 IEMs having an aggregate investment of Rs. 7, 01,599 crore have been acknowledged for locations in Gujarat. In addition, the state has also received 467 Letters of Intent entailing an investment of Rs. 23,404 crore, over the same period. For setting up 100% EOUs, the state had also received 1575 Letters of Permission involving an investment of Rs.8038 crore. The Government has put in place an effective mechanism for monitoring of all the industrial approvals, in order to know the status of these approvals and provide effective intervention in the speedy implementation of these projects. Of these approvals, as on 30th Nov. 2009, 5356 projects with an investment of Rs.1, 66,890 crore have been implemented. In addition, 2371 projects having investment of Rs. 4, 35,309 crore are at various stages of implementation.

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District Industries Centres in all the districts of the State and the Institutions such as Gujarat Industrial Development Corporation (GIDC) and Gujarat State Financial Corporation (GSFC) have been instrumental in accelerating the pace of development of SSIs. On the Other hand, Small Scale Industries have also played an important role in dispersal of industries. Ahmedabad district leads the state with the highest number of SSI units followed by Surat, Rajkot and Other Districts. Following table presents the percentage share of Number of SSI units in major districts:Districts Ahmedabad Surat Rajkot Vadodara Valsad Mehsana Bharuch Kheda Jamnagar Bhavnagar Other Districts Gujarat No. of SSI Units (% Share) 21.02 15.15 10.38 5.91 5.10 4.67 4.58 4.32 4.23 3.78 20.86 100.00

Development of Small Scale Sector is spread across different Industrial Sectors. However, the Trend when compared with Large Industries presents a different picture. Textile including Hosiery and Garments Accounts for the largest number of SSI units, followed by other Sectors. This can be observed from the following table:-

SSI Registrations in Gujarat : Group-Wise [As on 30/9/06]


SR.No. 1 2 3 4 5 6 7 Industry Group Textiles Machinery and parts except electrical Metal products Food Products Chemical & chemical products Wood products Rubber & plastic products No. of SSI Units 66914 23792 23421 16467 15553 13498 11780 % Share 21.39 7.61 7.49 5.26 4.97 4.32 3.77

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8 9 10 11 12 13 14 15

Non-metallic mineral products Basic metal industries Paper products & printing Electrical machinery and apparatus Transport equipments and parts Leather products Beverages, tobacco & tobacco products Others Total

11345 8795 8244 6451 2944 2476 1455 99647 312782

3.63 2.81 2.64 2.06 0.94 0.79 0.47 31.86 100.00

Following the enactment of the MSME Development Act from 2nd October, 2006, registrations of all the MSMEs came within the purview of the Industries Commissionerate. Following table presents the details of the group-wise registrations of MSMEs in Gujarat from 2-10-2006 to 31-3-2009:Sr. No. 1. Group Registrations from 2-10-2006 to 31-3-2009 Micro Small Medium Total Animal, Vegetable, Horticulture, 11557 3155 82 14794 Forestry Products, Beverages, Tobacco and Pan Masala and Non-Editable Water/Spirit and Alcohol mainly used in Industry. Base Metal Products thereof 736 88 3 827 and Machinery Equipment and Parts thereof Excluding Transport Equipment Chemical and Allied Products 1812 463 18 2293 Ores, Minerals, Mineral Fuels, 10428 3257 168 13853 Lubricants, Gas and Electricity Other Manufactured Articles 369 91 7 467 and Services not elsewhere classified Railways, Airways, Ships, Road 57 18 75 Surface Transport and Related Equipments and Parts thereof Rubber, Plastic, Leather and 78 61 6 145 Products thereof Textiles and Textile Articles 65 40 3 108 Wood, Cork, Thermocol Paper 501 91 592 and Articles thereof Total 25603 7264 287 33154

2.

3. 4. 5. 6. 7. 8. 9.

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GROWTH OF SME IN INDIA


The importance and contribution of the SME sector to the economic growth and prosperity is well established. Their role in terms of employment creation, upholding the entrepreneurial spirit and innovation has been crucial in fostering competitiveness in the economy. Towards meeting the National developmental objective of a growth rate of over 8% on a sustained basis, it is imperative for the industrial sector to grow at a faster pace supported by a vibrant SME sector. Towards this, Governments policy initiatives like enactment of the new Micro Small and Medium Enterprises Development Act, 2006, pruning of reserved SSI list, advising FIs to increase their flow of credit to the SME sector, are all initiatives towards boosting entrepreneurship, investment and growth. Emerging Auto Component SMEs of India profiles 370 companies with a turnover of less than Rs 1,000 mn. Of these, 70 companies are not members of any industry associations or trade bodies, thus tapping a range of companies that have remained unrecognized. The number of Small and Medium Firms profiled is in the proportion of 43:57. Of the 370 companies profiled, 160 companies are Small-Scale Firms with Investments of less than Rs 50 mn in Plant and Machinery, and have a turnover range of Rs 50 mn to Rs 535 mn. The rest of the companies are medium scale and have a maximum turnover of Rs 1,000 mn.

This data represents that SME is the key concerned factor for the initialization & expansion of the business from the banking as well as business firm perspective. There is the increase in the GDP as well as Growth Rate with the increase in the number of SSI & also with the industrial production. Following are the reasons in order to have fast & rapid growth in this sector for the developing country like India:-

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Need for the SME Policy framework to Business firms


The Importance of the SME sector is well recognized all over the world and its contribution is relevant in achieving several socio-economic objectives, such as employment generation, contribution to national output and exports, and fostering new entrepreneurship. SMEs in India are facing challenges trying to raise the required level of financial resources in order to sustain international competitiveness. It has increased access to adequate finance and support for implementation of business strategies. In India, as in many developing countries, lending to SMEs by banks and financial institutions is limited because of the relatively high transaction costs and perceived risks of SME lending. In addition, this is often due to non-availability of suitable and tested credit appraisal models, repayment records and the market credibility of SMEs. Small and Medium-Sized Businesses are a major part of the economy and the effective financing of such Businesses makes a significant contribution to Economic Growth and Performance generally. Over recent decades, general Economic and Political-legal conditions for business financing have been comparatively favorable in the developing & the developed countries. The financial sector is relatively developed, open, and competitive and firms have a wide range of bank, stock market, and private equity capital products and suppliers to choose from foreign as well as domestic. However, there can still be significant scope for further increases in cost-efficiency and competition in this area in even the most advanced industrial economies with the policies & framework for the strategies. Micro and small or medium-sized enterprises (SMEs) make important contributions to development. The growth of a healthy, competitive SME sector will be maximized when there is a strong enterprise culture in the society at all levels; a continuous growth in the quality stock of independent business; maximum potential for growth of existing small businesses: and a highly supportive economic, social and stakeholder environment. These are the broad target areas for policy development. Firstly, SME policy development provides a framework for the review of existing policies and the state of the SME sector that covers: The state of the SME sector, its needs and its reactions to policies; The process of formulating a policy for SME development; The way in which policies are managed; The development of a supportive stakeholder environment; The work of support institutions;

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The development of support programmes for the specific support services. Secondly it covers the process of developing a strategic plan, with the following key areas: Overall Economic and Social Objectives; Mission Statement and Governing Principles; The Present Position of the SME sector; Review of Programmes and Achievements to date; Future SME Development Objectives; For Specific Targets, and Actions that to be taken; Barriers to meeting future objectives and how they will be overcome; Management, Monitoring, Evaluation and Control.
.

Presently the Micro, Small and Medium-Scale Enterprises (MSMEs) Policies make important contributions to Economic and Social Development. In all Economies it constitute the vast majority of Business Establishments, that are usually responsible for the majority of jobs created and account for one third to two thirds of the turnover of the Private Sector. In many Countries it has been the major engine of growth in Employment and Output over the last two decades. In Developing Countries they are seen as a major self-help instrument for Poverty Eradication. In Transition Economies, the Main Target Countries of this publication, they provide the best illustration of the changes in ownership structures, business culture and entrepreneurial behaviour over the past decade. In all Economies, many micro businesses and self-employed persons operate outside the formal sector. One of the major challenges to governments in designing institutional, organizational and regulatory frameworks is therefore to encourage entrepreneurs to engage in legitimate activity. Even the Number of Employees required for these criteria to the business firms is as follows:No. of Employees Involvement 0 2-9 10-49 50-249 Business Type of Business Self Employed Micro Business Small Business Medium -Size

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OVERVIEW & BACKGROUND OF SMALL MEDIUM ENTERPRISES LOANS

The Banking Sector is well positioned to meet SME needs. Moreover, Competitive factors will raise the likelihood of more banking products, better services and lower pricing for SMEs. The future seems even brighter as banks focus on the SME market, create efficiencies to process higher levels of loan applications and realize profits despite booking smaller size loans compared for example to corporate loans. Banks are spending valuable management time and resources to accomplish all of the above and several banks have formed separate SME Loan Departments. Bankers are actively engaged in planning strategy, acquiring analytical tools (such as software from the Business Development Center), recruiting staff and marketing SME products. Credit scoring models are in the experimental stage at several banks. Similar models have proven highly effective in other markets by improving efficiencies and predicting repayment of SME loans. Banks are always to outwit each other through aggressive Promotional Strategies to create a niche segment in SME financing. Catching up with Market trend, it introduced an exclusive loan scheme called "TMB SME Credit" during the month of July 2006. The scheme is an instant hit among all the branches and well received by the SME borrowers on account of its hassle free features. Salient Features of TMB SME Credit:

For Purchase of New Machineries / Equipments, Minimum Collateral criteria are brought down from 100% to 50%. External Rating Agencies namely CRISIL, ICRA, DUN & BRAD STREET, ONICARA, CARO & FITCH are included in the list of permitted External Rating Agencies for providing the eligible additional concession of 0.50% in Interest Rates. Rate of Interest for new unit / new project in the case of limit of Rs. 20.00 Lac & above is relaxed and fixed at BR + 3.75% (13.25% p.a.) for 6 months. Afterwards, the Rate of Interest should be charged as per Credit Rating.

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Obtention of Collateral Security for a limit up to Rs.25.00 Lac is cancelled provided the said limit is covered under Credit Guarantee Fund Scheme (CGFSI) for SSI.

The modified TMB SME Credit Scheme comes into force from 02.02.2007. While According permission for the scheme modification, the Board has stressed that aggressive efforts should be made to improve the lending to SME Sector.

SME Loans Lending

Purposes for these SME Loans


To provide Bank Credit to SME at concessional Rate of Interest towards Working
Capital and Term Loan for acquiring any fixed assets for Business Development purpose. Real Estate Acquisition Refinance to Business Acquisition Construction, Renovation or Leasehold Improvements To Purchase Furniture, Fixtures, Machinery or Equipment For the Flooring of Inventory & For Working Capital. For the Initializing of the Business Firms. For the Expansion of the Business Firms. For the Venturing of the Capital of the Business Firms. For the Affordability Criteria of these Loans For the Risk Factor Based Interest Rates that makes these Loans as secured one. For the Interest Rates Reliefs & Government Grants, Schemes, & different Benefits available to the Business Firms.

Approval of Needs of SME Loan Criteria:1. Approval within 48 hours 2. Loan amount up to 10 Lacs Limit

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3. No Collateral or financial reports required 4. Pre-approved Commercial Car 5. Choice of 2 financing options: Installment Loan or Overdraft Facility:Installment Loan: -

Interest rate as low as 0.38% flat per month Repayment period up to 48 months Revolving option allows you to re-borrow the repaid principal amount, providing greater flexibility for your capital

Standby Overdraft Facility:-

Interest Rate as low as Principal Amount + 2% p.a. No interest charged on unused credit limit Credit Limit restored automatically with each repayment

SME Loan Guarantee Scheme (SGS):1. Business Installations and Equipment Loans Financing to help SMEs acquire business installations and equipment to enhance business efficiency 2. Working Capital Loans- Extra funds for SMEs to meet working capital needs for general business use so as to grasp opportunities for business expansion. Coverage:All Small Enterprises & Medium Enterprises as per the extent definition of Govt. of India (As per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006).Classification of Enterprises is broadly based as Manufacturing Enterprises and Service Enterprise.

Definition based on the Classification Criteria


1) Manufacturing Enterprises represents the criteria of Investment in Plant and Machinery (excluding Land & Building which are further classified into Small and Medium Enterprise. Definition: a) "Small Enterprises" means that of a Small Scale Industrial Unit in which Investment in Plant & Machinery (Original Cost) does not exceed Rs.1Crore except in respect of certain

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specified items under Hosiery hand tools, Drugs and Pharmaceuticals and Stationery Items & Sports Goods where this Investment limit has been enhanced to Rs.5 Crore. b) "Medium Enterprises" means that of units with Investment in Plant & Machinery in excess of SSI Limit and up to Rs.10 Crore. 2) Services Enterprises represents the criteria of Investment in Plant and Machinery (excluding land & building which are further classified into Small Scale Service & Business Enterprises (SSSBE), Small Enterprises (SE) and Micro Enterprises (ME). (a) "Small Scale Service & Business Enterprises (SSBE) (or) Micro Enterprises" means that Industry related Service and Business Enterprises with Investment up to Rs.10 Lac in fixed assets, excluding land and building will be given benefits of Small Scale Sector. (b) Small Enterprises - investment above Rs.10 Lac and up to Rs.2 Crore. (c) Medium Enterprises - investment above Rs.2 Crore and up to Rs.5 Crore.

Types of SME Loans


1) Term Loan: - It based on the fixed assets purchases & the sales turnover with eligibility check of the 3 years Balance Sheet for the Business Firms. It classified into 2 types: - a) Short Term Loan b) Long Term Loan. 2) Working Capital Loan: - It based on the working capital or day to day business transaction of the firms that covers eligibility check of the business growth & performance. It covers the secured business loan & unsecured business loan based on the risk factor based interest rates & different banks perspective & criteria for the eligibility approval of the loan. 3) Others: - Other Classification of the SME loans covers Minority Business Loans, Fast Business Loans, Free Business Loans, Small Business Loans Online, SBA Micro Loan Program & Export Working Capital Loan. These Loans based on the perspective of the code of conduct of the Banks & to the sectoral factor of the Business Firms in order to get the benefits of the schemes & grants.

