An alley to escape ‘capital’ punishment

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: choice of projects, and export-oriented enterprises are usually preferred.

In these cases, deals are chosen after a thorough field analysis because documentary evidence is not enough in itself. Finally, returns must exceed average market expectations.

Alternative financing is advantageous to SMEs, since they face challenges in raising adequate financial resources to sustain international competitiveness. This is often due to non-availability of suitable and tested credit appraisal models, repayment records and the market credibility of SMEs.

Alternative financing helps SMEs obtain quicker and improved cash flow; flexible terms and quicker sanctions and better, easy returns on funds deployed, besides matching the seasonal needs of finance.

To attract VCs, the project should get ahead of the conceptual stage and cross the pre-production stage, since no one would like to take a risk on conceptual framework until its configuration.

However, VC ‘finance’ may be available to the entrepreneur at the early stage in the form of seed capital; for financing research & development, as start-up capital at the take-off stage; or in the form of collaboration.

Meanwhile, the Abid Hussain committee, the study group appointed by the Planning Commission, recommended introduction of VC for small industries by setting up a special VC type fund of Rs 500 crore to be named as Laghu Udyog Nirman Nidhi for equity support. Followed by such recommendations, Small Industries Development Bank of India (Sidbi) has introduced VC funds for software and IT industries.

VC finance has made a powerful impact not only in South Asian countries but also in the US and UK. However, in India, we are still at a stage of infancy mainly because of non-involvement of the resource personality and partly because of low awareness among the small industries fraternity to the existence of such schemes and their inability, if not their inertia, to tap the potential.

The IITians and NRIs are enthusiastic about venture finance, but what is needed is the involvement of IITs. And this is the exclusive job of the small industries’ associations.

That apart, such associations should tap pensioners and retired intellectuals to be involved in such projects.