Equity funding can help control finance cost for SMEs: TIHCL Director

Small and medium enterprises (SME), which are major contributors to the country’s economy and are employment providers, are deep in debt and need to look at equity funding going forward.

B Yerram Raju, Advisor and Director of Telangana Industrial Health Clinic Ltd, said the SMEs provide a huge number of jobs but many of them hide the actual numbers as they gain on the wage front and expenses.

Delivering the keynote address on ‘Keeping your Business Well Funded’, at the SURGE Conclave, he said entrepreneurs should focus on raising funds through the stock markets. Unfortunately, the number of those tapping the market is low.

Citing the example of how hundreds of SMEs get listed on the stock markets in China, he said Indian entrepreneurs could also look at equity as an option as debt comes at high interest rate of 18 per cent. Even the State Finance Corporations, set up to facilitate the growth of SMEs, charge 17-18 per cent, he pointed out.

Referring to SIDBI, set up specially for the small scale sector, Raju said they, too, charge 18-19 per cent. These indicate there is institutional failure in understanding the finance needs of SMEs and addressing their concerns, he added.

He further said the policies aimed at addressing SMEs are good on paper but do not reach the target groups. Even the regulatory environment is unsuccessful in ensuring that funding reaches them, he added.

Asset registry

Raju suggested that an asset registry be set up by the RBI. The data there could be used while looking at collateral for SME loans, he observed. One of the important thrust areas should be to ensure that the SMEs do not shut down.

Often, entrepreneurs are blamed for defaults and delayed payments, he said. Banks are quick to stop payments when it comes to SMEs, but do not mete out such treatment to big companies, he added.

Raju called upon the Centre to consider offering micro and SMEs lower income-tax and GST rates.

[“source=thehindubusinessline”]