Policy for Stepping up Credit to the SME Sector


I. Coverage of SME Sector a. Current SSI / Tiny industries definition will continue. b. Units with investment in plant and machinery in excess of SSI limit and upto Rs.10 crore will be treated as Medium Enterprises. c. Only SSI financing will be included in priority sector for the money supply.

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II.

III.

IV.

V.

VI.

Credit Target for the SME Sector a. 10% of the total advance will be deployed in the SME Sector. b. Advances to the SME Sector will be doubled by 2009-2010 with minimum 20% year on year growth in credit in this sector. Lending Norms. a. Working Capital requirement of the SME with projected annual turnover up to Rs.5 crore will continue to be assessed on the basis of the Nayak Committee recommendations. b. Composite loan limits upto Rs.1 crore may be sanctioned to an eligible unit to enable it to avail working capital and term loan requirement through single window. c. For the credit limits upto Rs.5 lac to an SME there will be no stipulation of any collateral security. In respect of accounts with good track record and sound financials requirement of collateral may be dispensed for loans upto Rs.15 lac. d. Greater availment of the Credit Guarantee Fund Scheme for Small Industries for increasing credit to the sector. Delivery Channels a. One branch in each lead district will be designated as a specialized SME branch. b. Each urban / semi urban branch will be required to extend credit to at least five new tiny, small and medium enterprises every year. c. The bank will increasingly adopt cluster based approach for SME financing. In each district where the bank has lead district responsibility at least one cluster will be adopted by the bank. d. Better co-ordination between the branches of the bank and the branches of SIDBI located at 50 clusters under the scheme for Small Enterprises Financing Centres. e. The bank will encourage the SMEs to have their units rated by the accredited Credit Rating Agencies under the scheme launched by NSIC. The units obtaining better credit rating will receive better credit support from the bank. Disposal of credit proposals a. All loan applications for limits upto Rs.50, 000/- shall be disposed within 2 weeks, those up to Rs.15 lac within 3 weeks and those beyond Rs.15.00 lac within 4 to 6 weeks. b. Each branch will maintain a register recording the date of receipt, sanction, rejection and disbursement of the loan proposals received from the SMEs. c. No fresh proposal will be rejected without the approval of the next higher authority. Rate of Interest

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VII.

Debt Restructuring of the SMEs The proposed Debt Restructuring mechanism for the SMEs based on the guidelines issued by the Reserve Bank of India is as under:

Objectives for the enhancing of transparent mechanism Definition of SMEs Eligibility Criteria Viability Criteria Financial Parameters Tenure of the loan Prudential Norms for the Restructured Accounts. Treatment of Provision Up gradation of Restructured Accounts. Asset Classification status. Procedure under Consortium / Multiple banking Time Frame Delegation of Discretionary Power Monitoring and Review Training & Orientation The branch managers and the officers posted at the specialized SME branches and other required in order to handling the SME credit proposals will be exposed to suitable in-house and external training programmes.

Loan Documents & Approval Criteria Needed for SME financing from the Banks

The Criteria for Loan Selection among the Financial Institutions & Approval of this loan depends on how well the Entrepreneurs present them, their business, and their financial needs to a lender. A Well-written Business Plan is a good way to give the lender an overall picture of the business. Accompanying that should be a loan proposal containing:1. 2. 3. 4. 5. 6. 7. Credit History i.e. Business Plan Appraisal of assets to be financed Purchase Agreement Cash flow History and Projections for the Business Formal Application for financing Tin Certificate Citizenship Certificate

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8. Bank Solvency Certificate 9. Vat Certificate 10. Export License 11. Information about any Collateral that might available 12. Information about the Personal Character i.e. Personal Guarantee 13. Business and Personal Financial Statements and Income Tax Returns

Eligibility:All SME units run by Individuals, Proprietary concern, Partnership Firm, Limited Companies according to the code of conduct by the Government. Form of Advance:All Type of Fund Based & Non-Fund Based Limits. Loan Quantum: - Maximum amount criteria as per code of conduct are as follows1. Single Borrower: Rs. 2 Crore. 2. Group Borrowers: Rs.10 Crores.

Lending Norms under Assessment of Working Capital Limits


Quantum of Working Capital Limits will be fixed on the basis of minimum of 20% of the Unit's projected annual turnover for new as well as existing units. Condition: - The borrowing unit should bring in 5% of their projected annual turnover as margin money. Increase in projected turnover should normally not exceed 25% of the actual turnover in the preceding year. A prudent decision in this regard is to be taken based on capacity expansion, increased capacity utilization, pricing of inventory etc. Quantum of Term Loans would be as usual based on the Repayment of term loans & based on profitability projection for entire payback period and the average DSCR of the project. Margin: - It based as per Bank Norms & Criteria. Security:-

Working Capital Limits: Stock & Receivables. Term Loan: Assets acquired & created out of Loan amount.

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Collateral Security: - For these Conditions are as to be performed by the Banks as well as by the Business Firms.

It must be covered by Tangible and Marketable Collateral Security to cover at least

100% of the limit sanctioned. Easily Marketable Property must be obtained. For LIC Policy, Surrender Value should be taken as security. Marketable shares of Prime Companies alone can be accepted as security. The Average Market Price of the shares for the past 52 weeks or 50% of the Market value of the shares, whichever is lower should be taken for Collateral Coverage. Even the Machineries / Equipments, Vehicles etc. taken as security always should not be reckoned for computation of collateral security coverage. In case of Existing Borrower, any other relaxation in Collateral Security norms may be considered on case to case basis subject to the following criteria. For Existing Borrowers: Rating Model is Excellent, Very Good & Good. Ratios: Current Ratio 1.33:1 (Minimum), Leverage Ratio 3:1 (Maximum), ADSCR 1.5:1 (Minimum for Term Loans).

Exception: -

Collateral security norms are not applicable for credit limits sanctioned to SSI
units/SSSBEs up to Rs.25 Lac subject to availability of Guarantee cover under Credit Guarantee Fund Scheme (CGFSI) for SSI. Collateral Security norms are not applicable for Negotiation of Inland / Foreign Bills drawn under ILC/FLC. For Purchase of new Machineries/Equipments, minimum collateral is 50%. Rate of Interest:-

Up to Rs.2 Lac: BR + 2.75% (12.25% p.a.) Onwards. Above Rs.2 Lac but below Rs.20 Lac: BR + 3.75% (13.25% p.a.) For Existing Units as per Credit Rating as below:From Rs.20 lac and Upto Rs.1 Crore:

Prime: BR + 3.25% (12.75% p.a.) AAA: BR + 3.75% (13.25% p.a.) AA or A: BR + 4.25% (13.75% p.a.) BBB or BB: BR + 5.25% (14.75% p.a.) Above Rs. 1 Crore:

Prime: BR + 2.50% (12.00% p.a.) AAA: BR + 3.00% (12.50% p.a.)

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AA or A: BR + 3.50% (13.00% p.a.) BBB or BB: BR + 4.75% (14.25% p.a.)


There is the Additional concession of 0.50% that would be given to those SME units which are also rated by SMERA\CRISIL\ICRA\DUN & BRAD STREET\ONICRA\CARO & FITCH for advances above Rs.1 Crore for Prime / AAAA / AA or A Grades Only.

External Rating of Highest / High / Average / Average is equal to Prime / AAAA / For newly Established Units / New Project:1. For first 6 months, rate of interest is to be charged at BR + 3.75% (13.25% p.a.) and after 6 months, rate of interest should be charged as per rating. 2. If rating is not done after 6 months for any reasons - Applicable Normal Lending rate should be charged as per point no. 36 3. Current Base Rate for Lending (BR) is 9.50% p.a. Rate of Interest for Export Credit:It decides based on the code of conduct of IBD Guidelines and applicable Rating Norms. Penal Interest:1. Any irregularity / default in repayment period will attract penal interest of 2% per annum over and above the applicable rate of interest for the advance above Rs.25000/-. 2. The existing instruction of no penal interest for loans under priority sector up to Rs.25000/- remain unchanged. Period:AA/A / BBB/BB.

Working Capital: 1 Year. Term Loans: Maximum 7 Years exclusion of Holiday Period.
Financial Ratios:-

Current Ratio - 1.33:1 (Minimum) Leverage Ratio - 3:1 (Maximum) ADSCR - 1.5:1 (Minimum for Term Loans)
Documentation:Usual Documentation Procedure is to be followed with the framework of the code of conduct of the government as well as of the other authorities based on the sectoral wise.

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Post Credit Monitoring:Usual Procedure of Submission QIS/MSOD/Stock Statements as per extent guidelines is to be followed from the Government Obligations as for the legal code of conduct. Processing Charges:-

Term Loan: 1% of Limit Sanctioned without any maximum capital Working Capital [Fund and Non-Fund Based]: 0.50% of the loan amount without
maximum capital

Government Policies framework for SME loans


The evolution of the policy framework and support measures of the Government can be broadly grouped into the following three periods:1948-1991: In all the Policy Resolutions from 1948 to 1991, recognition was given to the micro and small enterprises, termed as an effective tool to expand employment opportunities, help ensure equitable distribution of the national income and facilitate effective mobilization of private sector resources of capital and skills. The Micro, Small and Medium Enterprises Development Organization [earlier known as Small Industries Development Organization (SIDO)] was set up in 1954 that represented as an apex body for sustained and organized growth of Micro, Small and Medium Enterprises. Within next two years, the National Small Industries Corporation, the Khadi and Village Industries Commission and the Coir Board were also set up. The era provided the supportive measures that were required to nurture MSEs, in the form of reservation of items for their exclusive manufacture, access to bank credit on priority through the Priority Sector Lending Programme of Commercial Banks, excise exemption, reservation under the Government Purchase Programme and 15% price preference in purchases, Infrastructure development and establishment of Institutes for Entrepreneurial and Skill development. MSME Development Institutes [earlier known as Small Industries Service Institute (SISI)] were set up all over India to train youth in skills/entrepreneurship. Tool Rooms were established with German and Danish assistance for providing technical services essential to MSEs as also for skill-training. At the State level District Industries Centres were set up all over the country. 1991-1999: The New Policy for Small, Tiny and Village Enterprises of August, 1991 laid the framework for government support in the context of liberalization, which sought to replace protection with competitiveness to infuse more vitality and growth to MSEs in the face of foreign competition and open market.

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Supportive Measures concentrated on improving infrastructure, technology and quality. Testing Centres were set up for quality certification and new Tool Rooms as well as Subcontracting Exchanges were established. The Small Industries Development Bank of India (SIDBI) and a Technology Development and Modernization Fund were created to accelerate finance and technical services to the sector. A Delayed Payment Act was enacted to facilitate prompt payment of dues to MSEs and an Industrial Infrastructure Development (IID) scheme was launched to set mini industrial estates for Small Industries. 1999 onwards: The Ministry of MSME [earlier known as Ministry of Small Scale Industries and Agro & Rural Industries (SSI & ARI)] came into being from 1999 to provide focused attention to the development and promotion of the sector. The New Policy Package announced in August, 2000 sought to address the persisting problems relating to credit, infrastructure, and technology and marketing more effectively. A Credit Linked Capital Subsidy Scheme was launched to encourage technology up gradation in the MSE sector and a Credit Guarantee Scheme was started to provide collateral-free loans to micro and small entrepreneurs, particularly the first generation entrepreneurs. The exemption limit for relief from payment of Central Excise duty was raised to Rs.1 crore and a Market Development Assistance Scheme for MSEs were introduced. At the same time, consultations were held with stakeholders and the list of products reserved for production in the MSE sector was gradually reduced each year. In 2006, the long-awaited enactment for this sector finally became a reality with the passage of the Micro, Small and Medium Enterprises Act. In March, 2007, a third Package for the Promotion of Micro and Small Enterprises was announced which comprises the proposals/schemes having direct impact on the promotion and development of the micro and small enterprises, particularly in view of the fast changing economic environment, wherein to be competitive is the key of success.

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006


The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 seeks to facilitate the development of these Enterprises as also enhance their competitiveness. It provides the first-ever legal framework for recognition of the concept of enterprise which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, micro, small and medium.

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The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions. Establishment of specific Funds for the promotion, development and enhancing competitiveness of these enterprises, notification of schemes/programmes for this purpose, progressive credit policies and practices, preference in Government Procurement to products and services of the Micro and Small Enterprises, more effective mechanisms for mitigating the problems of delayed payments to Micro and Small Enterprises and assurance of a scheme for easing the closure of business by these enterprises are some of the other features of the Act. Foreign Direct Investment (FDI) Policy With the promulgation of the MSMED Act, 2006, the restrictive 24% ceiling prescribed for equity holding by the industrial undertakings, whether domestic or foreign, in the MSEs has been done away with and MSEs are defined solely on the basis of investment in plant and machinery (manufacturing enterprises) and equipment (service enterprises). Thus, the Present Policy on FDI in MSE permit to the FDI that subject only to the sectoral equity caps, entry routes and to the other relevant sectoral regulations. Limited Liability Partnership (LLP) Act, 2008 The Salient features of the proposed LLP Act, 2008 are as under:(i) LLP shall be a body Corporate and a Legal Entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs, since LLP shall be in the form of a body corporate. (ii) An LLP has to be incorporated with a minimum of two persons. The Act does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act. (iii) The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement. (iv) The Criteria on the LLP Registration shall be capable of: (a) suing and being sued; and (b) acquiring, owning, holding and developing or disposing off property. (v) A person may cease to be a partner of a LLP in accordance with an agreement with the other partners or in absence of agreement with the other partners, by giving a notice in writing of not less than 30 days of his intention to resign as partner.

