UNIT IV
Micro, Small and Medium
Enterprises
SUMMARY
▪Concept, role and importance of MSME
▪Policies governing SMEs - Steps in setting up a small unit.
▪SME funding
▪ Requirements of capital (fixed and working)
▪ Factors determining capital requirements
▪ Importance of fixed and working capital
▪Sources of finance for SME’s.
MICRO, SMALL AND MEDIUM
ENTERPRISES (MSMES)
The Micro, Small and Medium Enterprises (MSMEs) support
industries as ancillary units, thereby contributing enormously to
the overall industrial development of the country. These
enterprises are engaged in the production, manufacturing and
processing of goods and commodities.
According to the Micro, Small and Medium Enterprises
Development Act, 2006, MSMEs are classified into three
categories:
▪Micro enterprise
▪Small enterprise
▪Medium enterprise
INTRODUCTION
▪ Micro enterprise:
An enterprise where the investment in the plant and machinery or equipment
does not exceed ₹1 crore, and turnover does not exceed ₹5 crore.
▪ Small enterprise:
An enterprise where the investment in the plant and machinery or equipment
does not exceed ₹10 crore, and turnover does not exceed ₹50 crore.
▪ Medium enterprise:
An enterprise where the investment in the plant and machinery or equipment
does not exceed ₹50 crore, and turnover does not exceed ₹250 crore.
SERVICES PROVIDED BY THE
MINISTRY OF MSME
▪Facilities for testing, training for entrepreneurship
development
▪Preparation of project and product profiles
▪Technical and managerial consultancy
▪Assistance for exports
▪Pollution and energy audits.
IMPORTANCE AND FEATURES OF
MSME’S
The MSME sector is considered the backbone of the Indian economy that
has contributed substantially to the economic development of the nation.
It generates employment opportunities and works in the development of
backward and rural areas. India has approximately 6.3 crore MSMEs:
▪ Funding – Finance & Subsidies
▪ Government’s Promotion and Support
▪ Growth in demand in the domestic market
▪ Less Capital required
▪ Manpower Training
▪ Project Profiles
▪ Raw Material and Machinery Procurement
TYPES OF MSME
According to the Micro, Small and Medium Enterprises Development
(MSMED) Act 2006, MSMEs are of 2 types:
▪Manufacturing Enterprises: Business enterprises that are
involved in the manufacturing of goods, as stated under Schedule I
of the IDRA 1951, are categorized as MSMEs. Additionally, all
business enterprises that contribute value to the finished products
by making use of plants and machinery also come under MSMEs.
▪Service Enterprises: Business enterprises that provide services
and come under the category of ‘enterprises’ as stated in the
MSMED Act are service enterprises and come under MSMEs. Note
that individual service providers do not qualify as service
enterprises.
FEATURES OF MSME
▪ contribute significantly towards improving the lives of their employees and
artisans
▪ constantly strive to bring innovation, modernization, and expansion in
technology and infrastructure
▪ enterprises are equipped to provide banking institutions with credit limits
▪ set up specialized manpower training centers to upgrade the skills of
individuals
▪ technologically driven and have quality certifications
▪ follow the latest global trends and bring innovation in product manufacturing
▪ create ample job opportunities in both rural and urban areas
▪ produce thousands of products, which are usually less expensive than similar
products
ROLE OF MSME IN INDIA
▪Export: MSMEs’ contribution to the exports from India was recorded at
42.67% by August 2022. Such high volumes of exports facilitate
international trade and contribute to industrial growth within the
country.
▪Employment: As stated before, MSMEs create employment in rural and
urban areas of the country. These business enterprises are the second
largest employment sector in India after agriculture.
▪Innovation: MSMEs bring innovation to various processes in the
manufacturing of goods and commodities.
▪Entrepreneurship: MSMEs promote inclusiveness in the country by
facilitating the entry of aspiring entrepreneurs in various sectors. They
promote healthy competitiveness among entrepreneurs, which fuels
industrial growth.
EXAMPLES OF MSME
▪ Milk ▪ Saloon
▪ Fruits ▪ Tailor
▪ Vegetables ▪ Photo copy
▪ Kirana ▪ Pathology
▪ Poultry ▪ Carpenter
▪ Cattle rearing ▪ Leather
▪ Motor ▪ Cycle
▪ Hardware ▪ Books
▪ Furniture cosmetic ▪ Electric
▪ Beauty parlour ▪ Electronic
MSME CONTRIBUTION
▪45% employment Example: Covid 19
During the Covid times major
▪50% export portion had been imported
from China such as N-95, PPE
▪90% industry kit, Rapid test…however the
quality had been deteriorating
▪10% GDP and not fit for use.
▪6500 products India and MSME took it as a
challenge and started mfg
their own kits and health
related equipments boosted
the economy and trust of
their people.
