Role of PE funding to SME

LITERATURE REVIEW Shodhganga (2011) has conducted research on Role of SME Sector and found that the SME sector deserves liberal institutional credit due to its unique contribution in terms of production, the number of items produced, creation of employment, foreign exchange earnings, reduction in regional disparities, etc. But in reality, such supply of institutional credit is found to be less and often delayed. The units are not able to receive even their minimum entitlement. In addition, the sector has many other expectations from banks. There are many factors, internal and external, responsible for the inadequate and delayed supply of credit. The second phase of reform focuses on organizational aspects of banking business. In particular, efforts of banks in providing finance to the SME sector need to be strengthened. Towards this end, they have to spell out their policies in financing of SMEs in the changing context. The existing credit schemes also need a review in the context of the growing expectations of SMEs. Further, sufficient resources have to be allocated for the SME sector keeping in mind its increasing role in the economy and likely changes in the money and capital markets. Brij Raj (2012) The extent of financial exclusion in SME is high and notwithstanding the increase in credit outstanding in recent years, access to adequate and timely credit from the banking system is still a critical problem being faced by this sector. Alternative sources of finance can, therefore, step in and assist SME in their growth and development. In recent years, a plethora of alternative finance options have emerged and have proven to be an important source of financing for IndianSME. The alternative financing avenues like venture capital, securitisation of credit, leasing, private equity etc truly have the potential to bridge the financing gap for SME. Access to finance is essential for improving SME competitiveness, as SME have to invest in new technologies, skills and innovation.

Saumil Annegiri, Stephen Sammut, Suhas Kulkarni (2012) This report outlines the need to provide capital to Small and Medium Enterprises (SMEs) in developing countries. It shows the impact of this capital on economic development, and the role for International Finance Institutions (IFIs) in the provision of this capital.

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Role of PE funding to SME

Lerner, Josh, and Ann Leamon (2007). The authors expect that private equity in developing countries is likely to mature over time and become similar to that of developed nations. The growth of private equity activity in the developing world can be attributed to the economic progress of developing nations, as well as the perceived decrease in investment opportunities in developed nations. While private equity is similar in some ways across countries, developing nations differ in terms of how they raise funds, invest, and exit. Smith, Brad (2006). This research indicates a worldwide trend toward the expansion of capital markets and investment listings targeted to SMEs. This comes as countries face pressure to develop their own SME listing programs to avoid outflows of capital. Based on internet research, the authors identified 51 separate SME exchanges/listings, other lower-tier listings, and OTC Boards across 38 countries (including three in Africa, three in South America, and one in the Middle East). Wtterwulghe and Jannsen (1997) conducted a research and analyzed the role of banks in financing medium enterprises in Belgium. It shows that, like small firms, medium-sized businesses have a preference for self-financing. As far as external funding is concerned, debt is generally their main source. However, their low debt ratios indicate that, as compared to the large firms, these enterprises take less recourse to banks and, as a result, pay little attention to their financial function. The banker does not play an important role as an adviser either, except when the firm decides to raise funds through the stock market. The article calls for greater specialisation on the part of the banks so that they can avoid conflicts of interest arising out of the mismatch between their service priorities and the needs of their clientele Kaura and Sharma (1999) made a research and analyzed the attitudes of the financial institutions whether belong to Central Government or state Government or the Governmental Agencies promoted for this purpose. In the wake of the MSME Act, 2006 passed in the interest of the small scale sector by the Government of India, the attitude of the financial institutions towards SME sector is totally changing. New innovations are being made for fulfilling the financial needs of SME units. The attitude of the Employees of above said financial institutions is also changing. Raju (2002) conducted a research by revisiting the Seoul and Bologna Charters on the SMEs and clarifies that the SME definition centers round the small scale industries in the absence of a clearly defined medium industry sector in India. A review of the policy, laws and the regulatory and institutional framework has been done in sufficient detail with a view to highlighting the fact that the SSIS in India require globally compatible facilitation in order to be competitive both domestically and internationally. The author maintains that easy and adequate institutional finance support is a necessary but not sufficient condition for the growth of this dynamic and vibrant sector. He envisages a clear role for the Small Industry Associations recognized on the basis of well-defined criteria. He argues for a quick enactment of a comprehensive enabling law for the sector and for restructuring the office of the DC-SSI, to attain the envisaged competitiveness