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(vi) In the event of an act carried out by a LLP, or any of its partners, with intend to defraud creditors of the LLP or any other person or for any fraudulent purpose, the liability of the LLP and partners, who acted with intend to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP. (vii) A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefits to the LLP including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed. (viii) While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner's wrongful business decisions or misconduct. (ix) An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. (x) Provisions have been made in the Act for corporate actions like mergers, amalgamations etc. (xi) There is a provision of voluntary winding up as well as winding up by the Tribunal. (xii) There are provisions for inter conversion of LLP into private company etc. The LLP Act should pave the way for greater corporatisation of the Small and Medium Enterprises thereby enhancing their access to equity and funds from the market. De-reservation The issue of de-reservation has been a subject of animated debate within government for the last twenty years. The Approach to the Eleventh Five Year Plan notes the adverse implications of reservation of products for exclusive manufacture by the MSEs and recommends the policy of progressive dereservation. To facilitate further investments for technological upgradation and higher productivity in the micro and small enterprises, 654 items have been taken off the list of items reserved for exclusive manufacture by the manufacturing micro and small enterprises in the last few years reducing it to 21 at present. This has helped the sector in enlarging the scale of operations and also paved the way for entry of larger enterprises in the manufacture of these products in keeping with the global standards. Credit/Finance

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Credit is one of the critical inputs for the promotion and development of the Micro and Small Enterprises. Some of the features of existing credit policy for the MSEs are:Priority Sector LendingCredit to the MSEs is part of the Priority Sector Lending Policy of the banks. For the public and private sector banks, 40% of the net bank credit (NBC) is earmarked for the Priority Sector. For the foreign banks, however, 32% of the NBC is earmarked for the Priority Sector, of which 10% is earmarked for the MSE sector. Any shortfall in such lending by the foreign banks has to be deposited in the Small Enterprise Development Fund (SEDF) to be set up by the Small Industries Development Bank of India (SIDBI). Institutional Arrangement The SIDBI is the principal financial institution for promotion, financing and development of the MSE sector. Apart from extending financial assistance to the sector, it coordinates the functions of institutions engaged in similar activities. SIDBI's major operations are in the areas of: - (i) Refinance Assistance (ii) Direct Lending, and (iii) Development and Support Services. Commercial banks are important channels of credit dispensation to the sector and play a pivotal role in financing the working capital requirements, besides providing term loans (in the form of composite loans). At the State level, State Financial Corporations (SFCs) and twin-functional State Industrial Development Corporations (SIDCs) are the main sources of long-term finance for the MSE sector. Recognizing the importance of easy and adequate availability of credit in sustainable growth of the MSE sector, the Government has announced a 'Policy Package for Stepping Up Credit to Small and Medium Enterprises (SMEs)', with the objective of doubling the flow of credit to this sector within a period of five years. To ensure better flow of credit to MSEs, the Ministry of MSME is also implementing the following major schemes:Credit Guarantee Scheme To ensure better flow of credit to micro and small enterprises by minimizing the risk perception of banks/financial institutions in lending without collateral security, the Government launched Credit Guarantee Fund Scheme for Micro and Small Enterprises in August 2000. The scheme covers collateral-free credit facility extended by eligible lending institutions to new and existing micro and small enterprises for loans up to Rs.100 lakh ($250,000) per borrowing unit. The guarantee cover is up to 75 per cent of the credit sanctioned [85% in respect of loans up to Rs.5 lakh ($12,500) and 80% for loans provided to MSEs owned/operated by women and all loans in the North- East Region].

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Performance & Credit Rating Scheme The Performance & Credit Rating Scheme for manufacturing MSEs was launched in April, 2005 with the objective of assisting the MSEs in obtaining performance-cumcredit rating which would help them in improving performance and also accessing bank credit on better terms if the rating is high. Under the scheme (implemented by the National Small Industries Corporation in conjunction with reputed rating agencies), 75% of the fee charged by the rating agency is reimbursed by the Government subject to a maximum of Rs.40, 000. Emerging Sources Faced with increased competition on account of globalization, MSMEs are beginning to move from an obsession with bank credit to a variety of other specialized financial services and options. In recent years, the country has witnessed increased flow of capital in the form of primary/secondary securities market, venture capital and private equity, external commercial borrowings, factoring services, etc. More advanced MSMEs have started realizing the importance of these alternative sources of funding to raise resources and the need for adopting better governance norms to take advantage of these funding sources. The enactment of the Limited Liability Partnership Act, 2008 is expected to provide a thrust to the MSMEs in their move towards corporatization. Competitive Technology In today's fast paced global business scenario, technology has become more vital than ever before. With a view to foster the growth of MSME sector in the country, Government has set up ten state-of-the-art Tool Rooms and Training Centres. These Tool Rooms provide invaluable service to the Indian industry by way of precision tooling and providing well trained craftsmen in the area of tool and die making. These Tool Room are highly proficient in mould and die making technology and promote precision and quality in the development and manufacture of sophisticated moulds, dies and tools. The Tool Rooms are not only equipped with the best technology but are also abreast with the latest advancements like CAD/CAM, CNC machining for tooling, Vacuum Heat Treatment, Rapid Prototyping, etc. The Tool Room & Training Centres also offer various training programmes to meet the wide spectrum of technical manpower required in the manufacturing sector. The training programmes are designed with optimum blend of theory and practice giving the trainees exposure on actual jobs and hands on working experience. The Tool Rooms have also developed special training programmes to meet the requirements at international level, which are attended by participants from all over the globe. The Ministry of MSME implements the following schemes and Programmes for the upgradation of technology of the MSMEs: ISO 9000/14001 Certification Fee Reimbursement Scheme. To enhance the competitive strength of the MSEs, the

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Government introduced a scheme to incentivese technological up gradation, quality improvement and better environment management by the MSEs. The scheme reimburses 75% of the fees, subject to a maximum of Rs75, 000, for acquiring Quality Management System (QMS)/ISO 9000 certification and/or Environment Management System (EMS)/ISO 14001 certification by the MSEs. Micro and Small Enterprises Cluster Development Programme The Micro and Small Enterprises Cluster Development Programme (MSECDP) is implemented for holistic development of clusters of MSEs. The programme envisages measures for capacity building, skill development, technology upgradation of the enterprises, improved credit delivery, marketing support, setting up of common facility centres, etc., based on diagnostic studies carried out in consultation with cluster units and their collectives and management of cluster-wide facilities by the cluster collectives. Credit Linked Capital Subsidy Scheme The Credit Linked Capital Subsidy Scheme (CLCSS) aims at facilitating technology upgradation by providing 15% upfront capital subsidy w.e.f. 29th September, 2005 to manufacturing MSEs, on institutional finance up to Rs.1 crore availed of by them for induction of well-established and improved technologies in the specified subsectors/products approved under the scheme. National Manufacturing Competitiveness Programme The National Manufacturing Competitiveness Programme is the nodal programme of the Government of India to develop global competitiveness among Indian MSMEs. Conceptualized by the National Manufacturing Competitiveness Council, the Programme was initiated in 2007-08. There are ten components under the NMCP targeted at enhancing the entire value chain of the MSME sector. These are: (a) Building Awareness on Intellectual Property Rights for the Micro, Small & Medium Enterprises (MSMEs): The scheme for Building Awareness on Intellectual Property Rights (IPR), for the Micro, Small & Medium Enterprises (MSMEs) have been launched to enable Indian MSMEs to attain global leadership position and to empower them in using effectively the tools of Intellectual Property Rights (IPR) of innovative projects. The main features of the scheme are: (i) Awareness/Sensitization Programmes on IPR; (ii) Pilot Studies for Selected Clusters/Groups of Industries; (iii) Interactive seminars/Workshops; (iv) Specialised Training; (v) Assistance for Grant on Patent/GI Registration; (vi) Setting up of IP Facilitation Centre (IPFC); and (vii) Interaction with International Agencies. These initiatives are being developed through Public-Private Partnership (PPP) mode. (b) Scheme for Providing Support for Entrepreneurial and Managerial Development of

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SMEs through Incubators: The scheme aims at nurturing innovative business ideas (new/indgenious technology, processes, products, procedures, etc.), which could be commercialized in a year. Under the scheme, various institutions like Engineering Colleges, Research Labs etc. will be provided funds upto Rs.6.25 lakh for handholding each new idea/ entrepreneur. The incubator will provide technology guidance, Workshop and Lab support and linkage to other agencies for successful launching of the Business and guide the entrepreneur in establishing the enterprise. (c) Enabling Manufacturing Sector be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT): During the year 2008-09, GoI launched a scheme, 'Enabling Manufacturing Sector be Competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTT)' in order to improve quality and productivity in the MSE sector. The scheme is aimed at improving the quality of the products in the MSE sector and inculcates the Quality consciousness in this sector. The major activities under this scheme are: (i) Introduction of Appropriate Modules for Technical Institutions; (ii) Organising Awareness Campaigns for MSEs; (iii) Organising Competition-Watch (C-Watch); (iv) Implementation of Quality Management Standards and Quality Technology Tools in selected MSEs; (v) Monitoring International Study Missions; and (vi) Impact Studies of the initiatives. (d) Mini Tool Rooms under PPP mode: Under the scheme, 'Mini Tool Rooms under PPP mode', 15 Mini Tool Rooms will be set up during the 11th Plan period. Competitive bidding from entrepreneurs and Associations will be invited to set up Tool Rooms with Government support upto Rs.9 crore. They will be more competitive and user friendly as they will not be bound by the Government procedure and competitiveness will be the only criteria for selection of promoters of these Tool Rooms. The approved Plan expenditure under the Scheme is Rs. 135 crore. (e) Marketing Assistance/support to MSEs (Bar Code): The objective of the 'Marketing Assistance/ Support to MSEs' scheme of NMCP is to popularize the Bar Code registration and motivate the Small and Micro-Manufacturing Enterprises to adopt the Bar Code Certification on large scale and to sell their value added products worldwide and enable higher export price realization. It also helps in domestic marketing (wholesale & retail). 75% of annual fee (recurring) of Bar Code certification for the first three years are reimbursed to Micro & Small Entrepreneurs, under the Scheme. (f) Lean Manufacturing Competitiveness Programme for MSMEs: Under the Lean Manufacturing Programme (LMP), MSMEs will be assisted in reducing their manufacturing costs, through proper personnel management, better space utilization, scientific inventory management, improved process flows, reduced engineering time and so on. LMP also brings improvement in the quality of products and lowers costs which are essential for competing in national and international markets.

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The total GoI contribution is stipulated as Rs. 28.60 crore (approx.) for this scheme. The broad activities planned under the scheme include Total Productive Maintenance (TPM), 5S, Visual Control, Standard Operation Procedures, Just in Time, Kanban System, Cellular Layout, Poka Yoke, TPM, etc. The Scheme has been approved as a pilot project for Lean Techniques interventions in 100 Mini Clusters. (g) Promotion of Information & Communication Tools (ICT) in Indian MSME Sector: The objective of this programme envisages that some of those clusters of SMEs, which have quality production and export potential, shall be identified & encouraged and assisted in adopting ICT applications to achieve competitiveness in the national and international markets. The total GoI contribution is stipulated as Rs. 160 crore (approx.) for this scheme. The broad activities planned under the scheme include, identifying target clusters for ICT intervention, setting up of e-readiness infrastructure, developing web portals for clusters, skill development of MSME staff in ICT applications, preparation of local software solutions for MSMEs to enhance their competitiveness, construction of ecatalogue, e-commerce, etc. and networking MSME cluster portals on the National Level Portals in order to outreach MSMEs into global markets. (h) Design Clinics Scheme for MSMEs: The main objective of the scheme is to bring the MSME sector and design expertise into a common platform and to provide expert advice and solutions on real time design problems, resulting in continuous improvement and value-addition for existing products. It also aims at value-added cost effective solutions. The GoI contribution is stipulated as Rs.50 crore for this scheme. The broad activities planned under the scheme include creation of Design Clinics Secretariat along with regional centres for intervention on the design needs of the MSME sector. (i) Marketing Assistance and Technology Upgradation Scheme for MSMEs: The objective of this scheme is to identify and encourage those clusters of MSMEs, which have quality production and export potential and assist them to achieve competitiveness in the national and international markets. The scheme aims at improving the marketing competitiveness of MSME sector by improving their techniques and technology for promotion of exports. The GoI contribution is stipulated as Rs.19 crore for this scheme. The broad activities planned under the scheme include technology upgradation in packaging, development of modern marketing techniques, competition studies, etc. (j) Technology and Quality Upgradation Support to MSMEs: The objective of the Scheme is to sensitize the manufacturing (MSME) sector in India to upgrade their technologies, usage of energy efficient technologies to reduce emissions of Green House Gases, adoption of other technologies mandated as per the global standards, improve their quality and reduce cost of production, etc., towards becoming globally competitive. The major activities planned under the scheme include Capacity Building of MSMEs Clusters for Energy Efficiency/Clean Development Interventions, Implementation of Energy Efficient Technologies in MSME sector, Setting up of Carbon credit aggregation centres and encouraging MSMEs to acquire product certification licenses from National/International bodies.

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Skill Development The Ministry of Micro, Small & Medium Enterprises promotes the development of Micro and Small Enterprises in the country with the objective of creating self-employment opportunities and upgrading the relevant skills of existing and potential entrepreneurs. The entrepreneurship and skill development scheme is implemented by Office of the DC (MSME) through its network of 58 MSME-DIs and their branches. The programmes are conducted include Entrepreneurship Development, Entrepreneurship and Skill Development, Management Develolpment and Business Skill Development. These programmes are of short duration and the curriculums based on needs of the industry and are customized, if required by the clients. 20% of the targeted training programmes are conducted exclusively for the weaker sections of the society (SC/ST/Women/Physically Handicapped), for which no fee is charged. Besides, a stipend of Rs.500/- p.m. is provided. The office of the DC (MSME) also conducts vocational and educational training through its Regional Testing Centres, Field Testing Stations and autonomous bodies like Tool Rooms and Technology Development Centres (TDCs). These long term, short term, trade/field-specific and industry-specific tailor made courses also include specialized programmes for Engineers, Diploma holders so that their absorption by the industry is immediate. A good number of trainees have set up their own enterprises in creating employment opportunities. The Ministry is atpresent training about 3 lakh persons per annum both for business and technical skill development, which is among the largest programme by any single Ministry in India. The Ministry is also focusing on socially backward groups and on least developed areas under its 'Outreach Programme'. Marketing and Procurement Under Government Stores Purchase Programme, various facilities are provided to enterprises registered with National Small Industries Corporation (NSIC) in order to assist them for marketing their products in competitive environment. These facilities are: (i) issue of Tender Sets free of cost; (ii) exemption from payment of Earnest Money Deposit; (iii) waiver of Security Deposit upto the Monetary Limit for which the unit is registered; and (iv) price preference up to 15% over the quotation of large-scale units. In addition to these facilities/benefits, 358 items have also been reserved for exclusive purchase from the MSE Sector. However, as these guidelines were/are not of a mandatory nature, the same has failed to achieve the desired results. To assist the MSEs in marketing of their products, Section 12 of the new MSMED Act enjoins the formulation of a scheme of preferential procurement of goods/services produced/rendered by MSEs both at the Central and State/UT levels.

