KulWA #26 “Indian SMEs & Their Access to Finance”

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Moderator : Good evening ladies and gentlemen. I hope all of you had a good day. I’m honored to be a moderator for the 25th WA Sharing Platform Group. Welcome Mr. Ibrahim. We are pleased to be with you today. This WAG is one of the knowledge sharing platform to more than 250 leaders in Jamkrindo in all over Indonesia and was initiated by Jamkrindo SMEs Rating Department. Ladies and gentlemen, today’s topic is about SMEs in India and their access to finance. Today we have a distinguished guest speaker. Let me introduce you to Mr. Ibrahim, you may call him Ibrahim. He is from Aligarh Muslim University, India, as one of the research scholar in Department of Commerce. I will give you a short description about Ibrahim

Ibrahim is from Kerala, India and was born at November 7th 1988. He had studied in many Universities, such as:

  • University of Calicut
  • University of Kerala
  • Madurai Kamara University
  • currently pursuing his Doctorate at Aligarth Muslim University

His major is focused on Commerce and Education, where he has Mastered both. He is very interested in these Subjects:

  • Accounting
  • Entrepreneurship
  • Business Economics
  • Financial Management
  • Marketing Management
  • Human Resource Development

He is currently focusing most of his efforts in Researching and Improving Economics practice in Aligarh Muslim University. He had been working as an Assistant Professor in the Blossom Arts and Science College from 2014 to 2015.

Ladies and gentlemen, without further ado, let’s us start this session tonight.


I feel blessed with you people, have being working for the promotion of SMEs in Indonesia. I am thankful to Neena and Helena for giving a chance to interact with you. At very outset let me tell your work is how much worth is. The SME are the driving force of any economy because it augment all economic sector. In Every economy this sector have significant role for creating employment and maintain regional balance. I am not prolong the introduction.lets discuss today’s topic India SME and their access to finance. I have planned this topic in to :

  1. Brief Introduction to Indian Economy
  2. Growth of MSMEs : Past and Present
  3. MSME Financing Issue and Challenges
  4. SME Rating in India

Let’s beginning with Indian economy. The Indian economy have blessed with abound resources both natural and human resources. India became independent in 1948, were the resources are looted British colony. So the  journey Indian Economy started with worst conditions. Now India economy one of the fast growing economy with lot of potential. I am sure that, next level of world economic development Will be driven by BRICS countries including India. The GDP of India is 7.16%. There are three major sector which contribute to economic development :

  • Agriculture 13.94%
  • Industry 26.13%
  • Service 59.93%

One of the important fact I recognized about Indian economy is, it will grow with or without support of government or any other agencies, because the country is world economic destination. Natural resources are still under used. The working population, in fact second largest populated country. Abadund marketing opportunity for consumer as well as capital goods. World financial crisis in 2008 not much affected India economy due to strong banking and financial Network. Industrial growth of the country have 3 stage :

  1. 1947 to 1991, were. The have predominant role in entire economy
  2. 1991 to 2008 after the globalisation, where government relaxed various regulations and promoted private as well FDI in the country.
  3. 2008 onwards, the world economic crisis in 2008 gave an amble scope indian economy to grow, now Indian economy called fastest emerging country in the world.

One of the basic philosophy of India is “unity in diversity” this slogan was raised at the Freedom movement but still continuing in many aspects even industrial growth too. The country consist 28 state, more than 100 languages among them 22 official languages. So each state has separate industrial policies and promotional agencies. As Helena said, I am from Kerala, which is a southern state, where industry is mainly concentrate on  traditional and agriculture product. At the same some other states concentrate various diversified products. Let’s see the financial system. Indian financial system combination of four basic elements :

  1. Financial Institution
  2. Financial Market, Capital and Money Market
  3. Financial Instruments
  4. Financial Services

There are 21 public bank, as well as 21 private bank and various foreign banks. In addition to this many specialised financial institutions also exist. In India case of SMEs SIDBI, NABARD focused on SME FINANCE at national level. In addition each state have state financial institutions and many other institutions. Recent issues in Indian economy. Due to some Policies of government the economy down

  1. Demonetization of high denomination currency , government banned 86% currency at night
  2. Introduction of GST
  3. Digitalisation of economy

I am sure it is short issue economy will recover soon. Let’s come second part, MSME, Earlier it was called SSI (Small Scale Industry). In 2006 government enacted Micro, Small and Medium Enterprises Act. Which is a milestone development of Indian small scale industries. This act give wide coverage for sector by including both manufacturing and service sector

Moderator : Thank you Ibrahim for your explanation of the India’s economy. Please allow me to summarize it. In India, SME’s are the important driving economic force, because it augments all sectors in economy by opening job employment and maintaining the regional balance. India as one of the BRICS countries, is full of raw potential (Natural and Human resources) with a GDP of 7.16% that stimulates the International World to invest in India. Blessed with abundant yet underused natural resources, India boasts its very potential huge workforce (second most populous country in the world), opens up opportunities in the market for both consumers and capital goods. India was able to cope with the world financial crisis in 2008 due to strong banking and financial network. “Unity in Diversity”, the philosophy that fuels India’s economy growth. With more than 100 languages and numerous states with different regulations and main economy contributors, India is blessed with specialized products from different regions/states. While we wait for the others to formulate their questions, Ibrahim, you may continue your lecture on the second topic