RECENT GOVERNMENT MSME
SCHEMES AND POLICIES IN INDIA
▪MSME Innovation Scheme: The Indian government launched the
MSME innovation scheme in March 2022 to foster innovation in the
sector. Under this scheme, MSMEs can enjoy reimbursement of the cost
of Intellectual Property Rights applications for new ideas and designs.
▪CGTMSE: The Credit Guarantee Trust Fund for Micro and Small
Enterprises scheme provides financial assistance of up to ₹2 Crore to
new businesses.
▪CLCSS: The Credit Linked Capital Subsidy Scheme provides capital
subsidies to MSMEs operating in the Khadi, village, and coir sectors.
▪ASPIRE: ASPIRE, or A Scheme for Promotion of Innovation, Rural
Industries, and Entrepreneurship, fosters innovation and
entrepreneurship in rural and agricultural sectors by establishing
advanced technology networks.
SMALL SCALE INDUSTRIES
▪The definition of “small” businesses in terms of being eligible to
request for government assistance and qualify for favorable tax
treatment differs from country to country and industry to industry.
▪While small firms can be characterized in a variety of ways,
such as by annual revenues, shipments, sales, assets,
or by annual gross or net revenue or net profits,
the number of employees is one of the most generally
used metrics of this type of organization.
STEPS AND PROCESS TO START
SMALL SCALE INDUSTRIES
Step 1: Make the decision to work for yourself.
Step 2: Assessing Your Organization’s Strengths, Weaknesses,
Opportunities, and Threats
Step 3: Scanning of Business Environment
Step 4: Training
Step 5: Selecting a Product
Step 6: Market Research
Step 7: Organizational Structure
Step 8: Choose a location.
CONTINUED…
Step 9: Technology
Step 10: Machinery and Equipment
Step 11: Create a Project Report
Step 12: Finance
Step 13: Provisional Registration
Step 14: Technical Expertise
Step 15: Promotion
Step 16: Quality control
BENEFITS OF SMALL-SCALE
INDUSTRIES
▪ Small-scale businesses can be created at the owner’s convenience in terms of space,
finance, product, and manpower.
▪ The unit’s setup and start-up require a short gestation period of only 2 to 6 months,
and the layout may be customized to suit your needs.
▪ Locally available skilled and semi-skilled workers can be hired quickly and at
significantly cheaper wages than in medium and large companies.
▪ Where high technology is involved, parent company officials will assist, or consultants
can be recruited to solve technology-related issues.
▪ It is one of the best types of self-employment, as well as providing work chances to
one’s own family, friends, and relatives, and so on.
▪ In the rural sector, SSI units will be able to find lower labor, especially during the off
season.
▪ SSI units not only contribute to the development of the nation’s economy, but they
also provide employment possibilities to those living near project sites.
SMALL SCALE MANUFACTURING
BUSINESS IDEAS
▪Handmade Biscuits
▪Fertilizer Production
Conclusion
Small-scale industries are significant since they contribute to the
expansion of employment opportunities and the development of
India’s economy. It contributes to the overall growth of the country
by stimulating urban and rural development. In the economy, an
industry is a sector in which the production of goods constitutes a
portion of the total output.
MAKE IN INDIA
GOVT. INITIATIVES ON MSMES
▪MSMEs are the backbone of the Indian economy, contributing
approximately 30% of the country’s GDP (Gross Domestic
Product), and providing employment to 11 Cr of India’s population.
▪The ‘Make in India’ initiative and the ‘Atmanirbhar Bharat
Abhiyaan’ (Self Reliant India Campaign) have played a key role in
promoting business and local manufacturing in the country, giving
special thrust to Micro, Small and Medium Enterprises (MSMEs),
also referred to as the backbone of Indian economy.
▪The central government has also taken immediate response
measures in the form of the Atmanirbhar Bharat Package to
ensure continuity of businesses during the COVID-19 pandemic.
PM EMPLOYMENT GENERATION PROGRAMME
AND OTHER CREDIT SUPPORT SCHEMES
▪Prime Minister Employment Generation Programme
(PMEGP) - Setup with an aim to create employment opportunities
for MSMEs in the country, the PMEGP is implemented by Khadi and
Village Industries Commission (KVIC) at the national level while at
the state and districts level, it is implemented by State KVIC
Directorates, State Khadi and Village Industries Boards (KVIBs),
District Industries Centers (DICs) and banks.
▪Credit Guarantee Trust Fund for Micro & Small Enterprises
(CGTMSE) - Established by M/o MSME and Small Industries
Development Bank of India (SIDBI) to provide collateral free loans
(up to INR 1 cr) to individual Micro and Small Enterprises (MSEs).
CONTINUED…
▪Interest Subsidy Eligibility Certificate (ISEC) - The scheme
was introduced as a funding mechanism for khadi programme
undertaken by khadi institutions in the country. It mobilizes funds
from banking institutions with an aim to fill the gaps between
availability of funds from budgetary sources and the actual fund
requirements.
