FINANCIAL MANAGEMENT PRACTICES OF MSMEs

IN HOWRAH, WEST BENGAL

RESEARCH PROJECT SUBMITTED FOR THE FULFILLMENT OF DEGREE

OF
MASTER OF BUSINESS ADMINISTRATION –
ENTREPRENEURSHIP (MBA-EP)

FOR THE BATCH 2020-22

UNDER
HONOURS SCHOOL SYSTEM
AT
UNIVERSITY BUSINESS SCHOOL
PANJAB UNIVERSITY
CHANDIGARH

SUBMITTED TO SUBMITTED BY
Prof. PARAMJEET KAUR Vinay Kumar Maurya
PROFESSOR MBA-EP
UNIVERSITY BUSINESS SCHOOL UNIVERSITY BUSINESS SCHOOL
PANJAB UNIVERSITY, CHANDIGARH PANJAB UNIVERSITY, CHANDIGARH

1
 DECLARATION BY CANDIDATE

It is declared that the research project titled “FINANCIAL MANAGEMENT PRACTICES OF

MSMEs IN HOWRAH, WEST BENGAL” has been done by Vinay kumar Maurya, student of
MBA (EP) 4th Semester, Batch 2020-2022, University Business School, Panjab University,
Chandigarh under the guidance of Prof. PARAMJEET KAUR, University Business School, Panjab
University, Chandigarh.

It is declared that the work done is original and has not been carried out earlier. It is further
certified that the work done has not been submitted elsewhere for approval of any other
degree/diploma/certificate.

Signature of Candidate

Date: March 21, 2022

VINAY KUMAR MAURYA

MBA EP 4th Semester

University Business School

Panjab University, Chandigarh

2
3
Abstract

The research entitled ‘A Study on the Financial Aspects of Micro, Small and Medium
Enterprises in Howrah District of West Bengal, India’ is an empirical study for various
financing aspects in Micro, Small and Medium Enterprises. The study is hypothesis based.
The main objectives of the study to know the socio- economic conditions of entrepreneurs
in Howrah, West Bengal to study the sources of finance of enterprises in Howrah and to
examine the finance related issues in MSMEs in Howrah. The study is based on primary data
collected for the purpose from Howrah district through purposive sampling. Percentage,
frequencies, descriptive statistics, Z test are used to analyse the data for testing hypothesis
to fulfil the objectives of the study. MSMEs face a number of financial problems while
availing credit from commercial banks as well as Government agencies. These financial
institutions ask for a lot of information and data, SFCs takes quite a lot of months to take
decision on extending term loans. This small sector is not in a situation to recommend
guarantee required by the banking sector. Even when small loans can be raised from
Government associations the process is so burdensome that for the most part of the
entrepreneurs, who either are illiterate or semiliterate, hesitate to make use of these
services. In the study we found that entrepreneurs face various financial and others’
problems in Howrah. The main reason for financing problem to entrepreneurs is that there
is lack of awareness to entrepreneurs about the finance related agencies which provide
financing support to them for the development of their enterprises.

4
Table of Contents
Abstract…………………………………………………………………………………………………………………………………………4
Abbreviations ……………………………………………………….………………………………………………………………………7
Chapter – 1 Introduction 8
Need of study 10
Financial issue of MSME 11
Institutional support to MSME in India 12
State/UT wise status of MSME sector in INDIA 15
District wise status of MSME in West Bengal 17
Objective of study 18
Hypothesis 18
Chapter – 2 Literature review 19
Summary of literature review 23
Literature GAP 24
Chapter – 3 Research Methodology 25
Population and sampling plan 25
Data gathering plan 25
Pilot study26
Research Methodology 26
Research objective 26
Chapter – 4 Analysis and discussion 27
Socio-Economic and business status of Entrepreneurs 27
Gender of Entrepreneurs 27
Year of establishment 28
Age of Entrepreneurs 28
Do you start this business? 29
Type of enterprise 29
Qualification of entrepreneurs 30
Business unit registration 30
Industry type 31
Fixed capital invested by firms 31
Financial Management practices 32
Capital structure 32
Books of accounts management 33
Loan, Purpose of Loan 33
Working capital management 34

5
 Cashbook maintenance 35
Credit transaction 35
Profit and loss calculation 36
Sickness of firm 37
Future expansion plan 38
Chapter – 5 Preferences of entrepreneurs for finance sources 40
Source of finance 40
Financial problem faces by enterprise 42
Problem faces by MSME in the business 44
Chapter – 6 Summery and conclusion 48
Summary 48
Finding 49
Conclusion 50
References 51
Questioner 53

6
Abbreviations

MSME - Micro, Small and Medium Enterprises

MSMED Act - Micro, Small and Medium Enterprises Development Act

ABFPI - Agro Based and Food Processing Industry

MBI – Mineral Based Industry

GDP – Gross Domestic Product

IFC - Industrial finance corporations

SIDO - Small Industries Development Organization

ARI – Auxiliary and Rural Industry

SIDCO – Small Industries Development Corporations

DIC – District Industries Centre

NABARAD – National Bank for Agriculture and Rural Development

RSBDC – Rural Small Business Development Centre

NSIC – National Small Industries Corporation

SIDBI – Small Industries Development Bank of India

NCEUS – National Commission for Enterprises in the Unorganized Sector

RWED – Rural and Women Entrepreneurship Development

7
Chapter – 1 Introduction

The Micro, Small and Medium enterprises are playing a vital role in the economic
development of the country. They help to generate more employment and income with
lower investment through the utilization of domestically available resources. They create
new and innovative use of domestically available resources by employing locally available
human resources. By realizing the importance these enterprises in the economic
development, the Government of India has passed the Micro, Small and Medium
Enterprises Development Act in the year 2006 for facilitating the promotion and
development of micro, small and medium enterprises. MSMED Act were amended in 2020.

As per revised definition, an enterprise shall be classified as a micro, small or medium

enterprise on the basis of the following criteria, namely

Revised MSME Classification

Sr. Enterprises Investment in and Limit

No. Turnover

(i) A Micro Investment in plant and does not exceed one crore
Enterprises machinery or rupees
equipment; AND (<Rs. 1 crore)

Turnover does not exceed five crore

rupees
(<Rs. 5 crore)

(ii) A Small Investment in plant and does not exceed one crore
Enterprise machinery or rupees
equipment; AND (<Rs. 10 crore)

Turnover does not exceed five crore

rupees
(<Rs. 50 crore)

(iii) a Medium Investment in plant and does not exceed one crore

8
 Enterprise machinery or rupees
equipment; AND (<Rs. 50 crore)

Turnover does not exceed five crore

rupees
(<Rs. 250 crore)

The role of Micro, Small and Medium Enterprises (MSMEs) in the economic development of
India is also very important. As on 31st March 2020 there were 633.88 lakh MSME units in
India of which 20.37% are owned by women. The total sales made by all these units
together in 2020-2021 Rs. 1877.19 crores. The industries under this sector include ABFPI,
MBI, Technology, Service, handicrafts, handloom, khadi, food processing, garment and
textile industries, industries related to coir, wood, bamboo, plastic, 2 rubber, leather, clay
products, etc. There are over more than 60,000 various MSME product ranging from
traditional to high-tech items are produced. The value of goods and services all these units
together contribute nearly 1/3rd of our national GDP and the employment generated from
these sectors was 11.10 crore during 2020-21. Among the MSMEs in India, the Micro and
Small Enterprises have the highest share in terms of number of working units, income
distribution and employment generated.