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Once formulated, the procurement scheme may be more effective in providing the much-needed marketing support that MSEs seek so desperately. Each Ministry/Department, CPSU, etc., would have to make specific mention of the compliance of the preference policy in its Annual Report to be tabled in Parliament. Export Promotion Export promotion from the MSE sector has been accorded a high priority. To help MSEs in exporting their products, the following facilities/incentives are provided: (i) Products of MSE exporters are displayed in international exhibitions and the expenditure incurred is reimbursed by the Government; (ii) To acquaint MSE exporters with latest packaging standards, techniques, etc., training programme on packaging for exporters are organised in various parts of the country in association with the Indian Institute of Packaging; (iii) Under the MSE Marketing Development Assistance (MDA) Scheme, assistance is provided to individuals for participation in overseas fairs/ exhibitions, overseas study tours, or tours of individuals as member of a trade delegation going abroad. The Scheme also offers assistance for (a) sector specific market study by MSE Associations/Export Promotion Councils/Federation of Indian Export Organization; (b) Initiating/contesting anti-dumping cases by MSE Associations; and (c) reimbursement of 75 per cent of the onetime registration fee and annual fee (recurring for first three years) charged by GSI India (formerly EAN India) for adoption of Bar Coding. Infrastructure Development For setting up of industrial estates and to develop infrastructure facilities like power distribution network, water, telecommunication, drainage and pollution control facilities, roads, banks, raw materials, storage and marketing outlets, common service facilities and technological back up services, etc., for MSMEs, the Integrated Infrastructural Development (IID) Scheme was launched in 1994. The scheme covers rural as well as urban areas with a provision of 50 percent reservation for rural areas and 50 per cent industrial plots are to be reserved for the micro enterprises. The Scheme also provides for up gradation/strengthening of the infrastructural facilities in the existing industrial estates. The estimated cost (excluding cost of land) to set up an IID Centre is Rs.5 crore. Central Government provides 40 per cent in case of general States and upto 80% for North East Region (including Sikkim), J&K, H.P. and Uttarakhand, as grant and remaining amount could be loan from SIDBI/Banks/Financial Institutions or the State Funds. The IID Scheme has been subsumed under the Micro and Small Enterprise Cluster Development Programme (MSECDP). All the features of the IID Scheme have been retained and will be covered as New Clusters under MSECDP. Fiscal Concessions

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Under the General Excise Exemption Scheme, full excise exemption up to turnover of $375 thousand per annum is provided to enterprises having annual turnover of up to $1 million. However, the limits of excise exemptions has encouraged tendency among MSEs is to go in for horizontal expansion (i.e., fragmentation) rather than vertical expansion and upward graduation into medium and large enterprises. For incentivizing such graduation of small to medium/large enterprises so as to enable them to achieve economies of scale, extension of excise exemptions to the graduating medium enterprises on a tapering scale is under consideration of the Government. Strengthening of Database A reliable database is the key input in any policy decision-making process. This is more so for the MSME sector in view of its large size and wide disparity among the enterprises within the sector. The Ministry has so far conducted three Census in the year 1971-72, 1992-93 and 2002-03 for strengthening/updating the database on MSE sector. However, the long gap between the Censuses has limited the reliability of the MSE database. To strengthen the database for the MSME Sector, statistics and information will now be collected in respect of number of units, employment, rate of growth, share of GDP, value of production, extent of sickness/closure, exports and all other relevant parameters of micro, small and medium enterprises, including khadi and village industry, through annual sample surveys and quinquennial census. The quinquennial census and annual sample surveys of MSMEs will also collect data on women-owned and / or managed enterprises. Inclusiveness The Ministry of MSME launched a special programme, namely, 'Outreach Programme for Skill Development in Less Developed Areas' in September, 2006. Under this programme, the field office of the Ministry organizes short-term skill development programmes in the less developed areas. Such short-term courses are tailor-made for these areas so as to enable trainees to get employment or start self-employment ventures. These programmes are of short duration of 1-3 weeks and the activity selected for trainees are relevant to the local requirement. The target group consist wholly or partly of disadvantaged sections. Further, under the recently announced Promotional Package for MSEs, 20% of Skill Development Programmes have been reserved for weaker sections along with the provision of a stipend of Rs.500 per capita per month exclusively for SCs/STs, women and physically handicapped. In case of the regular EDP/MDP/Skill Development programmes, a nominal fee of Rs.100 is charged. However, there is no fee for SCs/STs, women and physically handicapped candidates. India's pioneering policies for the development of MSEs offers case studies for the developing world. Government has moved away, though not yet fully, from its role of direct interventions to that of a friend and facilitator. There is growing realization that protection in the form of reservation needs to be replaced with easy access to capital, technology and skill development to integrate the MSMEs more firmly with the

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domestic and global economy. And these are now the specific target areas of the Ministry of MSME. India benefited immensely from experience of several countries, especially in the field of technology. However, the rich Indian experience gained in the last sixty years in the MSME sector could also be of equal use for both developing as well as developed countries. Some of the areas that offer ample opportunities for cooperation in the MSME sector are:-

Fee-based Consultancy Services and Training in the following areas:


i) Capacity Building of Entrepreneurs and Technical Manpower of SMEs ii) Policy & Institutional Framework for SME Promotion, Development and Enhancing Competitiveness iii) Entrepreneurship Development iv) Business Development Services.

Establishment of Turnkey Projects for setting up manufacturing MSMEs on


commercial terms:Skill up gradation programmes in selected areas such as CNC Machining, Sheet-Metal Technologies, CAD & CAM Designing, Wool Processing & Weaving, Leather Technology, Plastic Technology, Wood Working, etc. The surveys and studies have been conducted to identify the tool and to relate the skill requirements in specific areas or regions like hilly/backward/indigenous. Even it provide with the turnkey assistance in order to set up Tool Rooms & Training Centres. It provided with the consultancy to existing manufacturing SME in upgrading their production facilities, selection of machine tools, design consultancy for tools, moulds, dies, jigs & fixtures, etc. It provided with specialized/tailor-made training courses for specific target groups. It provided consultancy to existing training institutes in course design and curriculum development including trainers training programmes. Assistance in product design, tool design and manufacturing of intricate toolings.High precision tools, moulds, dies jigs & fixtures etc. as per design/specifications of local industry. Product development & rapid prototyping services. INDIA Micro, Small & Medium

Enterprises Development

(MSMED) Act, 2006


The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October 2,

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2006. With the enactment of MSMED Act 2006, the paradigm shift that has taken place is the inclusion of the services sector in the definition of Micro, Small & Medium enterprises, apart from extending the scope to medium enterprises. The MSMED Act, 2006 has modified the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering of services. The Reserve Bank has notified the changes to all scheduled commercial banks. Further, the definition, as per the Act, has been adopted for purposes of bank credit vide RBI circular. 1. Definition of Micro, Small and Medium Enterprises (a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below: i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh; ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.. (b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below:(i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh; (ii) A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and (iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore. These will include small road & water transport operators, small business, professional & self-employed persons and all other service enterprises. Banks lending to Medium Enterprises will not be included for the purpose of reckoning under the priority sector. 1.1 KHADI AND VILLAGE INDUSTRIES SECTOR (KVI) All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery will be covered under priority sector advances and will be eligible for consideration under the subtarget (60 per cent) of the small enterprises segment within the priority sector.

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1.2 SECTION I INDIRECT FINANCE Persons involved in assisting the decentralized sector in the supply of inputs and marketing of outputs of artisans, village and cottage industries. To Advances the cooperatives of producers in the decentralized sector likewise artisans, village and cottage industries. Existing investments as on March 31, 2007, made by banks in special bonds issued by NABARD with the objective of financing exclusively non- farm sector may be classified as indirect finance to Small Enterprises sector till the date of maturity of such bonds or as on March 31, 2010, whichever is earlier. Investments in such special bonds made subsequent to March 31, 2007 will, however, not be eligible for such classification. Deposits placed with SIDBI by foreign banks, having offices in India, on account of nonachievement of priority sector lending targets/sub-targets and outstanding as on April 30, 2007 would be eligible for classification as indirect finance to Small Enterprises sector till the date of maturity of such deposits or March 31, 2010, whichever is earlier. However, fresh deposits placed by banks on or after April 30, 2007 with SIDBI on account of non-achievement of priority sector lending targets/sub-targets would not be eligible for classification as indirect finance to Small Enterprises Sector.Loans granted by banks to NBFCs for on-lending to small and micro enterprises (manufacturing as well as service) 1.2 SECTION II Certain types of funds deployment eligible as priority sector advances 1. INVESTMENTS IN SECURITIZED ASSETS Investments made by banks in securitized assets, representing loans to various categories of priority sector, shall be eligible for classification under respective categories of priority sector (direct or indirect) depending on the underlying assets, provided the securitized assets are originated by banks and financial institutions and fulfill the Reserve Bank of India guidelines on securitization. This would mean that the bank's investments in the above categories of securitized assets shall be eligible for classification under the respective categories of priority sector only if the securitized advances were eligible to be classified as priority sector advances before their securitization. Outright purchases of any loan asset eligible to be categorized under priority sector, shall be eligible for classification under the respective categories of priority sector (direct or indirect), provided the loans purchased are eligible to be categorized under priority sector; the loan assets are purchased (after due diligence and at fair value) from banks and financial institutions, without any recourse to the seller; and the eligible loan

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assets are not disposed of, other than by way of repayment, within a period of six months from the date of purchase. Investments by banks in Inter Bank Participation Certificates (IBPCs), on a risk sharing basis, shall be eligible for classification under respective categories of priority sector, provided the underlying assets are eligible to be categorized under the respective categories of priority sector and are held for at least 180 days from the date of investment. 2. SCHEME OF SMALL ENTERPRISES FINANCIAL CENTRES (SEFCs): As per announcement made by the Governor in the Annual Policy Statement 2005-06, a scheme for strategic alliance between branches of banks and SIDBI located in clusters, named as Small Enterprises Financial Centres has been formulated in consultation with the Ministry of SSI and Banking Division, Ministry of Finance, Government of India, SIDBI, IBA and select banks and circulated to all scheduled commercial banks on May 20, 2005 for implementation. SIDBI has so far executed MoU with 15 banks so far (Bank of India, UCO Bank, YES Bank, Bank of Baroda, Oriental Bank of Commerce, Punjab National Bank, Dena Bank, Andhra Bank, Indian Bank, Corporation Bank, IDBI Bank, Indian Overseas Bank, Union Bank of India, State Bank of India and Federal Bank). List of SME clusters covered by existing SIDBI branches is furnished. 1.2 SECTION III Targets for priority sector lending by Domestic Commercial Banks (excluding RRBs) 1. Targets for Domestic Commercial Banks The domestic commercial banks are expected to enlarge credit to priority sector and ensure that priority sector advances (which include the small enterprises sector) constitute 40 per cent of Adjusted Net Bank Credit (ANBC) and (60% for RRBs) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. RRBs will have a target of 60 per cent of their outstanding advances for priority sector lending. While there is no sub-target fixed for lending to small enterprises sector, as per the policy package announced by the Government of India for stepping up credit to MSME sector, banks may fix self set target for growth in advances to SME sector in order to achieve a minimum 20% year on year growth in credit to MSMEs with the objective to double the flow of credit to the MSME sector within a period of 5 years i.e. from 2005-06 to 2009-10. In order to ensure that credit is available to all segments of the Small Enterprises sector, banks should ensure that:(a) 40 per cent of the total advances to small enterprises sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 5 lakh and micro (service) enterprises having investment in equipment up to Rs. 2 lakh;

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(b) 20 per cent of the total advances to small enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10 lakh. (Thus 60 per cent of small enterprises advances should go to the micro enterprises) 2. Targets for Foreign Banks Foreign banks are expected to enlarge credit to priority sector and ensure that priority sector advances (which include the Small Enterprises sector) constitute 32 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. Within the overall target of 32 per cent to be achieved by foreign banks, the advances to small enterprises sector should not be less than 10 per cent of the adjusted net bank credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. In order to ensure that credit is available to all segments of the Small Enterprises sector, banks should ensure that:(a) 40 per cent of the total advances to small enterprises sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 5 lakh and micro (service ) enterprises having investment in equipment up to Rs. 2 lakh; (b) 20 per cent of the total advances to small enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10 lakh. (Thus 60 per cent of small enterprises advances should go to the micro enterprises) 3. Deposit by Foreign Banks with SIDBI towards shortfall in priority sector lending The foreign banks having shortfall in lending to stipulated priority sector targets /subtargets will be required to contribute to Small Enterprises Development Fund (SEDF) to be set up by Small Industries Development Bank of India (SIDBI), or for such other purpose as may be stipulated by Reserve bank of India. For the purpose of such allocation, the achievement level of priority sector lending as on the last reporting Friday of March of the immediately preceding financial year will be taken into account. The corpus of SEDF shall be decided by Reserve Bank of India on a year-to-year basis. The tenor of the deposits shall be for a period of three years or as decided by Reserve Bank from time to time. Fifty percent of the corpus shall be contributed by foreign banks having shortfall in lending to priority sector target of 32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a prorata basis. The balance fifty per cent of the corpus shall be contributed by foreign banks having aggregate shortfall in lending to Small Enterprises sector and export sector of 10 per cent and 12 per cent respectively, of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher, on a pro-rata basis. The contribution

