Saurabh Gupta | 01 Jul, 2008
The SME sector is facing the problem of non-availability of timely and adequate credit at reasonable interest rate. One of the major reason for low availability of bank finance to this sector is the high risk perception of the banks in lending to MSEs and consequent insistence on col-laterals, which are not easily available with these enterprises.

The problem is more serious for micro enterprises requiring small loans and for first generation entrepreneurs.

Commenting on a recent news report where Union Finance Minister P. Chidambaram has advised state-run banks, to lend more to MSMEs, Tarang Patel, an entrepreneur said, "Banks especially PSU banks are not interested in any credit guarantee and credit scheme for entrepreneurs and SMEs because the process of finance advances under the guidelines of ministry takes so much time for an entrepreneur, which don't allow them to be a part of this scheme."

"On the contrary to that private banks is making this process fast with the cost of high interest rates and charges...so I think Finance Ministry have to ease the norms and regulations which can help SMEs," he added.

The Finance Minister has advised state-run banks, to lend more to micro, small and medium enterprises (MSMEs) to boost economic growth, export, create employment and wealth, during a bank function in Bangalore.

"Banks should shed their conservatism and come forward to lend more to entrepreneurs and SMEs with credit guarantees. Banks should be willing to take risk when entrepreneurs are ready to do so," said Chidambaram.

There are an estimated 128.44 lakh registered and unregistered micro and small enterprises (MSEs) in the country at the end of March 2007. The MSE sector contributes about 39% of the manufacturing sector output and 40% of the nation’s exports.

However despite SME Times' efforts, none of the PSU banks were ready to comment on the issue.

Speaking to SME Times a high official in the MSME Ministry said that the government has launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) on August 30, 2000 to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.

The Ministry of Micro, Small and Medium Enterprises and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.

Countering the ministry of MSME's claim, Nichenametla Jaganmohan, MD of Sri Narayana Silver Wares Pvt. Ltd, said, "I am running a manufacturing unit of pure silver articles. I have applied for a loan in State Bank of India under credit guarantee scheme, which was rejected by even the most experienced people of the SME department of SBI citing flimsy reasons."

Another entrepreneur Lata Sohan said, "My Husband is running the small scale industry from last several years. He has got the loan under CGFSI scheme, but when I applied they say you are a new enterprise and thus asked me to some sales and then approach them for a loan."

Meanwhile Raman Subramany, Proprietor, Plasweave (P) Ltd. said, "More then lending to MSMEs, the Government should initiates reduction of interest rates to MSMEs, equivalent to lending rates to big industries."

"This would reduce the burden of high cost of funds and over the period and improve their bottom lines and will have a chance to stand on their own feet instead of looking for banks for support," he added.