Financing MSMEs

Written by Arun N | Updated: Mar 31 2011, 08:02am hrs
SMEs are the engines of growth for any developing country. In India, MSMEs contribute to 45% of industrial output and 40% of exports, and are the second largest employment generators after agriculture. In the pre-liberalisation era, SMEs enjoyed government protection through reservations in manufacture and government purchases. However, after the 1991 reforms, SSIs were suddenly exposed to external competition. This led to the closure of a considerable number of units, and their accounts became NPAs with banks and FIs.

However, the resilient units have stood the test of time by innovating, investing in technology, and linking up with large corporates, becoming a part of their supply chains and OEM vendors. Along with many government and private organisations, State Bank of India, too, has played a key role in the modernisation of SMEs, through its Project Uptech initiative, which started in 1988 and covered over 30 key clusters.

SBI, a pioneer in SME financing, has so far funded over 14 lakh MSMEs. The banks exposure to MSMEs is over R1,24,000 crore, as in Dec10. To drive the SME business, SBI has set up a separate business unit-SME BUat the corporate centre, Mumbai. SME BUs have also been set up in all circles to facilitate assistance to the SME sector. Here are some key initiatives of SBI for MSMEs:

* Relationship Mangers (RMMEs) for medium enterprises with exposure above R1 crore. The RMME is the one-point contact that take care of all the borrowers requirements, right from the stage of sourcing.

From Apr11 the Relationship Manager concept will be introduced for Small Enterprises also, to handle exposures from R25 lakh and R1 crore.

* Special focus on collateral-free lending up to R1 crore for MSEs through CGTMSE. While RBI has made it mandatory for all loans up to R10 lakh to be financed without collateral, SBI has enhanced it to R25 lakh.

* Special focus on dealer and vendor financing for industry majors to link and help SMEs.

Key products/schemes

Term loans: For acquisition of fixed assets, equipment, replacement of high cost debt etc; repayable in five years, and extendable up to eight years.

Open term loan: Pre-sanctioned term loan up to R2.5 crore for unforeseen needs like modernisation, expansion, business trips abroad, certifications etc; Margin is only 10%.

Working capital loans: To carry out day-to-day operations, generally renewed every year.

Stand by line of credit: To meet contingency needs arising out of bunching of orders, delay in shipments and realisation of receivables; up to 15% of working capital limits (20% for export sector).

Pharma Dosage: For modernisation/up-gradation, including GMP upgradation/scheduleM; investment in common effluent plants or purchase of pollution control equipment; two-year year moratorium on repayment.

SBI SMILE: Interest-free equity assistance up to R10 lakh for MSEs; Equity loan assistance (ELA) can be repaid over three years after a moratorium of 5-7 years.

Traders Easy loan: For acquiring fixed assets and/or build up of inventory/current assets; cash credit/demand loan/term loan up to R5 crore.