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required to be made by foreign banks would, however, not be more than the amount of shortfall in priority sector lending target/sub-target of the foreign banks. The concerned foreign banks will be called upon by SIDBI/or such other institution as may be decided by Reserve Bank, as and when funds are required by them, after giving one month's notice. The interest rates on foreign banks' contribution, period of deposits, etc. shall be fixed by Reserve Bank of India from time to time. Nonachievement of priority sector targets and sub-targets will be taken into account while granting regulatory clearances / approvals for various purposes. 1.2 SECTION IV Common Guidelines / Instructions for Lending to Small Enterprises Sector 1. Disposal of Applications All loan applications for MSE units upto a credit limit of Rs. 25000/- should be disposed of within 2 weeks and those upto Rs. 5 lakh within 4 weeks provided , the loan applications are complete in all respects and accompanied by a " check list". 2. Collateral The exemption limit for all MSME borrowal accounts for obtention of collateral security (both manufacturing and production and providing or rendering of services) is Rs 5 lakh. Banks may on the basis of good track record and financial position of the MSME units; increase the limit of dispensation of collateral requirement for loans up to Rs.25 lakh (with the approval of the appropriate authority). Instructions were reiterated to banks to extend collateral-free loans upto Rs. 5 lakh to all new loans to the MSE sector (both manufacturing and service enterprises) including those units financed under the Prime Minister Employment Generation Programme of KVIC. 3. Composite loan A composite loan limit of Rs.1crore can be sanctioned by banks to enable the MSME entrepreneurs to avail of their working capital and term loan requirement through Single Window. 4. Specialized SME branches Public sector banks have been advised to open at least one specialized branch in each district. Further, banks have been permitted to categorize their SME general banking branches having 60% or more of their advances to SME sector in order to encourage them to open more specialized SME branches for providing better service to this sector as a whole. As per the policy package announced by the Government of India for stepping up credit to SME sector, the public sector banks will ensure specialized SME branches in identified clusters/centres with preponderance of small enterprises to

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enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. The existing specialized SSI branches may be also being re designated as SME branches. Though their core competence will be utilized for extending finance and other services to SME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers 5. Delayed Payment Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings, penal provisions have been incorporated to take care of delayed payments to MSME units which inter-alia stipulates a) agreement between seller and buyer shall not exceed more than 120 days b) payment of interest by the buyers at the rate of one and a half times the prime lending rate (PLR) of SBI for any delay beyond the agreed period not exceeding 120 days. Further, banks have been advised to fix sub-limits within the overall working capital limits to the large borrowers specifically for meeting the payment obligation in respect of purchases from SSI. After the enactment of the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the existing provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened as under:(i) In case the buyer to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days. (ii) In case the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank. (iii) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above. (iv) In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government. 6. Guidelines on rehabilitation of sick SSI units (based on Kohli Working Group recommendations) As per the definition, a unit is considered as sick when any of the borrowal account of the unit remains substandard for more than 6 months or there is erosion in the net

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worth due to accumulated cash losses to the extent of 50% of its net worth during the previous accounting year and the unit has been in commercial production for at least two years. The criteria will enable banks to detect sickness at an early stage and facilitate corrective action for revival of the unit. As per the guidelines, the rehabilitation package should be fully implemented within six months from the date the unit is declared as potentially viable / viable .During this six months period of identifying and implementing rehabilitation package banks/FIs are required to do holding operation which will allow the sick unit to draw funds from the cash credit account at least to the extent of deposit of sale proceeds. Following are broad parameters for grant of relief and concessions for revival of potentially viable sick SSI units:(i) Interest on Working Capital - Interest 1.5% below the prevailing fixed/ prime lending rate, wherever applicable (ii) Funded Interest Term Loan - Interest Free (iii) Working Capital Term Loan - Interest to be charged 1.5% below the prevailing fixed / prime lending rate, wherever applicable (iv) Term Loan - Concessions in the interest to be given not more than 2 % (not more than 3 % in the case of tiny / decentralized sector units) below the document rate. (v) Contingency Loan Assistance the Concessional rate allowed for Working Capital Assistance A circular was issued to all scheduled commercial banks for the purpose of implementation of the Kohli Committee Recommendations. 7. State Level Inter Institutional Committee In order to deal with the problems of co-ordination for rehabilitation of sick micro and small units, State Level Inter-Institutional Committees (SLIICs) have been set up in all the States. The meetings of these Committees are convened by Regional Offices of RBI and presided over by the Secretary; Industry of the concerned State Government. It provides a useful forum for adequate interfacing between the State Government Officials and State Level Institutions on the one side and the term lending institutions and banks on the other. It closely monitors timely sanction of working capital to units which have been provided term loans by SFCs, implementation of special schemes such as Margin Money Scheme of State Government, National Equity Fund Scheme of SIDBI, and reviews general problems faced by industries and sickness in MSE sector based on the data furnished by banks. Among others, the representatives of the local state level MSE associations are invited to the meetings of SLIIC which are held quarterly. A subcommittee of SLIIC looks into the problems of individual sick MSE unit and submits its recommendations to the forum of SLIIC for consideration.

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8. Empowered Committee on MSMEs As part of the announcement made by the Union Finance Minister, at the Regional Offices of Reserve Bank of India, Empowered Committees on MSMEs have been constituted under the Chairmanship of the Regional Directors with the representatives of SLBC Convenor, senior level officers from two banks having predominant share in MSME financing in the state, representative of SIDBI Regional Office, the Director of Industries of the State Government, one or two senior level representatives from the MSME/SSI Associations in the state, and a senior level officer from SFC/SIDC as members. The Committee will meet periodically and review the progress in MSME financing as also rehabilitation of sick Micro, Small and Medium units. It will also coordinate with other banks/financial institutions and the state government in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. The committees may decide the need to have similar committees at cluster/district levels. 9. Debt Restructuring Mechanism for SMEs i) As part of announcement made by the Honorable Finance Minister for stepping up credit to small and medium enterprises, a debt restructuring mechanism for units in SME sector has been formulated by Department of Banking Operations & Development of Reserve Bank of India. These detailed guidelines have been issued to ensure restructuring of debt of all eligible small and medium enterprises. These guidelines would be applicable to the following entities, which are viable or potentially viable: a) All non-corporate SMEs irrespective of the level of dues to banks. b) All corporate SMEs, which are enjoying banking facilities from a single bank, irrespective of the level of dues to the bank. c) All corporate SMEs, which have funded and non-funded outstanding up to Rs.10 crore under multiple/ consortium banking arrangement. d) Accounts involving willful default, fraud and malfeasance will not be eligible for restructuring under these guidelines. e) Accounts classified by banks as Loss Assets will not be eligible for restructuring. For all corporate including SMEs, which have funded and non-funded outstanding of Rs.10 crore and above, Department of Banking Operations & Development has issued separate guidelines on Corporate Debt Restructuring Mechanism ii. In the light of the recommendations of the Working Group on Rehabilitation of Sick MSEs (Chairman: Dr. K.C. Chakrabarty), all commercial banks were advised vide our circular to a) put in place loan policies governing extension of credit facilities, Restructuring/Rehabilitation policy for revival of potentially viable sick units/enterprises and non- discretionary One Time Settlement scheme for recovery of non-performing loans for the MSE sector, with the

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approval of the Board of Directors and b) Implement recommendations with regard to timely and adequate flow of credit to the MSE sector. 10. Cluster Approach i) 60 clusters have been identified by the Ministry of Micro, Small and Medium Enterprises, Government of India for focused development of Small Enterprises sector. All SLBC Convenor banks have been advised to incorporate in their Annual Credit Plans, the credit requirement in the clusters identified by the Ministry of Micro, Small and Medium Enterprises, Government of India. As per Ganguly Committee recommendations banks have been advised that a fullservice approach to cater to the diverse needs of the MSE sector may be achieved through extending banking services to recognized MSE clusters by adopting a 4-C approach namely, Customer focus, Cost control, Cross sell and Contain risk. A cluster based approach to lending may be more beneficial: a) In dealing with well-defined and recognized groups; b) Availability of appropriate information for risk assessment and c) Monitoring by the lending institutions. Clusters may be identified based on factors such as trade record, competitiveness and growth prospects and/or other cluster specific data. ii) As per announcement made by the Governor for the Annual Policy Statement 200708, all SLBC Convenor banks have been advised to review their institutional arrangements for delivering credit to the MSME sector, especially in 388 clusters identified by United Nations Industrial Development Organization (UNIDO) spread over 21 states in various parts of the country. A list of SME clusters as identified by UNIDO has been furnished. iii) The Ministry of Micro, Small and Medium Enterprises has approved a list of clusters under the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and Micro and Small Enterprises Cluster Development Programmed (MSE-CDP) located in 121 Minority Concentration Districts. Accordingly, appropriate measures have been taken to improve the credit flow to the identified clusters of micro and small entrepreneurs from the Minorities Communities residing in the minority concentrated districts of the country. 11. Credit Linked Capital Subsidy Scheme (CLSS) Government of India, Ministry of Micro, Small and Medium Enterprises has conveyed their approval for continuation of the Credit Linked Capital Subsidy Scheme (CLSS) for

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Technology Up gradation of Micro and Small Enterprises from X Plan to XI Plan (200712) subject to the following terms and conditions:(i) Ceiling on the loan under the scheme is Rs. 1 crore. (ii) The rate of subsidy is 15% for all units of micro and small enterprises up to loan ceiling at Sr. No. (i) Above. (iii) Calculation of admissible subsidy will be done with reference to the purchase price of plant and machinery instead of term loan disbursed to the beneficiary unit. (iv) SIDBI and NABARD will continue to be implementing agencies of the scheme. 12. Committees on flow of Credit to MSE sector Report of the Committee is to examine the Adequacy of Institutional Credit to SSI Sector and Related Aspects (Nayak Committee). The Committee was constituted by Reserve Bank of India in December 1991 under the Chairmanship of Shri P. R. Nayak, the then Deputy Governor to examine the issues confronting SSIs in the matter of obtaining finance. The Committee submitted its report in 1992. All the major recommendations of the Committee have been accepted and the banks have been inter-alia advised to: i) Give preference to village industries, tiny industries and other small scale units in that order, while meeting the credit requirements of the small scale sector. ii) grant working capital credit limits to SSI units computed on the basis of minimum 20% of their estimated annual turnover whose credit limit in individual cases is upto Rs.2 crore [ since raised to Rs.5 crore ]. iii) Prepare annual credit budget on the `bottom-up basis to ensure that the legitimate requirements of SSI sector are met in full. iv) Extend Single Window Scheme of SIDBI to all districts to meet the financial requirements (both working capital and term loan) of SSIs. v) Ensure that there should not be any delay in sanctioning and disbursal of credit. In case of rejection/curtailment of credit limit of the loan proposal, a reference to higher authorities should be made. vi) It is mandatory from the legal authorities so as not to insist on compulsory deposit as a `quid pro-quo for sanctioning the credit. vii) Open specialized SSI bank branches or convert those branches which have a fairly large number of SSI borrowal accounts, into specialized SSI branches. viii) Identify sick SSI units and take urgent action to put them on nursing programmes;

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ix) Standardize loan application forms for SSI borrowers. x) Impart training to staff working at specialized branches to bring about attitudinal change in them. A circular was issued to all scheduled commercial banks dated March 2, 2001 thereby advising implementation of the Nayak Committee Recommendations. Report of the High Level Committee on Credit to SSI (Kapur Committee) Reserve Bank of India had appointed a one-man High Level Committee headed by Shri S.L.Kapur, (IAS, Retd.), Former Secretary, Government of India, Ministry of Industry to suggest measures for improving the delivery system and simplification of procedures for credit to SSI sector. The Committee made 126 recommendations covering wide range of areas pertaining to financing of SSI sector. These recommendations have been examined by the RBI and it has been decided to accept 88 recommendations which include the following important recommendations: i) Delegation of more powers to branch managers to grant ad-hoc limits. ii) Simplification of application forms. iii) Freedom to banks to decide their own norms for assessment of credit requirements; iv) Opening of more specialised SSI branches. v) Enhancement in the limit for composite loans to Rs. 5 lakh. (Since enhanced to Rs.1 crore). vi) Strengthening the recovery mechanism. vi) Banks to pay more attention to the backward states. viii) Special programmes for training branch managers for appraising small projects. ix) Banks to make customers grievance machinery more transparent and simplify the procedures for handling complaints and monitoring thereof. Report of the Working Group on Flow of Credit to SSI Sector:As per the announcement made by the Governor, Reserve Bank of India, in the MidTerm Review of the Monetary and Credit Policy 2003-2004, a Working Group on Flow of Credit to SSI sector was constituted under the Chairmanship of Dr. A. S. Ganguly. The Committee made 31 recommendations covering wide range of areas pertaining to financing of SSI sector. The recommendations pertaining to RBI and banks have been

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examined and RBI has accepted 8 recommendations so far and commended to banks for implementation which are as under: i) Adoption of cluster based approach for financing MSME sector. ii) Sponsoring specific projects as well as widely publicizing successful working models of NGOs by Lead Banks which service small and tiny industries and individual entrepreneurs. iii) sanctioning of higher working capital limits by banks operating in the North East region to SSIs, based on their commercial judgement due to the peculiar situation of hilly terrain and frequent floods causing hindrance in the transportation system. iv) In Order to Explored new instruments by the banks for promoting rural industry and to improve the flow of credit to rural artisans, rural industries and rural entrepreneurs. v) Revision of tenure as also interest rate structure of deposits kept by foreign banks with SIDBI for their shortfall in priority sector lending. 13. (i) Policy Package for Stepping up Credit to Small and Medium EnterprisesAnnouncements made by the Union Finance Minister on August 10, 2005 The Honorable Finance Minister, Government of India had announced on August 10, 2005, a Policy Package for stepping up credit flow to Small and Medium enterprises. Some of the salient features of the policy package are as under: Definition of Small and Medium Enterprises (SMEs) Fixing of self-targets for financing to SME sector by banks Measures to rationalize the cost of loans to SME sector Measures to increase the outreach of formal credit to the SME sector Cluster based approach for financing SME sector Constitution of Empowered Committees for SMEs in the Regional Offices of Reserve Bank Steps to rationalize the cost of loans to SME sector by adopting a transparent rating system with cost of credit being linked to the credit rating of enterprise. Banks to consider taking advantage of Credit Appraisal & Rating Tool (CART), Risk Assessment Model (RAM) and the comprehensive rating model for risk assessment of SME proposals, developed by SIDBI for reduction of their transaction costs.