The continuity and success of these micro and small enterprise depends mainly on the
entrepreneur’s risk-taking ability, technical and managerial capability, management of
finance, level of education, government support, etc. From among these factors, proper
management of finance is the most important factor influencing the success of micro and
small enterprises. The Government and financial institutions, by recognizing the importance
of financial management in this sector, appointed various committees to evaluate the
availability of bank credit and the utilization of funds by these enterprises. The five
important committee reports submitted in this field are Dehejia Committee Report 1969,
Tandon Committee Report 1975, Chore Committee Report 1980, Marathe Committee

9
Report 1984 and Kannan Committee Report 1997. Dehejia Committee pointed out that
there was a tendency on the part of these industries to avail short term credit from bank in
excess of its legitimate requirements. The Tandon committee recommended that there
should be a proper financial discipline has to be observed by the borrower. The financing
bank should ensure that the loan is used only for the purpose for which it is made available
through efficient follow up. The Chore committee has recommended for framing of separate
credit limits for peak level and non-peak level requirements. The Marathe committee has
recommended for the fast-track sanctioning of loans subject to the fulfilment of certain
conditions. The Kannan committee suggested that working capital credit may be determined
by banks according to their perception of the borrower and the credit needs. All these
committee reports have stressed the need for financial discipline and efficient management
of firm’s financial resources for the success of these enterprises.

Need of Study

The MSMEs act as an engine of growth for the economy. It’s well recognized and widely
appreciated potential in generating source of employment and income in the development
of the economies cannot be underestimated all over the world. In the developing country
like India, MSME sector acquired specific significance. The government initiatives like ‘Make
in India’, ‘Start Up India’ and ‘Skill India’ will bear fruits if MSMEs survive, sustain and
contribute successfully in ever changing competitive dynamic environment.

Chittenden et al’ (1999) sighted poor or careless financial management as a major cause of
business failure. Hence, he expressed that there is a definite need to for more information
on the methods used by small firms to accumulate and allocate their scarce financial
resources. Perren et al’. (1999) concluded that the owner-managers in small firms move
from informal methods of financial management and decision making to more formal
methods as businesses develop. Nayak and Greenfield’ (1991) indicated that major studies
in small firm financial management rely on the postal questionnaire survey methodology
which are static in nature and lacking in-depth insights. Yet major studies in financial

10
management in small firms based on survey data. In India, the serious in-depth studies on
financial management practices are rare. Unlike large firms, the financial management
practices in small firms largely differs. It requires different sets of financial management
practices as their nature, size and type of business environment to which they get exposed
are substantially different than the large firms. Hence MSME sector deserve separate, focus
studies so that through efficient financial management practices, the profitability, survival
and competitiveness of the sectors can be enhanced and the rate of MSMEs failure can be
reduced by bring level of professionalism in financial management. This study will also help
in getting valuable insights into financial management decision making by owner –managers
of MSMEs.

Financing issues of MSMEs in India

All industries require resources to meet fixed and variable costs, but most of the MSME
owners lack the required capital to set up and manage the enterprise. So, they are forced to
take loans depended on debt for investment much depends on the size of the firm.

Micro enterprises depend on credit as a primary source for both initialization and growth.
Phases while smaller and services mainly manage in cash and remain negligible record.
Manufacturing enterprises and services need more finance due to longer working capital
cycle and higher capital expenditure. but the bank is not the primary source of finance for
most enterprises as owners find the application process is cumbersome and tedious. Also,
they do not qualify for Loans Payable due to lack of both collateral and positive balance
sheet.

according to industrial finance corporations (IFCs), the major source of finance is the
informal sector, of which 95% Represent non-institutional sources like family, friends,
relatives etc. Channels like trade credit, chit funds and moneylenders become expensive,
charging Interest rates from 25% to 60% per annum. So, they're always the same Credit gap
which acts as a major hurdle in setting up MSMEs as well as working.

With regard to MSME contribution, several organizations have been set up to be supported
by Central Governments, State Governments and Banks development of MSME sector.

11
Institutional Support to MSMEs in India
MSMEs constitute a vibrant and dynamic sector of the Indian industrial economy. This
sector has consistently shown good growth in terms of production, additional generation
Remarkable performance in employment and exports, year after year. Contribution Has
been done for the industrial development of MSMEs and economic development of the
country Very important.

Small Industries Development Organization (SIDO ): - Small Industries Development

Organization is a subordinate office of the Department of SSI & Auxiliary and Rural Industry
(ARI). It is an apex body and nodal agency for formulating, coordinating and monitoring the
policies and programmes for promotion and development of small-scale industries.

Development Commissioner is the head of the SIDO. He is assisted by various directors and
advisers in evolving and implementing various programmes of training and management,
consultancy, industrial investigation, possibilities for development of different types of
small-scale industries, industrial estates, etc.

Small Industries Development Corporations (SIDCO): - Small Industries Development

Corporations are state-owned companies or agencies in the states of India which were
established at various times under the policy of Government of India for the promotion of
small-scale industries.

The SIDCO has several aims, all of them connected to the development and promotion of
small and medium businesses. The SIDCO’s main goal is to promote an economy in which
small businesses can hold their own against large and multinational companies that have
more money and influence.

There are four main functions of the SIDCO, as explained on their website. These are:

 Allotting loans to small and medium businesses based on soft terms

 Providing technical assistance for project reports
 Allotting industrial sheds or plots in one of the industrial parks developed by the
various states

12
  Providing special incentives as offered by the respective State under which the
business falls.

District Industries Centre (DIC): - District Industries Centre is a central sector scheme with
the objective of promoting small village and cottage industries in a particular area. The DICs
have been established in various districts of India at varying times since 1978 when it was
launched. Being established at the district level, the District Industries Centres provide all
the necessary services and support to facilitate entrepreneurs in setting up MSMEs (Micro,
Small and Medium enterprises).