Ok thank you

Next, see the strength of Indian MSMEs. The MSME sector contribute 8% to GDP, 45% manufacturing products, 40% of export, 48million working units, and more importantly 111.4 million employment, it is the second largest employment provider after agriculture. But important fact about Indian MSMEs is 94% of units are unregistered with government. The concept of indian so what different from other countries, may form Indonesia too. The MSME Act 2008 catogaries MSMEs on the basis of Investment in plant and machinery. According to the definition, the MSME broadly classified in to two sectors, Manufacturing and service sector. Take the case of manufacturing, The investment up to 25 lakh called micro unit, The investment between 25 lakh to 5 crore small enterprises and The Investment in between 5 crore to 10 crore Medium Enterprises. In case service the labeling as up to 10lakh micro unit, 10lakh  to 2 crore small unit and 2 crore to 5 crore Medium Enterprises. The service sector in MSME contribute 71% of total, Manufacturing constitute 29%. The MSME shown highest growth rate as 18.45% in 2011-12, average growth rate of sector is 12%. Top 5 industries are :

  1. Retail trade 39.85%
  2. Manufacturing wearing apparel 8.75%
  3. Food and beverages 6.94%
  4. Other services activities 6.20%
  5. Hotel and restaurant 3.64%

In addition to IT and tourism sectors are Major foreign earning sector. Data base of Indian MSMEs are all India survey of MSMEs. So far 4 surveys are conducted in various years, 1973, 1988,2000 and 2007.

Main weakness of the sector is credit gap, 63% out standing to the sector. Banks and financial institutions are not giving keen attention due to high risk in the sector, but the sector also have good opportunities. Growing domestic demand, emerging economy so international market coverage too, bilateral and multilateral agreement with many countries. But major threat of the sector is 70 % of the units are from service sector,they are dependent on external client so any recession from any other countries will affect badly. The MSMEs growth could be classified in to three stages:

  1. During 1948 to 1991, many basic financial institutions have established and government considered as strategical important segment. There are some products exclusively reserved for small scale industries.
  2. The second stage start from 1991 to 1999 during the time government promoted private investment and de reservation of products. During this government assistance was for technological upgradation.
  3. Third stage 1999 onwards it is modern age of the sector, the sector have shown significant growth.

Let’s conclude the second section. Durinf the period, the sector shown growth in production 12.62%, Employment 4.42%, Investment 5.45%. This section briefed so.


Moderator : the first question is from Mr. Ilham

Q : Dear Ibrahim. Allow me to introduce myself. I am Ilham from Pekanbaru, a Province in Sumatra Island of Indonesia. I am so interested and I appreciates your explanation about India’s economy situation. I think as Developing Countries, India and Indonesia have similar situations, especially what had happened in SMEs. My question is: What has the India Government done to face the economy’s changes and its impact to SMEs ?

A : Indian government changed their attitude from protection of SMEs to promotion of SMEs. Ie equip the sector to compete globally. So government introduced various scheme to promote technology and exports of the sector. There were some goods exclusively for MSMEs before 1991but that de reserved from 1991 onwards. The impact the MSMEs stregled for survive but due to intensive packages the sector begin to grow

Moderator : the second question is from Mr. Andi

Q : I’m Andi, from Balige , North Sumatra. I’m interested in one of your statement: “One of the important fact I recognized about Indian economy is, it will grow with or without support of government or any other agencies, because the country is world economic destination”. I strongly agree with your statement. In the future, India is one of the world’s most wanted market destination with its sexy number of population and also the source of many technology innovations. My questions are:

What about in the past?

  1. Did the Government played a big role in India’s advancement to this stage? What kind of incentives did the Government give to the MSMEs?
  2. How was the growth rate from Micro to Small to Medium to Large enterprises? Was it a fast growth as in 1-5 years? Or did it developed in a long run as in 10-20 years?

A :

  1. Reservation of item is one of the important measure, Secondly in past the sector growth entirely sponsored by government it self, only few people shown interest.
  2. The growth rate was slow it is due to financial shortage I will clear while discussing that part. 96%units still micro units , the shift is very slow.

Moderator : the third question is from Mr. Eris

Q : How is the development of e-commerce and financial technology companies in India? (we called it start-up finch). And how does the India ready itself to face the era of disruption on the e-commerce, internet and of the things that are all based on online system?

A : I will give the statistics later, now I don’t have that statistical figure. In the introduction it self I said Indian government beginning to convert economy to digital platform. Demonetization of currency and implementation of GST all this are digital augment digitalisation of SMEs, at present India SME not too advanced to copup with technology it own process. In fact Indian MSMEs are not too  developed in terms of ICT

Moderator : the fourth question is from Ms. Ratih Hatniyanti

Q : You’ve already enlightened me with the brief introduction to India’s economy. India had been known as the one of country who could exist and stays strong amidst global economy crisis. And because India has a similar condition with Indonesia, your topic tonight excites us very much. Hopefully you would give us some more explanation about:

  1. How many SMEs has business in agriculture sector? (you may give it in percentage)
  2. Do they, the SMEs who has business in agriculture, have an easy access to financial institutions?
  3. If it is easy, how does the financial institutions analyse them? We know that the farmers sometimes don’t have collateral, and their business depends on climate
  4. How does the India’s government regulates or enact policies for them who have businesses in the agriculture sector? (the policy to ease the access to financial institutions)

A :

  1. meager percentage around 13% in which agricultural entrepreneur are very less. Indian MSMES dominated by manufacturing and service sector.
  2. agriculture finance easy to access than industrial finance with low interest rate around 4%, most of the time government gives handsome amount of subsidy.
  3. in agriculture sector government scheme are their more over government gives guarantee for the loan
  4. govt keen imporantce for agriculture because the majority of Indian working population engaged with this sector. The government ensure minimum support price (MSP) agriculture product. In fact Agri entrepreneur are very less compared manufacturing and service sector. Indian economy now not depends on agriculture.





















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