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Banks to consider the ratings of MSE units carried out through reputed credit rating agencies under the Credit Rating Scheme introduced by National Small Industries Corporation. Wider dissemination and easy accessibility of the policy guidelines formulated by Boards of banks as well as instructions /guidelines issued by Reserve Bank by displaying them on the respective banks web sites as well as web site of SIDBI and also prominently displaying them at the bank branches. (ii) Major Instructions issued to Public Sector banks subsequent to the policy announcements On the basis of the Policy Package as announced by the Union Finance Minister, some of the major instructions issued by Reserve Bank to all public sector banks were as under: Public sector banks were advised to fix their own targets for funding SMEs in order to achieve a minimum 20% year on year growth in credit to SMEs. The objective is to double the flow of credit from Rs. 67,600 crore in 2004-05 to Rs. 135,200 crore to the SME sector by 2009-10, i.e. within a period of 5 years. Public sector banks were advised to follow a transparent rating system with cost of credit being linked to the credit rating of the enterprise. All banks, including Regional Rural banks may make concerted efforts to provide credit cover on an average to at least 5 new small/ medium enterprises at each of their semi-urban/ urban branches per year. The banks may ensure specialized SME branches in identified clusters/ centres with preponderance of small Enterprises to enable the entrepreneurs to have easy access to the bank credit. 14. Banking Codes and Standard Board of India (BCSBI) The Banking Codes and Standard Board of India (BCSBI) has formulated a Code of Bank's Commitment to Micro and Small Enterprises. This is a voluntary Code, which sets minimum standards of banking practices for banks to follow when they are dealing with Micro and Small Enterprises (MSEs) as defined in the Micro Small and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to MSE and explains how banks are expected to deal with MSE for their day to-day operations and in times of financial difficulty. The Code does not replace or supersede regulatory or supervisory instructions issued by the Reserve Bank of India (RBI) and banks will comply with such instructions /directions issued by the RBI from time to time. Objectives of the BCSBI Code

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The Code has been developed to a. Give a positive thrust to the MSE sector by providing easy access to efficient banking services. b. Promote good and fair banking practices by setting minimum standards in dealing with MSE. c. Increase transparency so that a better understanding of what can reasonably expected of the services. d. Improve understanding of business through effective communication. e. Encourage market forces, through competition, to achieve higher operating standards. f. Promote a fair and cordial relationship between MSE and banks and also ensure timely and quick response to banking needs. g. Foster confidence in the banking system. Benefits of the SME Loans

Timely and adequate Finance for the business purposes & deeds to the firms. Since Flexible Repayment Periods are offered so adequate time to develop the

business Competitive and flexible interest rates that gives greater value for the money of the Entrepreneurs. It allows the Entrepreneurs in order to preserve their cash and working capital which can be utilized to find newer business opportunities & even for the Expansion of the businesses. A quick, easy application and approval of this loan from the financial institutions

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DETAILED LITERATURE REVIEW


Banks (particularly small or niche banks) are considered to have an advantage in dealing with SMEs because they can overcome information asymmetries through relationship lending. We argue that the recent intensification of bank involvement with SMEs is neither led by small or niche banks nor highly dependent on relationship lending. Rather, all types of banks are catering to SMEs. Larger multiple-service banks have a comparative advantage in offering a wide range of products and services in a large scale, through the use of new technologies, business models, and risk management systems. New evidence from banks and SMEs suggests that there is a sharp transformation in the ways they interact with each other. Banks perceive SMEs as a core and strategic business and seem well positioned to expand their involvement with SMEs. The financing of small and medium enterprises (SMEs) has attracted much attention in recent years and has become an important topic for economists and policymakers working on financial and economic development. This interest is driven in part by the fact that SMEs account for the majority of firms in an economy and a significant share of employment Furthermore, most large companies usually start as small enterprises, so the ability of SMEs to develop and invest becomes crucial to any economy wishing to prosper. The recent attention on SME financing also comes from the perception that SMEs lack appropriate financing and need to receive special assistance, like government programs that increase lending. Various studies support this perception. A number of papers find that SMEs are more financially constrained than large firms. Importantly, lack of access to external finance is a key obstacle to firm growth, especially for SMEs. On the policy side, there are a large number of initiatives across countries to foster SME financing including government subsidized lines of credit and public guarantee funds. In India, SME sector accounts for around 95% of the industrial units, 40% of the value added in the manufacturing sector output, 34% of exports and provides direct employment to 20 million persons in around 3.6 million registered SME units. The SME sector in India contributes to about 7% of Indias GDP during 2002-03. In the developing countries for making the SMEs more competitive is particularly pressing as trade liberalization and deregulation increase the competitive pressures and reduce the direct subsidies and protection that Governments offer to SMEs.

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The Small and Medium Enterprises worldwide are recognized as engines of economic growth. There is a great interest in SMEs as a major plank of poverty reduction in the developing countries. Even the commonly perceived merits often emphasized for their promotion especially in the developing countries include their relatively high labor intensity, dependence on indigenous skills and technology, contributions to entrepreneurship development and innovativeness and growth of industrial linkages. In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in the developing countries. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and opened windows to conduct business in this particular area. After Liberation of the developing countries, intensive efforts were undertaken to accelerate the rate of industrialization in the country. At the beginning, import substitution and subsequently export-led economic growth strategy was pursued for industrialization. In order to attain this objective, large amount of industrial credit was funneled to the industrial sector. But the whole exercise of industrialization came to a halt with the massive diversion of resources to other non priority sectors. Policy makers, of late, have come to recognize the contribution of SME sector towards economic development in the country. Small and Medium Enterprises have been recognized as one of the most important means for providing better economic opportunities for the people of least developing countries. A developing economy like that of ours suffers from many peculiar problems such as disproportionate pressure of population on agriculture due to lack of rural industrialization, unemployment and underemployment of human and materials resources, unbalanced regional development etc. The contribution of small and medium enterprises in the solution of these problems is beyond doubt, provided they are organized and run on scientific basis. The protective and secretive sentiment of trades associations implies that there are not enough angels to meet the demands of their local entrepreneurs. Yet angels report not being able to find enough demand (good entrepreneurs) to satisfy their supply. The industry and market are at odds on this matter. The lack of angels' activities to take advantage of new information technology to learn about the actions of others in their own industry suggests informational inefficiencies are still at work. As they are unaware of one anothers' activities, rates of return, investment criteria and venture opportunities, there is little room for rivalry. Central Asian governments recognize the importance of SME development in their countries' growth. But SMEs have yet to emerge as the real backbone of the Central

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Asian economies because large enterprises have historically dominated major industries like metal, oil, and gas. To assist SME growth, the countries have special programs funded by the government or foreign donor institutions. In developing countries, small and medium-sized enterprises (SME)particularly micro and small enterpriseshave great difficulty in obtaining the necessary financial resources to effectively scale up and grow their businesses. Access to traditional growth capital, including debt and equity, is often prohibitively costly, due to such factors as insufficient legal and regulatory policies, and inadequate financial markets. The development community has tried to address this challenge by creating microfinance lending instruments and private sector investment intermediary institutions, including those supported by the International Finance Corporation (IFC).Microfinance has made considerable strides in improving access to capital for individuals seeking US$10 to more than $1,000 to start or expand a business. Similarly, the IFC and other investment institutions have improved access to capital for established firms seeking US$5 million and above to expand their operations nationally and internationally. Despite the success of these efforts, the development community has yet to address effectively and sustainably the challenge of providing access to capital for SME seeking US$50,000 to $1 million to scale up their businesses and attract private capital markets. For SME competing in the information and communication technology (ICT) industry and in ICT-enabled (ICTE) activities, the challenge of accessing growth capital is particularly acute, because these firms possess few tangible assets that can be leveraged as collateral for loans. In order to better understand these challenges facing by the technology entrepreneurs, this study had been taken on Financing Technology Entrepreneurs & SME in Developing Countries: Challenges and Opportunities. The Study was carried out in two steps. The first phase was devoted to a desk review of the main issues involved in the financing of small businesses in general, and of SME active in the ICT/ICTE industry. The second phase involved the assessment of financing conditions intend selected countries. This Report summarizes the main findings of the work, including: (i) an assessment of the financing needs voiced by techno-entrepreneurs; (ii) a review of the Financing opportunities available; and (iii) a series of suggestions regarding possible measures to alleviate the financing gap. Separate country reports provide detailed results for the ten countries surveyed.

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Need & Objective of the Study


Our Research Study based on the following needs, objectives & procurement of the analysis that bases different sources of the data & research instruments:-

To know how the perception of Entrepreneur in order for acquiring the loans from public & private banks To know how the whole process of SME lending To identify the loan utilization pattern of the SME Loan Taker To know the procedures of the SME Loans To examine the impact of SME Loans on the livelihood of the Loan taker To know how the market scenario for the SME loans To find out the loopholes of SME loans To find out the scope & advantages of SME banking loans. To check that it is true to get SME loans easily or its just a myth. To know the problems & possible solutions regarding SME Loans.

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SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are "internal" evaluations of the company's competencies. Opportunities and threats are "external" evaluations about the industry or market within which the company does business. It provides an efficient way to evaluate the range of factors that influence the operation, and can give the entrepreneurs of the firms valuable guidance in making decisions about what to do next. It also provides a highly productive way to get them key personnel involved in the management decision-making process. It is the process of carefully inspecting the business and its environment through the various dimensions of Strengths, Weaknesses, Opportunities, and Threats. Strengths are the companies core competencies, and include proprietary technology, skills, resources, market position, patents, and others. Weaknesses are conditions within the company that can lead to poor performance, and can include obsolete equipment, no clear strategy, heavy debt burden, poor product or market image, weak management, and others. Opportunities are outside conditions or circumstances that the company could turn to its advantage, and could include a specialty niche skill or technology that suddenly realizes a growth in broad market interest. Threats are current or future conditions in the outside environment that may harm the company, and might include population shifts, changes in purchasing preferences, new technologies, changes in governmental or environmental regulations, or an increase in competition.

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Using this tool we analysis that SME Loans covers following key factors & scenario for the market economy:Strengths: Fast Approval of this loan Used for the Initialization & Expansion of the Businesses. There is affordability & safety criteria of this loan\ Interest Rates Relief Risk Based Interest Rates Secured Loan

Weaknesses: Lack of Up gradation Technologies Lack of Innovation Applying Checking of the Eligibility Criteria & the Legal Code of the Conduct is the hectic processes from the view point of the Entrepreneurs. No Follow Up & Recovery Processes in the Long Run is the Weakened Criteria of the Banks Threats: Lack of Awareness from the Entrepreneurs for this Loan Steady Growth & Development of this Loan Lack of the Quality Services.

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Lack of the Repayment, Claim & Settlement Facilities. Opportunities:-

In Financial Terms Encouragement to Womens In Development Wise for both the Banking Perspective & for the Business Firms Perspective Benefits & Schemes for the Entrepreneurs Perspective for this Loan Economic Growth Tool for the Growth of the Small, Medium & Micro Businesses.

Michael Porters Five Force Model Analysis


Industries differ widely in their economic, profit and competitive characteristics. Retail differs from manufacturing which differs from financial services which differ from information technology. Even the economic and competitive traits of formal versus informal venture capital differ. The Porter's Five Forces Model of Industry Competitiveness is a tool used to systematically investigate the main sources of competitive pressure. The five forces are: The rivalry amongst competitors in the industry how angels compete with one another; The ease with which customers can readily make use of substitute products offered by other industries are entrepreneurs lured easily and attractively to other sources of finance; The threat and potential entry of new competitors to the industry how hard or easy is it for other angels to enter the field; The bargaining power and leverage of suppliers the impact that crucial elements of supply have on angels. The bargaining power and leverage exercised by customers when angels have selected an investee, how much powers can the investee exercise.

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1. Rivalry Amongst Competitors Factor affecting direct rivalry is industry growth, product differentiability, number & diversity of competitors, level of fixed costs, intermittent overcapacity, & exit barriers. It reflects that there is the rivalry itself consisting in the Public Sector Banks & Private Sector Banks in terms of the service qualities provided for the SME Loans. 2. Substitute Products Factor affecting substitute threat are relative price/ performance of substitutes, buyers switching costs, & buyers propensity to substitutes. It avails in terms of the Banks Products & Services by the Public Sector Banks & Private Sector Banks which varies from the schemes & benefits available from this business loans 3. Bargaining Power of Suppliers Factors affecting supplier power are number of suppliers, suppliers ability to integrate forward, presence of substitute inputs, & importance of the business units volume to suppliers. It avails in terms of the public & private banks that provided with the quality services. 4. Bargaining Power of Buyers Factors affecting buyer power are number of buyers, buyers switching costs, buyers ability to integrate backward, impact of the business units product on buyers total costs, impact of the business units product on buyers product quality/ performance, & significance of the business units volume to the buyers. It avails in terms of the Public & Private Banks for the procedures to be followed for the quality services, settlement, facilities, & benefits that provided. 5. Threat & Potential Entry of the New Competitors Factor affecting entry barriers are capital requirements, access to distribution channels, economies of scale, product differentiation, technological complexity of product or process, expected retaliation from the existing firms, & government policies. It avails from the different Banking Perspective for this business loan & cluster approaches based on the sectors.

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RESEARCH METHODOLOGY
Research Methodology is the method or the entire procedure involved in carrying out a research for a specific purpose. Research is a way in order to systematically solve the research problem. In this process, we had studied the various steps that are generally adopted by the researchers to know not only the research methods or techniques but also the criteria by which one can decide technique and procedure that will be applicable to certain problems. Research is thus an original contribution to the existing stock of knowledge making for its advancement. The Purpose of Research is to discover answer to the questions application of scientific procedures. We had done the research regarding Entrepreneurs Preferences towards Banks for SME Loans. For the analyze of the SME Loans, SME Finance, SME Banking, & SME Lending Process we had taken the learnings from the different Public Banks & Private Banks. We also had gained the knowledge for the approval & procedures to be fulfilled by the Entrepreneurs in order to take this Business Loan. Thus We have done research of the actually needs & perception of the customers regarding this loan considering market structure; what they actually want from the bank and what they feel for the criteria in order to applying this loan from the Public & Private Banks. TYPES OF RESEARCH The approach followed in this type of research, the researcher has to contact the person directly to know about the available information and analyze these to make a critical evaluation. The facts and information required to analyze the data was available in the interviewers statements. It is called descriptive as it in the present. The researcher has no control over the variable. He / She can report what has happened or what is happening.