The District Industries Centres (DICs) play a prominent role in developing and promoting
industries in the respective states. They are established by the Department of Commerce &
Industry of the respective state. In addition to DICs, Sub-District Industries Centres (SDICs)
have also been created in various states such as Nagaland.

Rural Small Business Development Centre (RSBDC): - Rural Small Business Development
Centre is a government centre sponsored by NABARD for micro, small and medium
businesses which is set up by world organization. The primary purpose of RSBDC is to work
for socially and financially disadvantaged people and groups. RSBDC does many
programmes on skill up gradation, entrepreneurship, awareness, counselling and training.

National Small Industries Corporation (NSIC): - National Small Industries Corporation is an

ISO certified Indian Government Enterprise under Micro, Small and Medium Enterprises.
National Small Industries Corporation is working to aid, foster and promote the growth of
MSMEs (micro, small and medium enterprises) all across the country. NSIC operates all
across the nation through a network of Technical Centres and offices.

To manage its functions and operations in African countries, National Small Industries
Corporation operates performs its administration from Johannesburg, South Africa. Apart
from this, National Small Industries Corporation has set up Training cum Incubation Centres
managed by highly trained professional manpower.

Vision: To become a leading organization fostering the growth of MSMEs Sector in India.

13
Mission: To support and promote MSMEs Sector by providing combined support services
encircling Finance, Marketing, Technology and other Allied Services.

Small Industries Development Bank of India (SIDBI): - Small Industries Development Bank
of India offers a wide range of finance schemes to the Micro, Small, and Medium Enterprises
(MSME) industry. Loan amounts can range from Rs.10 lakh to Rs.25 crore. Loan repayment
tenures can go up to 10 years. These loans, which are offered at attractive interest rates,
help provide necessary capital for the growth and expansion of MSMEs. Loans above Rs.1
crore can be availed without any collateral required. Loan subsidies are also available.

The main objective of SIDBI is to offer loans to MSMEs to help in addressing the
development and financial gaps in the ecosystem of MSMEs. The company aims to ensure
that the MSME sector is globally competitive, vibrant, and strong.

National Commission for Enterprises in the Unorganized Sector (NCEUS): - The

NCEUS was established in September 2004, with the following objectives:

 To recommend measures considered necessary for improving the productivity

 of small enterprises in the informal sector.
 To improve the competitiveness of MSME sector in the rising global
 environment.
 To create more employment opportunities on a sustainable basis, for the most
 part in the rural areas.
 To develop linkages of the sector with other institutions in the areas of credit,
 raw materials, infrastructure, technology up gradation, marketing, and
 formulation of suitable arrangements for skill development

Rural and Women Entrepreneurship Development (RWED): - RWED aims to promote

female entrepreneurship in rural areas and improve women's professional qualifications in
rural areas by organising a development program i.e., through training on business matters,
confidence and self-awareness of oneself and techniques related to the care of dependent
elderly people.

State/UT Wise Status of MSME Sector in India

14
Highest number of MSME available in Uttar Pradesh is 89.99 lakh followed by West Bengal
88.67 lakh in state wise. Highest number of MSME in UT is Puducherry is 96 thousand
followed by 55 thousand. Lowest number of MSME in state Arunachala Pradesh is 23
thousand followed by Sikkim is 26 thousand. In UT lowest Lakshadweep 2 thousand
followed by Daman & Diu 8 thousand.

Estimated number of enterprises

Sl. State/UT (Number in lakh)
No. All
Micro Small Med MSME
ium
1 Andhra Pradesh 33.7 0.13 0.00 33.87
4
2 Arunachal Pradesh 0.22 0.00 0.00 0.23
3 Assam 12.1 0.04 0.00 12.14
0
4 Bihar 34.4 0.04 0.00 34.46
1
5 Chhattisgarh 8.45 0.03 0.00 8.48
6 Delhi 9.25 0.11 0.00 9.36
7 Goa 0.70 0.00 0.00 0.70
8 Gujarat 32.6 0.50 0.00 33.1
7 6
9 Haryana 9.53 0.17 0.00 9.70
1 Himachal Pradesh 3.86 0.06 0.00 3.92
0
1 Jammu & Kashmir 7.06 0.03 0.00 7.09
1
1 Jharkhand 15.7 0.10 0.00 15.8
2 8 8
1 Karnataka 38.2 0.09 0.00 38.3
3 5 4

15
1 Kerala 23.5 0.21 0.00 23.7
4 8 9
1 Madhya Pradesh 26.4 0.31 0.01 26.7
5 2 4
1 Maharashtra 47.6 0.17 0.00 47.7
6 0 8
1 Manipur 1.80 0.00 0.00 1.80
7
1 Meghalaya 1.12 0.00 0.00 1.12
8
1 Mizoram 0.35 0.00 0.00 0.35
9
2 Nagaland 0.91 0.00 0.00 0.91
0
2 Odisha 19.8 0.04 0.00 19.8
1 0 4
2 Punjab 14.5 0.09 0.00 14.6
2 6 5
2 Rajasthan 26.6 0.20 0.01 26.8
3 6 7
2 Sikkim 0.26 0.00 0.00 0.26
4
2 Tamil Nadu 49.2 0.21 0.00 49.4
5 7 8
2 Telangana 25.9 0.10 0.01 26.0
6 4 5
2 Tripura 2.10 0.01 0.00 2.11
7
2 Uttar Pradesh 89.6 0.36 0.00 89.9
8 4 9

16
 2 Uttarakhand 4.14 0.02 0.00 4.17
9
3 West Bengal 88.4 0.26 0.01 88.6
0 1 7
3 A & N Islands 0.19 0.00 0.00 0.19
1
3 Chandigarh 0.56 0.00 0.00 0.56
2
3 Dadra & Nagar 0.15 0.01 0.00 0.16
3 Haveli
3 Daman & Diu 0.08 0.00 0.00 0.08
4
3 Lakshadweep 0.02 0.00 0.00 0.02
5
36 Puducherry 0.96 0.00 0.00 0.96
ALL 630.52 3.31 0.05 633.88

Source: NSS 73rd. Round

District-Wise Status of MSME Units in West Bengal

In west Bengal have 2nd highest number of MSME in India. Kolkata district have the highest
number of MSME in followed by Purba Bardaman. In Howrah have the 5 th highest number of
MSME in west Bengal district wise.

