Bank and SMEs Together Will Drive Growth in Economy
Around 40 percent of India’s workforce is employed in SMEs, which is approximately 80 million people. Around 45 percent of India’s manufacturing output and 40 percent of India’s total export is contributed by SMEs. This shows that the contribution of SMEs to the growth of our economy is rising and it can be enhanced further when banks contribute to their development. Here are some ways in which this can be achieved:
Currently, foreign banks are allowed to open only twelve branches annually. If that is changed to hundred, there will be an influx of local and SME banks who will be clamouring for attention. Bringing down the restrictions on foreign banks will create a situation that would be beneficial to the SMEs as well as banks.
Equity funding has been recorded to be beneficial for start-ups. Senior management can help significantly in improving revenue and market share over a short span of time.
Government has formulated schemes for collateral free loans up to INR 1 Cr under CGTSME scheme. Based on the business size, age, and other factors, SMEs can explore other debt funding and other funding options for their business bank accounts.
Mezzanine Debt Funding
A mixture of equity and debt funding is mezzanine debt funding. It is offered by both domestic and foreign investors. It is the best suggested funding option when you are looking at expanding your existing business further.
LIBOR for Exports
LIBOR offers highly competitive interest rates. Based on the regimes, it provides pre-shipment and post-shipment credits for exporters.
Some NBFCs offer debt-backed PE funding for SMEs.
India is involved in bilateral trade ties with other countries that offer grants to selected sectors for trade and finance association. Renewable and Clean Energy is one such sector in which operational SMEs get access to several grants.
At 48 million, India has the second largest number of SMEs in the world. It can be said that SMEs are the backbone of the country. Currently, 17 percent of India’s GDP is through SMEs. Finance is one of the main reason for the survival of SMEs. To ensure that their business banking is not hindered, the growing alternative funding options are turning out to be a boon for the SMEs.
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