New Delhi: Bangalore-based entrepreneur Vivekananda Pani runs a thriving albeit small firm providing software applications for mobile phones, like mobile commerce and shopping.
Business is progressing today, but his biggest problem during the initial stages was getting finance for his startup. With most banks unwilling to lend, small businesses usually end up going to the unorganised financial sector. Pani’s is still a self-funded firm.
Bank funds, if at all they come, carry a host of conditions. Pravin Batra, executive vice president and head-corporate & business banking group, Development Credit Bank Ltd (DCB) says the must-have basics are “integrity and strong business acumen.”
Pani counters: “That’s theoretically true, but how do you measure such soft qualities?”
He feels banks are essentially looking for proven track records. “Which means the entrepreneur would be moneyed and wouldn’t be running an SME, but a bigger industry. Start-ups never fall in that category,” he says
Banks argue that there is an element of high-risk-uncertain-reward in funding SMEs. They end up absorbing the full downside when the SME posts a loss, while it is the promoter who enjoys the upside when the unit is profitable.
“But all that is changing slowly. Banks are now looking at financing start-ups with a debt-equity mix so they can enjoy the upside as well”, says J. Moses Harding, executive vice-president and head–wholesale banking group, IndusInd Bank Ltd.
The banking industry has been putting together a bouquet of packages for small units, and is working towards doubling credit flow to SMEs by 2010.
Batra of DCB says his bank’s new product “SME Express Loan” provides both fund-based and non-fund based facilities to traders, manufacturers and service providers for their working capital needs.
Varun Tuli, president, business banking, Yes Bank says his bank has launched the Business Banking Financial Advisory (BBFA) group, which offers SMEs investment banking and advisory services.
ICICI Bank has programmes like the SME Expo and SME Workshop under the ’SME Connect’ umbrella. These help SMEs transact among themselves and with large corporates. They gain from interactions with industry, experts and successful entrepreneurs. The SME CEO Knowledge series is an industry-specific platform that enables small firms to understand key growth issues such as marketing, HR, finance and taxation.
Sanjeev Anand, executive director & head - Commercial Banking India, ABN AMRO has strategies to assimilate SMEs in the bank’s growth plans.
“We see SMEs as extremely important for our growth strategy in India. We have specially trained relationship managers who can understand the needs of the SME client and offer him customized financial products,” says Anand.
He adds, “Since SMEs are mostly outside the metros, we follow the cluster strategy. We have opened branches in Tirupur, Salem, Panipat, Kolhapur, Surat, and Moradabad, where the concentration of select industries and large SMEs is high.”
Some product offerings include construction equipment financing, medical equipment financing, warehouse receipt financing, and channel financing.
The SME sector contributes 7% to India’s GDP and has excelled in specific areas like readymade garments, where its share of exports is 90%. It accounts for 55% of the country’s pharmaceutical exports and 80% of plastic product exports.