S. No. District Name Total Udyog Micro Small Medium

Aadhaar
1 ALIPURDUAR 7746 7463 261 22
2 BANKURA 5765 5035 711 19
3 BIRBHUM 16370 15764 571 35
4 COOCHBEHAR 8146 7761 372 13
5 DAKSHIN DINAJPUR 8274 8048 212 14

17
6 DARJEELING 4823 3884 907 32
7 EAST MEDINIPUR 6869 5733 1090 46
8 HOOGHLY 11742 10101 1546 95
9 HOWRAH 17922 14795 2992 135
10 JALPAIGURI 4791 3969 776 46
11 Jhargram 267 227 39 1
12 KALIMPONG 181 165 16 0
13 KOLKOTA 41232 30895 9533 804
14 MALDA 7759 6979 764 16
15 MURSHIDABAD 9955 8458 1454 43
16 NADIA 8623 7674 927 22
17 NORTH 24 31291 26908 4220 163
PRAGANAS
18 PASCHIM 4580 3327 1176 77
BARDHAMAN
19 PURBA BARDHAMAN 30098 28189 1833 76
20 PURULIA 3620 3209 405 6
21 SOUTH 24 27952 25625 2240 87
PRAGANAS
22 UTTAR DINAJPUR 2914 2502 387 25
23 WEST MEDINIPUR 8725 7854 824 47
Total:- 269645 234565 33256 1824

Objective of study

1) To analyse the Capital Structure of MSMEs in India.

2) To study the existing Working Capital Management practices of MSMEs in India.
3) Identify and analyse how different aspect financial management impact together on
problems faced by the MSME.

HYPOTHESES

18
HYPOTHESESIS 1: - MSMEs entrepreneurs are using institutional finance for fixed capital in
MSMEs in Howrah.
HYPOTHESESIS 2: - MSMEs does not faces hostile attitude of institution.

HYPOTHESESIS 3: - MSMEs does not have expansion plan in Howrah.

Chapter – 2 Literature Review

The literature review on Micro, Small and Medium enterprises (MSMEs) financial
management is quite commodious and it focused on different aspects of firm’s financial
management. For this research study, we have selected just a few major studies
concentrating mainly on various important issues of financial management.

Greblowski (1984) identified differences in stock control techniques between large and
small companies. Large companies use statistical methods and smaller companies use
anticipation (32%), past experience (15%), judgment (6%), and no method. Study concluded
that SMEs are far from a reliable system to control inventory.

William (1986) showed that financial management (28%), accounting (16%) and
management inefficiency and inexperience (15%) were the leading causes of small business
failure. Also, in their survey they found that poor accounting records (55%) and inability to
access financial statements (18%) were the worst aspects of finance functioning in failing
firms. From the study, it appears that inefficient financial management of finance function is
the most important aspect of functional management and involves poor accounting.

Hall, B and Young (1991) studied 100 small enterprises that were subject to involuntary
liquidation in 1973, 1978 and 1983. They were found that 49.8% of the reasons given by the
owner for failure of a small firm were of a financial nature. Furthermore, 86.6% of the 247
reasons given were of a financial nature when the perception of official recipients was
interviewed for the same small enterprises.

Nayak, A and Green Field, S (1991). There survey analysed what information small and
micro firms use to control their business and how they use this information. The researcher

19
studied the difficulty in keeping accounts, gathering information and keeping books. The
study also indicated that the cash book is the most specialized form of financial record but a
major issue was the owner-manager use of this information created. They concluded that
SMEs need advice on areas such as debtor record keeping, debt servicing; Well-designed
pro-forma for budgeting, on start up to develop simple information collection system to
prevent failure, assistance on weekly profit calculation and business monitoring.

Berryman, J. (1994) surveyed and analysed the literature on small business failure and
viewed managerial inefficiency as a root cause of small business failure. In addition, he
identified poor financial management as a major reason responsible for small business
failure. Within the finance function, insufficient or no accounting records and lack of
accounting knowledge were seen as the biggest problems in its survey results.

Shaw (1997) has found the importance of small firm networks as well as sophisticated
financial exchanges and knowledge sharing by such small and medium entrepreneurs.

Das A.K. and Day N.B. (2000) conducted exploratory research on "Financial Management
and Analysis Practice in Small Business" in 230 small-scale companies in seven northern
states of India. In addition to the structure questionnaire survey, a loose structure personal
interview of the owner-manager was conducted. The non-random decision sampling
method was followed. Finally, the researcher collected 208 duly filled out questionnaires,
out of which 191 duly filled out correct questionnaires were processed. The research proved
that there is a wide gap between theory and actual practices of financial management by
small businesses in India and also shows that firms that do not perform well have less
knowledge of financial management and proper business records. Researchers also find that
developed modern financial management tools and financial management principles are
less useful or smaller-scale companies. Researcher recommends developing an entirely
different set of financial management tools that can be useful to them to enhance business
level performance.

Graham JR and Harvey CR (2001) surveyed 392 chief financial officers to explore practices
related to cost of capital, capital budgeting and capital structure. The survey indicated that
large firms rely heavily on current pricing techniques and capital asset pricing models; In
contrast, smaller firms were more dependent on the payback criterion.

20
García-Teruel et al. (2007) found a significant negative relationship between working capital
management and MSME profitability in their research entitled "Effects of Working Capital
Management on MSE Profitability in Spain".

Rani and Rao (2008) did research that the small and medium enterprises sector is a Vibrant
and dynamic, and an engine of growth for the current millennium. financing of Special focus
has been given to micro, small enterprises, which are part of the SME sector Banks and
financial institutions, and is involved in priority sector lending. in spite of the special efforts,
only 14.3% of registered small enterprises have availed institutional credit, according to the
3rd All India Census of Small-Scale Industries 2001-02 from 2000-2004, Institutional credit to
MSMEs has shown troubling trends, despite high levels of liquidity Banking System and
Initiatives by the Central Government and Reserve Bank of India (RBI).

Uyar (2009) showed significant positive correlations between working capital components
with firms perform in Malaysia.

Padachi,at el.(2010) reveals the disproportional increase or decrease in current asset

investment in relation to sales resulting in sharp decline in working capital structure in
short-run. He suggested that the SMEs should concentrate on the short- term funds since
they frequently suffer from the lack of working capital.

Czarnitzki and Hottenrot (2011) examined the non-linear relationship between working
capital management and profitability of SMEs in Germany and observed that there is a
concave relationship between working capital levels and firm profitability, which indicates
that SMEs have optimal working capital levels. The capital level is what maximizes their
profitability.

Newman et al. (2012) investigated the firm level determinants of capital structure in
Chinese Firms and tested them against the prediction of financial theory. The authors found
that the firm size and profitability were both found to be related to leverage as proposed by
pecking order theory. In contrast little support was found for the predicted relationship
between asset structure and leverage.

21
Lahiri (2012) pointed out that with MSMEs’ rising need for short-term and long-term capital,
banks and financial institution should move toward more innovative methods of lending to
provide loan for long-term to those firms’ in need of financial needs.