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DATA COLLECTION PRIMARY DATA: Primary data are data that are inaccurate, incomplete, unreliable, unstructured, freshly gathered for specific purpose or for a specific research project. The researcher will have to collect Primary data. The normal procedure is to interview some people individually or in groups, to get a sense of how people feel about the topic in question and develop a formal research instrument into field. It is also called as the first hand data. Our Primary Work for the research study is to knowhow the Entrepreneurs Preferences towards Banks for the SME Loans & that we had done through the Questionnaire Survey from the Entrepreneurs in the Ahmadabad City Area who had came across this SME Loan criteria for their Business Deeds. SECONDARY DATA: The Secondary Data refers to the data that is collected from some other sources & references, probably for similar purposes but it must already exist somewhere. We had collected & gathered the research work of our study for SME Sector Loan from different information sources likewise from the SME Entrepreneurs Reviews, different banks intranet & internet information in order to knowhow the SME Sector & its financing & lendings, SME Loans & its processes & approval criteria, SME Loan Schemes & Benefits that provided from the Banks based on their code of conduct. RESEARCH INSTRUMENTS A Structured Questionnaire was used as tool for the data collection. To capture the Customers/ Entrepreneurs Preferences, We had the questionnaire that having two types of questions which were used areas as follows:

Close ended question Open ended question

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The Questionnaire covers aspects like:

Business Loans & SME Loans Awareness & Popularity among the Customers. Need Of the SME Loans SME Loans Product & Services from the Banks SME Loans Procedures & Approval SME Loans Eligibility Check Criteria from both the Entrepreneurs & Banking
Perspective

SME Loans Schemes Interest Rates Available from the different Public Banks & Private Bank. SME Loans Benefits as per Sector - Wise from the Government as well as from the
Banking Perspective.

SME Loans Growth


SAMPLE TECHNIQUE It is all about a study regarding what are the SME Loans Banking facilities & its need & approval with the procedures of it. After taking into consideration the Ahmadabad city population, it was decided to use non probability sampling method. SAMPLE SIZE The larger the sample the more accurate the results would be. But practically in this project the sample size or the number of the respondents we had taken of 101.In this project being aware of the time and cost constraints sample size was limited. Research tools are direct interviewing approach & telephonic survey. SAMPLE FRAME The research consists of the list of items from which sample is to be drawn. In this case sample is to premises the sector & area likewise C.G.Road, S.G.Highway, Navarangpura, Naroda, Bodakdev Area & many nearby in Ahmadabad region.

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In this Research The information is based on primary data. The quantitative measures have been used. The tools used were observation personal interview and questionnaire.

Data Collection and Analysis All the analysis and findings of the project is based on the data which has been collected from the survey of the market. The analysis of data requires a number of closely related operations into raw data through tabulation chart and then draws inferences. Analysis of work is generally based on computation of various values & percentages. Preparation of Report After analyzing, the next step is the preparation of report that has been prepared according to the report writing principals. Tabulation It comprise of sorting of data into different categories and counting the number of cases that belongs to each categories. Analysis and Interpretation These are central steps in the research process. The goal of this analysis is to summarize the collected data in such a way that they provide answers to the question that triggered the research. Hence the questionnaire prepared was then done to bring the meaning for an implication study. All result is interpreted from raw data which was collected through survey, while results have been filtered from the interview of the Entrepreneurs through questionnaires. For the purposes in order to convince and easy interpretation all the data has been presented in graphical method.

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DATA ANALYSIS & INTERPRETATION


1) AGE GROUP : -

11AT
NO. OF RESPONDENTS (Frequency)
3 48 43 7 101

AGE GROUP
Less than 20 20-40 40-60 60 & Above Total

NO. OF RESPONDENTS (FREQUENCY)


48 50 40 30 20 3 10 0 Less than 20 20-40 40-60 60 & Above 7 43

This Graph represents that at least 48 of the Entrepreneurs Age reflects under the Age Group of 20-40 i.e. 47.52%

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2)

GENDER GROUP :GENDER


MALE FEMALE TOTAL

NO. OF RESPONDENTS (FREQUENCY)


99 2 101

100 80 60 40 20 0 MALE FEMALE

This Graph represents that from the total 101 respondents of the Customers / Entrepreneurs Survey, 99 are Males & 2 of them are Females. 3) EDUCATION :-

EDUCATION
Less than S.S.C S.S.C H.S.C Graduation Post Graduation Total

NO. OF RESPONDENTS (FREQUENCY)


5 11 25 43 17 101

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Less than S.S.C

17

S.S.C 25 H.S.C 11 Graduation 5 Post Graduation0 10 20 30 40

43

50

This Graph represents that at least 43 of the respondents (Entrepreneurs) reflects under the qualification of Graduation i.e. 42.57%

4)

YEARLY INCOME :YEARLY INCOME


Less Than 5 Lac 5-10 Lacs 10-20 Lacs 20 Lacs & above Total

NO. OF RESPONDENTS (FREQUENCY)


12 30 46 13 101

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50 40 30 20 10 0 30 12 13 46

Less Than 5 Lac

5-10 Lacs

10-20 Lacs

20 Lacs & above

This Graph represents that at least 46 of the respondents (Entrepreneurs) availed the yearly income group were under 10 20 Lacs i.e. 45.54%. 5) Type Of Business:-

Type of Business Deeds Sole Proprietorship Partnership Public/Private Ltd. Association /Club/Society Executors & Administrators Others Total

No. of Response (Frequency) 32 15 51 07 24 00 129

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No. of Response (Frequency)


60 50 40 30 15 20 10 0 Sole Proprietorship Association/Club/Society Partnership Executors & Administrators 7 0 32 24 51

Public/Private Ltd. Others

This Graph represents that at least 51 of the Entrepreneurs are availed in the Public /Private Ltd. Firms for their business purposes & deeds i.e. 39.53%

6)

Business Premises :Type Of Business Premises Owned Rented Total No. Of Response(Frequency) 95 06 101

No. Of Respondent (Frequency)


100 80 60 40 20 0 Owned Business Premises 95 6 Rented Business Premises

This Graph represents that at least 95 of the Entrepreneurs availed to the owned premises of their business i.e. 94.06%

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7)

Main Activity of the Business :-

Main Activity of the Business Manufacturing Commerce & Trade Service Others Total
80

Frequency 8 61 31 06 106

Frequency
61

60

40 31

20 8 Manufacturing

Commerce & Trade

Service

6 Others

This Graph represents that at least 61 of the Entrepreneurs availed to the Commerce & Trade of the Business firms i.e. 57.55%

8)

Number Of Employee:
EMPLOYEES 1to3 4to10 11to 50 51to100 101to249 250&Above Total Frequency 13 21 32 22 6 7 101

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35 30 25 20 15 10 5 0 1to3 4to10 11to 50 13 21

32

Frequency
22

51to100

101to249

250&Above

This Graph represents that at least 32 of the Entrepreneurs availed number of employees that reflects in the range of the 11 to 50 i.e. 31.68% 9) Years of the Experiences in order to manage the firm by the Entrepreneur:Years of Experiences Less Than Year 1-5 5-10 10 Years & Above Total Frequency 4 30 23 44 101

45 40 35 30 25 20 15 10 5 0

Frequency
30 23

44

Less Than Year

1-5

5-10

10 Years&Above

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This Graph represents that at least 44 of the Entrepreneurs availed their managing of the firms from 10 years & above i.e. 43.56% 10) Total Sales/Annual turnover:Rupees in the Range Less than 50 lacs 50 Lacs-1crore 1crore-2crores 2crores-4crores 4crores-8crores 8crores-16crores 16crores=32crores 32crores and above Total ANNUAL TURNOVER (FREQUENCIES) 16 17 8 12 18 15 7 8 101

18 16 14 12 10 8 6 4 2 0

17 16

18 15 Less than 50 lacs 50 Lacs-1crore 12 1crore-2crores 8 2crores-4crores 4crores-8crores 8crores-16crores 16crores=32crores 32crores and above

8 7

11)

This Graph represents that 18 Entrepreneurs were availed to the Sales Turnover of the Rs 4-8 Crores i.e. 17.82% Type of the Loan Taken:Type of Loan Personal Loan Business Loan Other Specify Total Response (Frequency) 27 90 01 118

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Frequency
90 100 80 Business Loan 60 40 20 0 27 Others 1 Personal Loan

This Graph represents that at least 90 of the Entrepreneurs availed to the Business Loans i.e.76.27% 12) Awareness of the SME Loan:-

Awareness Response YES NO TOTAL

Frequency 97 04 101

FREQUENCY
4%

YES

NO

96%

This Graph represents that at least 96 % of the Entrepreneurs have the awareness for these loans.

13)

What are the Sources of the Information to the Entrepreneurs for this Loan?-

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Different Sources Newspapers/Magazines Internet Family/Friends Financial/Bank Advisors Others Total

Response 73 15 31 31 3 153

FREQUENCY
80 60 40 20 0 3 15 31 31 73

NEWSPAPER/MAGAZINE FAMILY/FRIENDS OTHERS

INTERNET FINANCIAL / BANK ADVISORS

This Graph represents that at least 73 of the Entrepreneurs availed from the information sources of the Newspapers/Magazines in order to knowhow SME Loan i.e.47.71% 14) SME Loan Taken :-

RESPONSE Yes No Total

SME LOAN TAKEN 69 32 101

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SME LOAN TAKEN

32% Yes No

68%

This Graph represents that at least 69 of the Entrepreneurs had taken this loan i.e. 68% 15) What are the reasons from the Entrepreneurs for not taking this Loan:-

Reasons Lack of Knowledge Past Experiences Lack of Guarantees Specific Finance/Funds Available (Others) Total

Frequency 06 05 09 18 38

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Frequency
20 18 16 14 12 10 8 6 4 2 0

LACK OF KNOWLEDGE

PAST EXPERIENCES

18 9 6 5

LACK OF GUARANTEES

SPECIFIC FUNDS/FINANCE AVAILABLE (OTHERS)

This Graph represents that at least 18 of the Entrepreneurs does not prefer this SME Loans for having the specific Finance & Funds available to them for the Business Deeds i.e. 47.37% 16) Type of SME Loan Taken :Type Of SME Loan Taken Term Loan (Fixed Asset Purchases) Cash Credit (Working Capital Financing) Others Total Frequency 37 32 0 69

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Frequency
37 40 35 30 25 20 15 10 5 0 Term Loan Cash Credit Others 0 32

This Graph represents that at least 37 of the Entrepreneurs preferred for the type of Loan likewise Term Loan which is for the purchasing of the Fixed Assets i.e. 53.62%. 17) Amount of the Loan Taken:-

Frequency Less Than 10 Lacs 10-20Lacs 20-40Lacs 40-80Lacs 80Lacs-1.6Crores 1.6Crores-3.2Crores 3.2Crores-6.4Crores Total 34 17 6 8 3 1 1 70

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40 30 20 10 0

34

17 6 8 3 1 1 40-80Lacs

Less Than 10 Lacs 80Lacs-1.6Crores

10-20Lacs 1.6Crores-3.2Crores

20-40Lacs 3.2Crores-6.4Crores

This Graph represents that at least 34 of the Entrepreneurs availed the amount of the Loan that taken for their Business Firms in the range of less than 10 lacs i.e. 48.57% 18) Classification Of Loan Taken based on Manufacturing/Commerce Trade Wise Investment Criteria:-

Manufacturing /Trading Investment Criteria Micro business(Less than 25 Lacs) Small Business(25 Lacs -5 Crores) Medium Business(5 Crores-10 Crores) Total

Frequency 39 21 6 66

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9% Micro business(Less than 25 Lacs) 32% 59% Small Business(25Lacs5Crores) Medium Business(5Crores10Crores)

This Graph represents that at least 39 of the Entrepreneurs availed to the investment criteria of the Micro Business in the Manufacturing/Trading Sector for the amount of less than 25 Lacs i.e. 59.09% 19) Classification Of Loan Taken based on Services Wise Investment Criteria:-

Services Investment Criteria Micro business(Less than 10 Lacs) Small Business(10 Lacs -2 Crores) Medium Business(2 Crores-5 Crores) Total

Frequency 12 13 08 33

FREQUENCY
24% 40% 36%

MICRO BUSINESSES (LESS THAN 10 LACS

SMALL BUSINESSES (10 LACS - 2 CRORES) MEDIUM BUSINESSES (2 CRORES - 5 CRORES)

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This Graph represents that 40% of the Entrepreneurs availed in the Services Investment Criteria preferred to the Small Businesses. 20) Tenure of the term for this Loan:Tenure of term for the SME loan 1-5 Years 5-10Years 10-20 Years 20 Years & Above Total
38 1-5 Years 21 5-10Years 10-20 Years 20 Years & Above

Frequency 38 21 10 00 69

40 35 30 25 20 15 10 5 0

10

0 1 2 3 4 5

This Graph represents that at least 37 of the Entrepreneurs availed to the term of this loan in the range of the 1-5 Years i.e. 53.62% 21) Methods for the Repayment of the Loan Wise:-

Method of Repayment ECS Cheque Payment Credit Card Total

Frequency 21 45 03 69

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Frequency
50 40 30 20 10 0 Ecs By check 21 3 By Credit Card 45 Ecs By check By Credit Card

This Graph represents that at least 45 of the Entrepreneurs availed for the Cheque Payment of the method of the repayment of this loan i.e. 65.22% 22) Generally for what reasons the Entrepreneurs prefer this loan? :Reasons from the Entrepreneurs Acquiring Business Installments & Equipments Working Capital Needs RBI Mandates with Government Sponsored Govt. Grants, Subsidies, Schemes & Benefits Longer Loan Tenure with the Fast Approval Affordability Venturing Capital Expansion of the Business Interest Rates Relief Others (Easy Documentation Process) Total Frequency 32 38 20 32 21 15 23 29 40 01 251

1 2 3 4 5 6 7 8 9 10

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40 35 30 25 20 15 10 5 32

38 32

Frequency
29 20 21 15 23

40

1 Working Capital Needs Govt. Grants, Subsidies, Schemes & Benefits Affordability Expansion of the Business Others

0 Acquiring Business Installments & Equipments RBI Mandates with Government Sponsored Longer Loan Tenure with the Fast Approval Venturing Capital Interest Rates Relief

This Graph represents that at least 40 of the Entrepreneur availed this loan for the Interest Rates Relief. 23) From which Banks do the Entrepreneurs prefer for this loan? :Entrepreneurs Preferences for this Loan from the Banks SBI HDFC BANK PNB ICICI BANK SIDBI AXIS BANK BOB OTHERS TOTAL Frequency 18 9 9 7 21 8 10 8 90

