SME LISTING – HOW IT ADDS VALUE ?
- November 7, 2017
- Posted by: yudhisthar
- Category: Compliance, Discussion Forum, Knowledge Corner
SME LISTING – HOW IT ADDS VALUE?
SME Listing – The Economic growth in India has been predominantly driven by “Organic Growth” path for a very long time. The Contribution to MSME in the India’s GDP Growth is phenomenal. Indian MSME (including Service Sector) contributes to around 37.5% of the Indian Gross Domestic Product. Contributes to around 45% of the total exports from India. Besides providing employment to over 117 million of people in india.
In-spite of the same, it is a cause of real concern that around 90% of the MSME. Sector is highly dependent upon the informal money resources for meeting their Capital and Debt Funding Requirements. The Proprietary Capital (“Promoters Equity”) has virtually remained the only source of growth of MSME (Medium Small and Medium Enterprise) business in India. While access to Equity Capital (external sources) has always remained “Dream Task” for MSME. The access to bank finance has also remained difficult for most of the MSME. As against the total estimated MSME entities of around 50 million. Only 20 million MSME Enterprise has formal access to bank finance in a total estimated MSME. Lending portfolio of INR 11.1 Trillion (Rs. 11 lacs Crore).
Bank Policy to lend MSME at the strength of Collateral Security Due To Lack of Equity Capital
Virtually, most of the banks only prefer to lend to MSME only on the strength of tangible security. Resultantly, most of the loans extended by the banks to MSME between Rs. 50 lacs to Rs 15 Cr. Are actually nothing but in some form or the other based upon the value of the available collateral. Collateral Securities include the individual properties held by the Partners, Directors or their relatives. The trend of lending by Banks to MSME only against the collaterals is actually because of the risk policy framed by the banks which allow them to lend only against the collateral security cover besides other factors. In the absence of available collateral security, the competitive opportunities available to MSME, in up-scaling their business, get diminished on account of the absence of “Need-Based Finance” by the banks.
A very important reason for lack of need-based finance is lack of Equity Capital in the MSME owned enterprises. The banks face a lot of challenges as the bank’s overall gearing ratio in such a situation is beyond the comfortable. As per IFC (International Finance Corporation) report, MSME enterprises face a funding deficit of around Rs. 32.50 trillion out of which the requirements for Equity itself is around Rs. 6.50 trillion. The Amount of Proportionate equity availability with MSME organization can only offer a viable opportunity for pumping in funds by banks in MSME enterprise to the desired level. In addition, MSME enterprise needs capital for up-scaling their operations through inorganic route e.g. possible formal business Partnerships / JV / Collaborations / Mergers and Acquisitions.
The Centre and authorities have discovered a variety of risk capital Fund within the past for supporting the capital needs of MSME. Similarly, several alternative personal Equity funds have discovered funds targeted on meeting the capital needs of MSME. However, the most important challenge for his or her success is non-existence of a platform which might provide a reliable platform for his or her “Planned Exit”. The launch of SME Listing platform seeks to deal with the twin in this regard.
The SME Listing tips have just about offered the listing opportunities to SME Enterprise existing for an amount of 3 years or a lot of with a positive internet price. 2 years memoir of profitableness (Earning before Interest, Depreciation, and Tax).
Besides, meeting the capital needs of MSME enterprise. SME Listing provide immense price unlocking opportunities to the Promoters of this enterprise. Legitimize the proprietary capital while not impacting the continued finances of MSME.