Jindrichovska, I. (2013) reviewed studies on financial management in SMEs and addressed

three core elements of financial management viz. liquidity and cash flow management,
funding and long-term asset acquisition. The author identified poor financial management
of owner managers is the main cause underlying the problems of SMEs.

Abanis, T., Burani, A., & Eliyabu, B. (A). (2013). Determined the range of financial
management practices employed by SMEs in the form of working capital management (cash
management, accounts receivable management, inventory management practices)
investment, financing. Accounting information systems and financial reporting and analysis.
The findings of the study showed that the extent of application of financial management
practices among SMEs is low. The pecking order theory proved to be the case in the
research study. The authors suggested that SME owners need to be sensitive to financial
management practices and improve access to financing of SMEs.

Biswas, A. (2014) Banks face many problems while providing loans to MSMEs Area. Since
most of the MSMEs work in the unorganized sector, they do not do any proper maintenance
accounts or balance sheet. Without the presence of a proper balance sheet, banks actually
find it Difficult to lend to MSMEs Newly established enterprises do not have that much trust
of banks or start-up. They consider MSME projects to be risky and are afraid of NPAs while
giving credit to start up. Therefore, banks usually lend only a fixed amount to this sector, as
detailed below: priority sector debt obligations.

Vohra, PS. and Dhillon, JS. (2014) studied the various effects of financial management
practices on the performance of a small firm through a questionnaire-based field survey.
Data collected from 103 owners/managers from a random sample of SMEs located in 4
cities in the state of Punjab, India. This research finds detailed results of financial
management practices on firm performance mediated through financial planning
capabilities It mainly covers 4 aspects, Financial Forecasting and Budgetary Planning
Capabilities, Working Capital Planning Capabilities, Inventory Management Capabilities,
Financial Reporting and Financial Analysis Capabilities.

22
Mazrol, T., Raybaud, S.B. and Clark, DC (2015) examined financial management practices in
small to medium enterprises (SMEs) from a case study survey of 289 small business owner-
managers across 30 industry sectors in Australia and Singapore. The findings suggest that
SMEs largely have informal and ad-hoc financial management practices. Differences were
found on the basis of size and level of financial literacy. As the firm grows in size and
complexity, the owner-manager is required to adopt a more sophisticated and systematic
approach to financial management. SMEs with higher financial literacy have greater ability
to monitor and control the financial performance of their businesses.

Singh, C., and K. P. Wasdani. (2016) found in research that financial institution should be
more focus on MSME to provide loan via reducing relaxing collateral for loan, reducing
paper work, increase awareness for financial scheme to all its account holder. They were
recommended that MSME that must be register with government, follow structured
accounting system, create network.

Summary of literature review

The literature review on financial management practices of MSME is very extensive in

nature and touches upon Different aspects of finance in different contexts of the life of the
firm. initial interest in research Failure and default risk of MSMEs taken which has extended
to studies examining financial management Practices such as cash management, accounts
receivable management, trade credit, inventory Capital budgeting for management,
financial planning, performance and analysis, accounting; information practices. Initially the
focus was on the level of adoption of financial management Practice. In the later period it
attempted to establish and examine the relationship between financial Management
practices and its impact on the financial performance of the firms. In Later years, the
simultaneous impact of financial management practices and financial Features of financial
performance studied by some authors. Still the exact relationship and the impact of financial
management practices on profitability is unclear.

23
Literature GAP

Exact impact and relationship of various financial management aspect on the profitability is
not established.

Financial management tools, techniques and practices for MSMEs are not yet developed as
financial management theories are mostly notable for the large firms.

Key financial management decisions such as investment, financing and profitability are
interdependent and interconnected. Comprehensive study considering all financials
management influence on decisions and profitability are lacking.

Financial Management practices are focusing on either one aspect some aspect of the
financial management decision only.

24
 Chapter – 3 RESEARCH METHODOLOGY

This chapter deals with the data collection and methodology which used in the present
study for analysing the financial aspects of MSMEs in Howrah District of West Bengal.

The present study is an attempt to bridge the gap via studying the various dimensions of
financial aspects of MSMEs in Howrah district of West Bengal. The major dimensions of this
study are enterprise is started by themselves or not, funding sources for MSMEs,
establishment year of MSMEs, Capital structure of MSME's , opinion of entrepreneurs
about the expansion plan of the enterprises, opinion of entrepreneurs about borrowings
from financial intuition, entrepreneur's opinion about sickness in firms, views of
entrepreneurs about credit purchase and sales by firms, usefulness of financial sources,
various financial problems faced by enterprises while crediting from banks, tenure of taken
loan, purpose for availing loan, types of enterprises, type of credit availed by enterprises,
critical problem faces by entrepreneur, Working capital management, maintaining books of
accounts, qualification of entrepreneurs, reasons for not availed finance from banks,
preferences of entrepreneurs for funding sources.

Population and Sampling Plan

Selection of area for the sample in Howrah, the sample size of MSMEs was taken 91 to know
about the business profile, socio-economic profile and also the financing aspects related to
MSMEs. For this purpose, different areas of the Howrah such as Bajrangballi Market, Liluah,
Salkia, Belur, Howrah Miadan, Golabari, etc were the main areas to collect data for field
survey.

25
Data Gathering Plan

A field survey was done to collect the data. A structured questionnaire that also asks
subjects like their enterprise started by entrepreneur, gender, types of MSMEs,
qualification, problems faced by entrepreneurs in financing, financing sources used by
entrepreneurs, investment in Business by MSMEs, sickness in the firms, etc. was delivered
to respondents in each setting who had agreed to respond. Prior to their distribution
conversation with entrepreneurs was made asking for their cooperation. Those agreed to
cooperate and filling questionnaire were given the questionnaire for filling. The
questionnaire also described the research and its importance and the support of the
researcher. In the case of difficulty or doubt in interpreting the meaning of questionnaire
they were assisted by me in order to minimize response error.

Pilot Study

The pilot testing procedure was completed with 15 respondents from the MSMEs as per
convenience. After this procedure changes were made according to the requirement of the
study.

Data Collection Procedure In this study, a structured questionnaire was used for the
collection of data concerning the objectives of the study.

Research Methodology
In the previous section, the hypotheses to be tested are presented. three researches’
objectives, Z test, frequencies and percentage of variables that serve to guide them data
analysis. In addition, a review of the relevant literature relating to the study Established a
background of support for the study. Most of these are variable did a detailed study. The
purpose of this section is to explain the methodology used in research effort. Study setting,
study details included in the section sample and data collection methods, procedures and
analysis efforts.

