The SME sector contributes 39% to the country's manufacturing output and more than 34% to the country's exports, as per 2007 data of The Directorate General of Commercial Intelligence and Statistics (DGCI&S). The contribution of the SME sector to exports is substantially higher, a fact, also substantiated by the findings of the Third All India Census of SSI conducted in 2002 despite its figures being "underestimated."

The Census quotes the reason for this underestimation. "The reason is that there are cases of non-reporting and under-reporting by the concerned enterprises and the important reason for underestimation was that most of the units do not export their products themselves. The exports are done through Export/Merchant Houses, most of which are located in export zones like ports etc."
   
The Census also makes some interesting revelations. It says, there are 50,606 exporting units accounting for exports to the tune of Rs. 14,200 crore. The exports are valued at 5% of the gross output of this sector. The registered SSI sector, having only 14.5% of the exporting units, accounts for 87% of the total exports.
   
Economic Survey data for 2007-08 shows that SSI registered SME's have exported to the tune of Rs.1,50,242 crore, employing 29.9 million people in 2005-06.
   
Given the variation in data by the two agencies and assuming that there are several thousand units not covered by the two surveys conducted by the Government, at least 50% of the total export credit may be extended to the MSME sector. At present, data from individual banks reveals that at an average 25 to 35% of export credit is being extended to MSME sector from a sample taken from 7 public sector banks.
  
In order to increase the flow of export credit to the MSME sector the following may be considered :

• The MSME sector is unable to access these low cost funds outside banking channels and has to rely on the public sector banks, which follow stringent financing norms such as pledging of collaterals, employing methods for financing like Maximum Permissible Bank Finance (MPBF) etc. Hence, to improve the flow of credit there is a need to provide low cost finance to the MSME export sector, which has limited working capital and is dependent exclusively on finance from public sector banks.
• Banks obtain high percentage of collateral securities by way of equitable mortgages on properties and/or cash deposits. Sometimes, it is close to 50% of the fund based limits sanction. Besides, personal guarantees of directors as well as relatives are asked for. Banks should sanction the limits only against personal guarantee of the directors and should not insist on other collaterals in case of export finance.
• The cost of credit in India is higher than many of our competitors. SMEs have now started forming consortia to tap loans in overseas markets through commercial papers. ECGC premia and service charges by banks add to the cost burden. These include appraisal fee, charges on FIRC, charges levied by banks on transference from one account to another such as from EEFC to current account, L/C advising charges, renewal of credit limits charges even without any enhancement in limits, etc. 
  

Besides this, a transparent credit rating system, simplification/reduction in documentation for accessing export finance, providing interest rate subvention to the MSME sector on priority, etc. may be considered.
   
In view of inclusive growth objective spelt out by 11th Five Year Plan and Foreign Trade Policy, rural and semi-urban population should be engaged in agro-based industries through schemes like Vishesh Krishi Gram Udyog Yojana (VKGUY). Export credit facilities may be extended through the cooperative banks to these industries.

According to Mr. Manish Bansal, of Sandip Chemicals, "Govt. should make laws that are more favorable for the SMEs so that they can get credit more easily from the banks. Besides we need to understand that SMEs are one of the biggest employment providers and income generators for the Indian economy so the govt. needs to give more importance to this sector".