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25 20 15 10 5 0 SBI 18

FREQUENCY

21

9 7

10 8 8

HDFC BANK

PNB

ICICI BANK

SIDBI

AXIS BANK

BOB

OTHERS

This Graph represents that at least 21 & 18 of the Entrepreneurs availed this loan from SIDBI & SBI respectively i.e. 23.33% & 20%. 24) Satisfaction for the SME Loan Procedures from their respective Banks:-

Satisfaction With The SME Loan Procedures Yes No Total

Frequency 49 51 101

Frequency
49% 51% Yes No

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This Graph represents that at least 49 of the Entrepreneurs had been satisfied with the SME Loan Procedure. 25) What are the reasons of the Entrepreneurs for not been satisfied with SME Loans Procedures? :Reasons from the Entrepreneurs Lack of Quality Services Govt.& RBI Mandates Intervene Longer Tenure & Processes Applying Eligibility Check & Legal Obligations Lack of Repayment ,Claim , & Settlement Facilities Others Total Frequency 9 13 17 23 7 4 73

1 2 3 4 5 6

Frequency
25 20 15 10 5 0 9 13 7 4 17 23

Lack of Quality Services Govt.& RBI Mandates Intervene Longer Tenure & Processes Applying Eligibility Check & Legal Obligations Lack of Repayment ,Claim , & Settlement Facilities Others

This Graph represents that at least 23 of the Entrepreneurs are not satisfied for the SME Loan Procedures from their banks for the purposes of applying to the Eligibility Check Criteria & Legal Obligations. 26) At what Rate of Interest the Entrepreneurs get this Loan from their Bank? :Rates of Interest Below 10% 10-12 12-14% Total Frequency 1 38 36 75

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40

30 38 20 36

10

Below 10%

10-12

12-14%

This Graph represents that at least 38 of the Entrepreneurs prevailed the interest rate in their bank for 10-12 % i.e. 50.67% of the respondents. 27) Satisfaction with the Interest Rates :Satisfaction with the Interest Rates Yes No Total Frequency 66 35 101

Frequency
35%

Yes 65%

No

This Graph represents that 65% of the Entrepreneurs satisfied with the interest rates from their Banks. 28) Satisfaction with the Benefits & Schemes from their Banks for this Loan:-

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Satisfaction from the Benefits & Schemes Yes No Total

Frequency 66 35 101

35%

Frequency
Yes 65% No

This Graph represents that 65% of the Entrepreneur had been satisfied with the benefits & schemes that provided by their Banks. 29) Is this SME Loan Schemes & Government Grants that offered by the Banks serves the Entrepreneurs for their Business Deeds? (Mean Valuation Analysis):MEAN VALUE 2.4444 2.1 2.4545 2.2 2.2222 2.1667 2.1429 2.1111

Banks SBI PNB SIDBI BOB HDFC BANK ICICI AXIS BANK OTHERS

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2.5 2.4 2.3

2.4444

2.4545

FREQUENCY
2.2 2.2222 2.1667 2.1429 2.1 2.1111

2.2 2.1 2 1.9 SBI PNB SIDBI BOB HDFC BANK ICICI

AXIS BANK

OTHERS

This Graph represents that the highest value of the Mean serves to the SIDBI & SBI i.e. 2.4545 & 2.4444 respectively for the Entrepreneur Satisfaction Level from the benefits availing criteria to their Business Deeds towards the Banks Perspective. 30) What are the ways through which the Banks can serve the Entrepreneurs in the better way for this loan? Reasons for better serving in the future Interest Rates Quality Services KYC Norms Information Process & Approval Repayment Facilities Claim & Settlement Follow Up & Recovery Facilities Others Total Frequency 18 25 20 39 38 40 48 4 232

1 2 3 4 5 6 7 8

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60

FREQUENCY

40

48 20 18 25 20 4 Quality Services Repayment Facilities Others KYC Norms Information Claim & Settlement 39 38 40

0 Interest Rates Process & Approval Follow Up & Recovery Facilities

This Graph represents that at least 48 of the Entrepreneurs wanted from their banks in order to follow up & recovery facilities i.e. 20.69%

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JOB PROFILE IN DETAILS


Firstly, we have knowhow the overview of SME Sector, its Eligibility Criteria & then we have served the different Public & Private Banks in order to know the approval & procedure of the SME Loans This was provide & done by the guidance from the employees of the Bank & also through the intranet information which they allows to refer with the limitation of the data. The main focus was how to interact with entrepreneurs regarding their facilities that provided & availed to them from this loan. We have learned about the SME Loans basics, type of this loan, approval, procedures, schemes & grants, benefits and its importance towards Banking Sector as well as for the Business Firms. We have knowhow the SME Banking, SME Lending, & SME Financing that based on the Banking Sector & growth structure of Gujarat present market scenario as per the SME Sector. Many customers unaware of the SME Loans even though they had been aware for the business loans that availed from the banks & also they do not have knowledge of the criteria and its importance. Some Customers dont want to take risk due to the guaranteed criteria that based as Secured Loan from different Public & Private Banks Perspective.

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FINDINGS & CONCLUSIONS

Base on our data and information of the Research Study, We are able to give our findings & conclusions. Seeing the response of the customers, we can say that this business loans has great potential to perform well in future from the Entrepreneurs & its Firms Perspective considering the growth of the economy with the help of this study we would like to give following conclusions: SME Sector is the backbone of the economy especially in a developing country. SME Sector loans are vital to promoting economic growth, competitiveness, entrepreneurship & innovation, creating new job opportunities, & for the adequate access to the finance. The Growth Structure of the SME Sector based on the Industrial Scenario. SME Loans & its types that varies from the different SME sectors & from the banks perspective. Preferences of the Entrepreneur for the SME Loans from the Banking Perspective SME Loans most probably used because of the risk factor based interest rates relief which differs from the Banks Perspective & Entrepreneurs view to how much security he/she approved for this loan. Clustering Approach that avails & ease the Banks in SME lending & SME financing. Sales Turnover for this Loan provided for the Entrepreneurs must be more than 50 lacs in order to make the approval for this loan. Interest Rates criteria based on the sector that covers the range of 10-14 % from the different banks & sector of the firms perspective. Schemes & Benefits provided in the SME Sector by the Government & from the Banks. Procedures & Approval of this Loan in the Banks from the view of the Entrepreneurs. Satisfaction Level for this SME Loan from the view of the Entrepreneurs.

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LIMITATIONS
Base on our data and information of the Research Study, We are able to provide certain limitations of our project report. Seeing the response of the customers, we can say that this business loans has great potential to perform well in future from the Entrepreneurs & its Firms Perspective considering the growth of the economy with the help of this study we would like to give following limitations:-

There is time constraint in order to analysis our research study The study provides the information from the general point of the view for this
loan. There is no Response of the Entrepreneurs on the Spot. Still there is the Lack of Awareness for this SME Loans Still there is Lack of Knowledge for this SME Loans Still there is Lack of Guarantees in the longer tenure processes. Some of the SME Entrepreneurs availed with the specific funds & finance for their business deeds. Complexity in the Procedures of this Loan Social Rigidness & Women Entrepreneurs There is no Technologies Up-Gradation of this business loan There is no Innovation which availed & treats this Loan as under the traditional approach for the approval of this Loan Due to the less of the Sample Size it creates difficulties in order to analysis different models.

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RECOMMENDATIONS
Base on our data and information of the Research Study, We are able to give some suggestions. Seeing the response of the customers, we can say that this business loans has great potential to perform well in future from the Entrepreneurs & its Firms Perspective considering the growth of the economy with the help of this study we would like to give following recommendations:-

There is still need of the awareness for this loan & increasing for the quality
services. Intensive use of the Innovative Techniques & Automation Improvement in follow up & recovery facilities. Encourage Women Entrepreneurs. More Flexible Installments of this Loan. Speeding up the Procedures Usage more easily loan procedure. The Banks should pay more attention on customer satisfaction this will help them in building good relationships with them which will prove to be profitable for them in long run & also to the SME Sector.

The Banks should also keep an eye on competitors strategy and bring about
necessary changes from time to time that must change with the variety in the SME Loan Products & Services.

In such a competitive environment the banks must preserve to shorten the


processing time and reduce unnecessary formalities to speed up the processes.

The Banks must concentrate more on personal relationship and services offered
as differentiation on the basis of product is difficult

Customer complaint should be taken more seriously. There must be expectation from SME Entrepreneurs in the future that they must
be professionalism in the management, there must be transparency in their data in order to approved for these loan, their flexible mindset to adopt to the changing environments, & Quality Consciousness to suit the Global the standards in order to approved for this loan

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BIBLIOGRAPHY

References: Articles from the Economic Times for the SME Loan www.smebuzz.com http://www.smehub.com
www.dcmsme.gov.in www.cnbc.in

www.business-standard.com
www.economictimes.in www.timesnow.in

http://www.smeloancenter.com http://www.pdfdoc

www.infodev.org.

www.articlesnatch.com/topic/SME+sector+in+India smechamberofindia@vsnl.net http://www.iitcindia.com/


WWW.SME TIMES.COM WWW.RBI.ORG.IN

www.dnb.co.in/smes/foreword.asp smetimes.tradeindia.com/ siteresources.worldbank.org/NEWS/.../Indiabusinessgrowth4-9-10.pdf www.ifc.org/ifcext/camfi.nsf/.../FS+IDA/.../SME-Factsheet-IDA-08.pdf

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APPENDICES
ITS a GENERAL QUESTIONNAIRE THAT REFLECTS

ENTREPRENEURS PREFERENCES TOWARDS BANKS FOR SME LOANS


This Questionnaire is not intended to publicize any respondents private life or any information. It is mere a part of the project undertaken to analyze the Customers perception towards an issue. The information in the survey will be kept confidential and will be used only for the purpose of research study. Your kind cooperation & honest responses are greatly valued.

PERSONAL PROFILE

1) Name:___________________________________________________________

2) Age:

Less than 20 40-60

20-40 60 and above

3) Gender:

Male

Female

4) Education:

Less than S.S.C H.S.C Post- Graduation

S.S.C Graduation

5) Yearly Income:

Less than 5 lac

5 10 lacs

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10 20 lacs

20 lacs & above

General Detailed Research Survey for Preferences from Customer

PART-I
1) Type Of Business: Sole proprietorship Public/Private Ltd. Executors & Administrators 2) Business Premises:3) Nature Of Business: Manufacturing Service 4) Number of Employees:1 to 3 11 to 50 101 to 249 4 to 10 51 to 100 250 & Above Commerce & Trade Others (Specify it) Owned Partnership Association/Club/Society Others (Specify it) Rented

5) How many years of experiences do you have in managing your business firm? Less than Year 5 10 Years 6) Total Sales/Annual Turnover:Less than 50 lacs 50 Lacs 1 Crore 1 5 Years 10 Years & Above

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1 Crore 2 Crores 4 Crores 8 Crores 16 Crores 32 Crores

2 Crore 4 Crores 8 Crores 16 Crores 32 Crores & above

PART-II
1) Have you raised your finance from bank loans for the business purposes? Yes No

2) If yes which type of loan you had been preferred? Personal Loan Business Loan 3) Are you aware with the SME Loans? Yes No Others (Specify it)

4) If yes, what are yours sources of information? Newspapers/Magazines Financial/Bank Advisors 5) Have you taken this loan? Yes No 6) If no, what are the reasons for not taking this loan? Lack of Knowledge Past Experience Internet Family/Friends

Others (Specify it)

Others (Specify it) 7) If yes, which type of SME loan you had taken? Term Loan (for fixed asset purchases) Cash Credit (for working capital finance)

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Others (Specify it) 8) What is the amount of the loan that you had taken for your business purposes? Less than 10 Lacs 20 40 Lacs 80 Lacs 1.6 Crores 3.2 Crores 6.4 Crores 10 20 Lacs 40 80 Lacs 1.6 Crores 3.2 Crores 6.4 Crores & above

9) In which classification you are in for SME Loans that you preferred from your bank? Ticks specify one. Manufacturing/Trading Tick (investment criteria) Mark Micro Businesses (less than 25 lacs) Small Businesses (25 lacs 5 crores) Medium Businesses (5crores 10 crores) Services (investment criteria) Micro Businesses (less than 10 lacs) Small Businesses (10 lacs 2 crores) Medium Businesses (2 crores 5 crores) Tick Mark

10) What is your tenure of the terms for this loan? 1-5 Years 10-20 Years 5- 10 Years 20 Years & Above

11) Which methods of repayment for this loan? 12) Generally for what reason you prefer SMEs loan? Acquiring Business Installations & Equipments Working Capital needs of general business purposes. RBI Mandates with Government Sponsored Government Grants & Subsidies Schemes Benefits Longer Loan Tenure with fast approval Affordability

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Venturing Capital Expansion of the Business Interest Rates Relief Others specify it 13) From which banks do you prefer for this loan? State Bank of India Punjab National Bank SIDBI Bank of Baroda HDFC Bank ICICI Bank Axis Bank Others (Specify)

14) Are you satisfied about the SME Loan Procedures that offered by your bank? Yes No 15) If no what are the reasons for that? Lack of Quality Services Government & RBI Mandates Intervene Longer Tenure & Processes Applying Finance through Eligibility Check from Personal Liability & other Legal obligations Lack of Repayment, Claim & Settlement Facilities Others (Specify) 16) At what rate of interest you get this loan from your Bank?

17) Are you satisfied with the rate of interest for this loan from your bank? YES NO

18) What are the extra benefits & schemes & government grants from this loan that you had been provided from your Bank considering to your business sector preferences?

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19) Are you satisfied with those benefits? YES NO

20) Is this SME Loan Schemes & Government Grants that offered by your bank serves you for your business deeds?
Never SBI PNB SIDBI BOB HDFC Bank ICICI Bank Axis Bank Others(Specify) Sometime Every time

21) What are the ways through which your bank can serve you in a much better way?

Interest Rates Process & Approval

Quality Services Repayment Facilities Others (Specify)

KYC Norms Information Claim & Settlement

Follow Up & Recovery Facilities

THANK YOU FOR YOUR TIME AND SUPPORT.

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