RESEARCH OBJECTIVE

26
The aim of the study in general is to explore financial management Practices of MSMEs in
detail in Howrah. but the specific purpose of the study is:

1. To study the present scenario of financial management practices MSMEs in Howrah.

2. To analyse the various sources of fund available to MSMEs in Howrah.
3. To evaluate the effectiveness of investment appraisal process adopted by MSMEs
4. To analyse the working capital management practices of MSMEs
5. To make recommendations for further improvement of the financial management
practices to the MSMEs in Howrah.

Chapter – 4 ANALYSIS AND DISCUSSION

Introduction

This chapter is an attempt to find out main aspects related to financing in MSMEs in the
Howrah district of West Bengal. To find these financial aspects data is collected from various
types of MSME units such as retailers, wholesalers, manufacturer, consumer services. The
present chapter explains firstly the socio-economic and business status of enterprise, main
problem that faces by the enterprises, sources of finance used at the time of establishment
i.e., for fixed capital, working capital management and different finance related issues in
MSMEs in Howrah District.

Socio-Economic and Business Status of the Entrepreneurs

In this part socio-economic status of the entrepreneurs has explained. In this part we have
discussed year of establishment of enterprises, the age of entrepreneurs, investment made
by entrepreneurs of establishment, qualification of the entrepreneurs, types of enterprises
and like as. This part of the chapter will provide the base for the objectives of the study.

Gender of entrepreneur

In Howrah district of West Bengal, I collected data of 91 entrepreneurs. Gender diversity is

not in Howrah out of total respondent only 12% were female and rest 88% were male.

Graph 4.1 – Gender of entrepreneurs

27
 Gender of Entrepreneur
90
80
70
60
50
40
30
20
10
0
Female Male

Source; Field Survey

Year of Establishment

In the Howrah district of West Bengal, we have taken the data from 91 MSMEs
entrepreneurs. It is seen that few of enterprises were established as early as in 1960 and
also others established at a later date in 2018. Thus, the year of establishment of 91
samples MSMEs falls in the time period of 1960 through 2018.

Graph 4.2 – Year of Establishment

Source; Field Survey

Age of the Entrepreneurs

28
It is seen that out of total 91 respondent minimum age of the entrepreneurs is 25 years
maximum age is 70 years and mean age of the entrepreneurs is 43 years.

Table 4.1 – Age of entrepreneurs

Numbers Minimum Maximum Mean

Age of the 91 25 70 42.97
Entrepreneur in
years
Source; Field Survey

Did you start this Business?

Out of total 91 respondent 11 were the female and 80 were the male. Out of them 56 males
are those who started their own business and 24 males have not started their business. In
Female 9 female are those who have started their own business and 2 are the who haven’t
managing their own started business. Most of the entrepreneur who haven’t started own
business is hand over by their family or is in partnership.

Table 4.2 – Did you start this business

Male Female
Yes 56 9
No 24 2
Source; Field Survey

Type of Enterprises

Out of total 91 respondent 67% majority are sole proprietorship; 61 respondents are sole
proprietorship along with that in 55 were male and 6 were the female. 25 were the
partnership out of that 21 are the male entrepreneurs and 4 are female entrepreneurs. Rest
is 5 are LLP in this 4 are male and 1 are female.

Graph 4.3 – Type of enterprise

29
 Type of this enterprise?

Male

Female
Partnership

Male

Female

Male

Female

0 10 20 30 40 50 60

Source; Field Survey

Qualification of Entrepreneurs

From survey it is observed that out of 91observed enterprises, 4.44 percent entrepreneurs
are upto 5th class educated, 13.2 percent entrepreneurs are Highschool educated, 34.1
percent are Intermediate educated, 42.9 percent are Graduated, 4.4 percent are Post
graduated and one response comes from a Charted Accountant. we can say that most of the
entrepreneurs are educated intermediate or graduated.

Graph 4.4 – Qualification of entrepreneurs

Qualification of Entrepreneurs
upto 5th

Masters

Intermediate

High school

Charted Accountant

Bachelor
0 5 10 15 20 25 30 35 40 45

Source; Field Survey

Business unit Registration

30
From the table it is observed that out of 91 respondent 73 male say that thir business unit is
registered and 9 males are that who say that their business unit is un registered. In 9
females’ respondent all female says their business is registered.

Table 4.3 - Business unit registration

Business unit registered Yes No

Male 73 9
Female 9 0
Source; Field Survey

Industry Type

From the Table it is observed that for 91 observed enterprises, 23 percent firms are in
manufacturing sctor,37.36 percent in consumer services sectors, 39.56 percent in trading
sector. This table explains that most of the firms are doing business in retail trading and
least of firms doing business in manufacturing industries.

Table 4.4 – Industry Types

Type of enterprise Numbers Percentages

Trading 36 39.56
Services 34 37.36
Manufacturing 21 23.07
Total 91 100
Source; Field Survey

Fixed capital invested by firms

From the table if observed that 47.25% of firms made fixed capital investment upto 10
lakhs, 25.27% of the firs are made fixed capital investment in between 10 lakhs to 50 lakhs,

31
19.78% of the firms were made fixed capital investment in between 50 lakhs to 1 crore,
7.69% of the firms are made investment above 1 crore.

From the data it is observed that most of the firms deployed the fixed capital below 50
lakhs.

Table 4.5 – fixed capital investment made by firms

Investment Numbers percentages

Upto 10 lakh 43 47.25
Between 10 lakhs to 50 23 25.27
lakhs
Between 50 lakhs to 1 crore 18 19.78
Above 1 crore 7 7.69
Total 91 100
Source; Field Survey

Financial Management Practices

The financial management is one of the core areas of management which determines the
success or failure of an organization. Besides experience, qualifications are also an
important aspect of successful financial management. During the survey information about
the qualification of promoters in the area of accounting and financial management were
also sought.

Capital Structure

The capital structure is one of the most important aspects of financial planning for an
organization. It refers to the composition of long-term and short- term sources of funds.
According to John J Hampton, “Capital Structure is the combination of debt and equity
securities that comprises a firm financing of its assets”. The MSME enterprises basically
depend on owned capital for financing their investment.

The capital structure details of the enterprises which are selected for the study presented in
Table discloses that 100 per cent of the units have at least some owned funds for their

32
business, while 46.15 per cent of the units are functioning with own fund along with bank
loan. only 6.59 per cent of the units have term loan for financing their fixed capital.

Table 4.6 – Source of capital

Sl NO Types of funds use Number of Total no of Percentages

respondents respondent
1 Owned capital 91 91 100
2 Bank loan 42 91 46.15
3 Term Loan 6 91 6.59
Total 91 100
Source; Field Survey

Books of Accounts management

As table more than half of MSME’s maintain books of accounts by them self, specifically
51.56% of entrepreneur maintain their books of accounts by them. 41.76% of respondent
have an accountant that maintain their books of accounts, only 6.59% of respondent
maintain their books of accounts by accounting firm.