DEVELOPMENT OF KHADI, VILLAGE
AND COIR INDUSTRIES
Several schemes have been launched for the development of MSMEs
operating under the Khadi, Village and Coir Industries in the country.
These include the following:
▪Market Promotion & Development Scheme (MPDA)
▪Revamped Scheme of Fund for Regeneration of Traditional Industries
(SFURTI) -
▪Coir Vikas Yojana (CVY)
▪Export Market Promotion (EMP)
▪Domestic Market Promotion (DMP)
▪Trade and Industry Related Functional Support Services (TIRFSS)
▪Welfare Measures (Pradhan Mantri Suraksha Bima Yojana (PMSBY)
TECHNOLOGY UPGRADATION AND
QUALITY CERTIFICATION
▪Financial Support to MSMEs in ZED Certification Scheme - Supporting
the ‘Make in India’ initiative, the aim of the scheme is to inculcate Zero
Defect & Zero Effect (ZED) practices in manufacturing done by Indian
MSMEs. Under the scheme, the Government of India (GoI) provides up to
80% subsidy to MSMEs.
A Scheme for Promoting Innovation, Rural Industry &
Entrepreneurship (ASPIRE) – The main objectives of the scheme are to:
▪Create new jobs
▪Promote entrepreneurship
▪Boost economic development at grass root level
▪Facilitate innovative business solutions
▪Promote innovation
OTHER SCHEMES AND PROGRAMMES
The M/o MSME also covers many other aspects such as Marketing &
Promotion, Skill Development, Infrastructure Development and Policy
Research for providing a holistic framework of schemes to aid MSMEs.
This includes the following:
▪ Marketing Promotion Schemes
▪ Entrepreneurship and Skill Development Programme
▪ Infrastructure Development Programme
▪ Scheme of Surveys, Studies and Policy Research
▪ National SC-ST-HUB
▪ Scheme of Information, Education and Communication
▪ Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
▪ A Scheme for Promotion of Innovation, Rural Industries and
Entrepreneurship (ASPIRE)
SME FUNDING
What are the potential sources of finance for SMEs?
In reality there are quite a few potential sources of finance for SMEs.
▪ The SME owner, family and friends
▪ The business angel
▪ Trade credit
▪ Factoring and invoice discounting
▪ Leasing
▪ Bank finance
▪ Supply chain financing
▪ The venture capitalist
CAPITAL REQUIREMENT OF MSME
Capital
requirements planning
is closely linked with all
other parts of your
business plan, because
its follow-up costs have
to be considered in the
planning.
The capital
requirement is the sum
of funds that your
company needs to
achieve its goals.
FIXED AND WORKING CAPITAL
▪Fixed capital is defined as the assets or investments needed to
establish and operate a business, such as property or equipment.
Fixed capital is a concept used in economic thinking as well as
business accounting. In accounting terms, fixed capital is a metric
that can be used to understand the financial health of a business.
▪Working capital is the difference between current assets and
current liabilities, and it represents the approximate money
accessible to the firm. The assets that a corporation holds that can
be liquefied within a year are referred to as current assets.
Usually, working capital refers to cash or other liquid assets that
an organization uses to finance day-to-day operations such as
payroll and bill payments.
FACTORS IMPACTING
REQUIREMENT FOR FIXED CAPITAL
▪The following factors impact the requirement for fixed capital:
▪Scale of the business
▪Growth expectations
▪Collaboration
▪Production technique
IMPORTANCE OF FIXED CAPITAL
▪Starting a business
▪Promoting a company
▪Expansion
▪To stay in competition
▪Modernising a company
TYPES OF FIXED CAPITAL
▪Since this capital includes those assets that generate revenue over
an extended time period, these are not liquid and cannot be
converted into cash easily. Following are the different types of fixed
capital:
▪Land
▪Equipment
▪Building
▪Intellectual property (trademark, copyright and other intangible
assets)
▪Infrastructure
▪Natural resources
IMPORTANCE OF WORKING
CAPITAL
▪It measures the financial metric that measures company’s short term
financial health.
▪Liquidity management
▪Seizing opportunities
▪Weathering economic fluctuations 9 equipped to weather the storm)
▪Credibility and trust (suppliers creditors and investors) enhanced
operational efficiencies
▪Strategic expansion
▪Negotiating power
▪Debt management
WAYS TO INCREASE WORKING
CAPITAL
If you are a business owner or someone who is planning to
start a business processes, here are some ways to increase
the working capital of your organization:
▪Streamline operations
▪Tighten credit policies
▪Inventory management
▪Debt restructuring
▪Short term financing
LIMITATIONS OF WORKING
CAPITAL
Working capital can be very insightful in determining a
company's short-term health. However, some downsides to
the calculation can make the metric sometimes misleading.
Here are four limitations of working capital:
▪Changing values
▪Nature of assets
▪Asset devaluation
▪Unknown debt
DIFFERENCE BETWEEN
ANY QUESTION??