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Role of PE funding to SME

Nambiar (2007) conducted a research on financing for the priority sectors that paved the way for thinking strategy for financing of small scale and medium scale industries by the bank officers. The government of India through its industrial policy clearly stated that the commercial banks should give priority treatment to the SMEs. The nature of the banking officials was also discussed in the article. But that is not sufficient to promote the SME sector because the sector was totally neglected for the last several decades due to invention of the MNCs. By enacting the MSME act, 2006, the government of India clearly indicated the signal to the banking people to provide the credit facilities to the SMEs. Raju (2008) conducted a study and analyzed that SMEs form the backbone of the Indian manufacturing sector and have become engine of economic growth in India. It is estimated that SMEs account for almost 90% of industrial units in India and 40% of value addition in the manufacturing sector. This paper closely analyses the growth and development of the Indian mall scale sector from opening of the economy in 1991. Third part looks into the present scenario of SMEs and the problems they phases like lending, marketing, license raj issues in detail. The Micro, Small and Medium Enterprises Act, 2006 is intended to boost the sector. The provisions of the Act are examined closely. The final part provides some future policy framework for the sustainability of the sector. Rani and Rao (2008) conducted a research that Small and Medium Enterprise sector is a vibrant and dynamic one, and an engine of growth for the present millennium. Financing of Micro and Small Enterprises (MSEs), which is part of the SME sector, has been given special attention by banks and financial institutions, and is included in priority sector lending. In spite of the special efforts, only 14.3% of registered small enterprises have availed institutional credit, as per the 3rd All India Census of Small Scale Industries of 2001-02. From 2000 to 2004, institutional credit for MSEs has shown disturbing trends, despite the high level of liquidity in the banking system and the initiatives taken by the Union Government and Reserve Bank of India (RBI). This paper examines the recent trends in credit flow to MSEs, in particular, and medium enterprises, in a limited way, from commercial banks and the Small Industries Development Bank of India (SIDBI), and outlines the recommendations of A S Ganguly Working Group and Internal Group chaired by C S Murthy. The Union Finance Ministry's directive to public sector banks is to double the credit flow to SMEs during the five-year period 2005-10. The year, 2005-06 has shown good progress in this direction. The task is to be pursued vigorously in the next four years, of which 2006-07 has been completed with encouraging performance. Innovative approaches and directions for the future are presented in the paper. SMEs need special treatment through devising special instruments of credit for strengthening their competitiveness.

Torre et al (2008) made a research and investigated the conventional wisdom in academic and policy circles argues that, while large and foreign banks are generally not interested in serving SMEs , small and niche banks have an advantage in doing so because they can overcome SME opaqueness through relationship lending. This paper shows that there is a gap between this view and what banks actually do. Banks perceive SMEs as a core and strategic

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Role of PE funding to SME

business and seem well positioned to expand their links with SMEs. The recent intensification of bank involvement with SMEs in various emerging markets documented in this paper is neither led by small or niche banks nor highly dependent on relationship lending. Rather, all types of banks are catering to SMEs and larger, multiple-service banks have in fact a comparative advantage in offering a wide range of products and services on a large scale, through the use of new technologies, business models, and risk management systems. Mercieca et al (2009) conducted a research and analyzed that how the concentration and competition in the European banking sector affects lending relationships between small and medium sized enterprises (SMEs) and their banks. Recent empirical evidence suggests that concentration and competition capture different characteristics of banking systems. Using a unique dataset on SMEs for selected European regions, we empirically investigate the impact of increasing concentration and competition on the number of lending relationships maintained by SMEs. They find that competition has a positive effect on the number of lending relationships, weak evidence that concentration reduces the number of banking relationships and weak persistent evidence that they tend to offset each other. Popli and Rao (2009) made a research that in banking sector, the quality of customer service plays an important role, particularly in the context of growing competition and sustained business growth. The study is an attempt to ascertain the service quality provided by Public Sector Banks to Small & Medium Enterprises which play a key role in Indias economy. The major findings of the study have been that 1. Modernization and Communication affect the services to a large extent and there is a need of training to the staff for improvement of service to the SMEs customers; 2. The service quality of private banks is superior to that of Public sector banks; 3. Majority of the respondents revealed that the credit flow to SMEs sector is not sufficient and the Government will have to initiate necessary steps for making the required funds available easily on convenient terms; 4. Majority of the respondents feel that the policies for SME Sector of other countries are far better from the policies of India; 5. Delay in loan application processing due to unhelpful nature of the staff members, as claimed by the majority of the respondents. The banks usually provide finance against security and as high as 86% of the respondents are of the view that the banks ask for collateral security/guarantee from a third party even where the project has been assessed as viable and primary security is adequate. Popli and Rao (2009) conducted a study and analyzed that Small and Medium Enterprises have been globally recognized as vital components of a domestic economy and major contributors to employment generation in a country, regardless of global barriers. SMEs form the lifeblood of any vibrant economy. In an emerging economy like India, SMEs have a significant socio-economic role to ensure overall development of the nation. Electronic Sector is an upcoming sector in India. The Indian Electronic Industry is undergoing transformation due to the new economic policy and business environment in the post WTO regime. This paper examines the problems, strategies for investments, competences development, technological up gradation, quality improvement, Govt. Policies, Equity participation by MNCs and overall improvement of this sector in the post WTO regime. The study has been done by using data acquired from an extensive survey of Indian SMEs in the

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Role of PE funding to SME

Textile Sector and from the experienced Bankers/ Officials/Policy makers of Govt. of India. The key findings of the study are that lack of quality consciousness, growth conducive environment, inadequate government support and difficulties in raising funds from market. Further, the study highlights the need to upgrade technology in the Indian Electronic SME Sector and also develop a strong and supportive Financial System.

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