Table 4.7 Accounts management

SL no Who did maintain your Books of Number of percentages

Accounts? respondents
1 MY self 47 51.65
2 Accountant 38 41.76
3 Accounting firm 6 6.59
Total 91 100
Source; Field Survey

Loan, Purpose of Loan

33
According to table out of total 91 respondent 63 say that we have loan on our enterprise
and 28 says that we have no loan. From the table I observe that 70% of people have loan
they use the loan for various purpose. 63 respondent who have taken loan out of that 45
are says that they taken loan for loan for long term and 18 were look the loan for short
term.

Table 4.7 – Do you have Loan?

Do you have loan? Numbers Percentages

Yes 63 69.23
Long term 45 49.45
Short term 18 19.78
No 28 30.77
Source; Field Survey

Purpose of loan

From the table it is observe that 27 respondents taken the loan for raw material purchase in
day-to-day activity, 18 respondents say that they have taken the loan for purchase of
equipment for there business, 17 respondent says that they have taken the loan for up-
gradation of the business process, and 1 respondent says that it takes the loan for debt
repayment. Form the analysis say that most of MSME taken loan for running day to day
business like raw material, equipment’s, etc.

Graph 4.5 – Purpose of loan

34
 Purpose of loan taken?
30

25

20

15

10

0
Debt repayment Equipment Raw material Up-gradation (blank)
.

Source; Field Survey

Working Capital Management

From the table is it is seen that 9 respondents say that they have a working capital
management system that help them to manage day to day working capital, 79 respondent
says that they don’t have working capital management, 3 respondents say that they don’t
know either they have working capital management or not. Form this analysis it is observed
that 87 percent of MSME don’t have working capital management system in Howrah
district.

Table 4.9 – Working capital management

Working capital Frequency Percentages

management system
Yes 9 9.89
No 79 86.81
Maybe 3 3.29
Total 91 100

35
Source; Field Survey

Cashbook maintenance

From the table it is seen that 56 respondent says that they are maintaining their daily
cashbook, and 35 are says that they don’t maintain daily cashbook in their business. From
this analysis is observed that 61.5 percentage of population maintain daily cashbook and
rest are those who don’t maintain daily cashbook in Howrah.

Table 4.10 – Cashbook maintenance

Do maintain daily Frequency Percentages

cashbook?
Yes 56 61.54
No 35 38.46
Total 91 100
Source; Field Survey

Credit Transaction

From the table it is seen that out of total 91 respondent 89 respondent says that they are
making credit transaction with either buyers or seller even both, only 2 respondents says
that they are not making credit transaction with buyers and seller. From this analysis it is
observed that 98 percent of MSME in Howrah districts make transaction in credits either
from buyers or sellers even both.

Table 4.11 – Credit transaction from buyers and sellers

Did you make transaction in Frequency Percentages

credit from Buyers and
sellers?
Yes 89 97.80

36
 No 2 2.20
Total 91 100

Source; Field Survey

Profit & loss calculation

From the table it is seen that 6 respondent says that they are calculating their profit on
monthly basis, 15 respondent says that they are calculating their profit on Quarterly basis, 5
respondent says that they are calculating their profit on Half-yearly basis, and 65
respondent says that they are calculating their profit on yearly basis. From this analysis if it
observed that 7% percent of population calculate their profit and loss on monthly basis,
16.5% percent of population calculate their profit and loss on quarterly basis, 5.5% percent
of population calculate their profit and loss on half-yearly basis, and 71.4% percent of
population calculate their profit and loss on yearly basis. Most of population calculated their
profit and loss on annually basis.

Table 4.12 – Tenure of profit & loss calculation

How frequently you Frequency Percentages

calculate your profit & loss
for a period?
Monthly 6 6.59
Quarterly 15 16.50
Half- yearly 5 5.49
Yearly 65 71.477
Total 91 100

Source; Field Survey

Sickness of firm

37
From the table it is seen that out of 91 respondent 82 respondent says that they have some
sickness in their firm, 9 respondent says that they don’t have any type of sickness in their
firm in last year. From this analysis we observe that 90 percent of people agree that they
have a sickness in their firm.

Table 4.13 Is any sickness in your firm?

Is any sickness in your firm? Frequency Percentages

Yes 82 90.11
No 9 9.89
Total 91 100

Source; Field Survey

Type of sickness in firm

From the table it is seen that out of 82 people who says that they have sickness in their firm
31 respondent says that they have sickness in their firm due to working capital shortage, 04
respondent says that they have sickness in their firm due to management failure in his/her
firm, 1 respondent says that they have sickness in their firm due to lack of demand for their
product, 13 respondent says that they have sickness in their firm due to shortage of skilled
labour problem, 3 respondent says that they have sickness in their firm due to unsuitable
Govt policies, and 30 respondent says that they have sickness in their firm due to high cost
of capital or other financial related issues. From the analysis we observe that 34 percent of
people says that they have sickness in their firm due to lack of working capital, 33
percentage of people says that they have problem of high cost of capital or other financial
related issues.

Graph 4.6 – Type of sickness in firm

38
 Causes of sickness in your firm
(blank)

Working capital shortage

Management failure

Lack of demand

Labour problem

Govt policies

Cost of capital / Finance related issues

0 5 10 15 20 25 30 35

Source; Field Survey

Future expansion plan

From the table it is seen that out of 91 respondent 71 says that they have future expansion
plan for their company, 16 says that they don’t have future expansion plan, and 4 says that
they don’t know that either they have plan or not. From this analysis it is observed that 73
percentage of population willing to expand their business.

Table 4.13 – Future expansion plan

Do you have any future Frequency Percentages

expansion plan?
Yes 71 73.20
No 16 17.58
Maybe 4 4.40
Total 100 100

Source; Field Survey

From the graph it is seen that 43 respondent say that they are not able to expand their
business because they have shortage of fund, 15 respondent say that they are not able to
expand their business because they have lack of knowledge for business expansion how to
do this thing to expand their business, 8 respondent say that they are not able to expand

39
their business because they have insufficient demand of their goods and services into the
market if they produce more where they sell?, 5 respondent say that they are not able to
expand their business because they have problems with Govt policy that they are not easily
comply with Govt policies. From the analysis we observe that 60 percent of population who
have business expansion plan were not able to expand their business because of lack of
good source of finance, 21 percent of population who willing to expand their business but
not able to expand because of lack of knowledge, only 5.6 percent of population were not
able to expand their business because of Govt policies.

Graph 4.7 – causes that restrict MSME from expansion.

What cause restrict you from expansion?

(blank)

Shortage of fund

Lack of knowledge

Inefficient Demand

Govt policy

0 5 10 15 20 25 30 35 40 45 50

Source; Field Survey

Chapter – 5 Preferences of entrepreneurs for finance sources

40
Sources of finance

From the Table it is observed that out of 91 respondent, 66.7 percent entrepreneurs prefer
public banks than the other sources of financing i.e., entrepreneurs give first preference to
banks for financing, only 3.3 percent entrepreneurs have given first preference to financing
from private equity and 96.6 percent entrepreneurs have not given first preference to

financing from private equity, most of the entrepreneurs i.e., 39.3 percent entrepreneurs
have given the 3rd and 37.3 percent entrepreneurs have given the 4th preference to
friends/ relatives for financing, 52.7 percent entrepreneurs have given 2nd preference to
financing from private loan and 0.7 percent entrepreneurs have given first preference for
financing from SIDBI and 52 percent have given last preference to these sources of finance.

From this table we conclude that, most of the entrepreneurs have given their first
preference to banks for financing and then after that they have given second preference to
friends & relatives, then after that they prefer to Private Loan, then they prefer to SIDBI
then lastly, they prefer to private equity intuition than above other sources of financing.

Table 5.1 – preference for source of financing.

Rating Scale: 1 to 5 N Range Minimum Maximu Mean Std. Deviation

m

Loan from Bank 91 4 1 5 2.39 1.910

Firms availed credit from 91 4 1 5 1.08 .562

relative and friends

Firms availed loan from SIDBI91 4 1 5 1.08 .562

Private loan 91 4 1 5 1.21 .879

Loan from Private equity 91 4 1 5 1.28 .732

institute
Source; Field Survey

From the Table it is observed that for 91 respondent, entrepreneurs’ ‘z’ value, on the scale
of 1 (1st preference to Loan from bank for fixed capital) to 5 (low preference to Loan from
41
bank for fixed capital) against the mid-rating value (i.e., 3) as Test Value, is -3.933 with def.
(degree of freedom) of 90 and 99% Confidence Level. Therefore, the hypothesis that ‘MSME
take loan from bank for fixed capital’ is ‘Accepted’ as the mean is 2.39 and the p-value (.000)
is less than .01 at 99% Confidence Level. Z value, on the scale of 1 (Firms availed credit from
relative and friends) to 5 (Firms not availed credit from relative and friends) against the mid-
rating value (i.e., 3) as Test Value, is -41.851 with def. (degree of freedom) of 90 and 99%
Confidence Level. Therefore, the null hypothesis that ‘Firms availed credit from relative and
friends' is ‘Accepted’ as the mean is 1.08 and the p-value (.000) is less than .01 at 99%
Confidence Level. Z value, on the scale of 1(Firms avail loan from SIDBI) to 5(Firms not avail
loan from SIDBI) against the mid-rating value (i.e., 3) as Test Value, is -41.851 with def.
(degree of freedom) of 90 and 99% Confidence Level. Therefore, the null hypothesis that
‘every entrepreneur has availed credit from SIDBI’ is ‘Rejected’ as the mean is 1.08 and the p
value (.000) is less than .01 at 99% Confidence Level. Z value, on the scale of 1
(entrepreneurs avail personal credit) to 5 (entrepreneurs not avail personal credit) against
the mid-rating value (i.e., 3) as Test Value, is -24.889 with def. of 90 and 99% Confidence
Level. Therefore, the null hypothesis that ‘entrepreneur has not availed personal credit’ is
‘Rejected’ as the mean is 1.21 and the p-value (.000) is less than .01 at 99% Confidence
Level. Z value, on the scale of 1 (entrepreneurs avail loan from private equity) to 5
(entrepreneurs not avail loan from private equity) against the mid-rating value (i.e., 3) as
Test Value, is -14.556 with def. of 90 and 99% Confidence Level. Therefore, the null
hypothesis that ‘entrepreneur has availed loan from private equity’ is ‘Rejected’ as the
mean is 1.21 and the p-value (.000) is less than .01 at 99% Confidence Level.

Table 5.2- Z test for preference of source of financing.

Test Value = 3

42
 z def. Sig. (1-tailed) Mean 99% Confidence
Difference Interval
Variables
of the Difference

Lower Upper

Loan from bank -3.933 90 .000 -.613 -1.02 -.21

Firms availed credit -41.851 90 .000 -1.920 -2.04 -1.80

from relative and
friends

Firms availed loan -41.851 90 .000 -1.920 -2.04 -1.80

from SIDBI

Private Loan -24.889 90 .000 -1.787 -1.97 -1.60

Loan from Private -14.556 90 .000 -1.326 -1.36 -.56

equity institute

Source; Field Survey

Finance Problems faced by Enterprises

In this part of the study, we discuss finance problems faced by entrepreneurs in the business
for their day to day need i.e., for working capital, fixed capital requirement.

From the Table it is seen that for 91 respondents, entrepreneurs’ mean rating for shortage
of Fixed capital on the scale of 1(firms strongly disagree for the shortage of Fixed in the firm)
to 5(firms strongly agree for the shortage of Fixed capital in the firm) is 3.22 with Std.
Deviation of 1.554. Entrepreneurs’ mean rating for hostile attitude of government agencies
on the scale of 1(firms strongly disagree for hostile attitude of government agencies in the
firm) to 5(firms strongly agree for hostile attitude of government agencies in the firm) is
3.79 with Std. Deviation of 1.377. Entrepreneurs’ mean rating for inadequate assistance
from commercial banks on the scale of 1(firms strongly disagree for inadequate assistance
from financial intuition to firms) to 5(firms strongly agree for inadequate assistance from
financial intuition to firms) is 4.30 with Std. Deviation of 1.278.

43
Table 5.3 – Financial problem faces by MSME’s

Rating Scale: 1 to 5 N Range Minimum Maximu Mean Std.

m
Deviation

Shortage for Fixed Capital in the 91 4 1 5 3.22 1.554

Firms

Hostile attitude of government 91 4 1 5 3.79 1.377

agencies
in the firm

Inadequate assistance from 91 4 1 5 4.30 1.278

commercial
banks to firms
Source; Field Survey

From the Table it is observe that 91 respondent, Z value, on the scale of 1(firms strongly
disagree for Shortage of fixed capital in the firm) to 5(firms strongly agree for Shortage of
fixed capital in the firm) against the mid-rating value (i.e., 3) as Test Value, 12.455 is with
def. (degree of freedom) of 90 and 99% Confidence Level. Therefore, the null hypothesis
that ‘firms have not faced the problem of hostile attitude of government agencies’
‘Rejected’ as the mean is 3.79and the p-value (.000) is less than .01 at 99% Confidence
Level. Z value, on the scale of 1(firms strongly disagree for hostile attitude of government
agencies in the firm) to 5(firms strongly agree for hostile attitude of government agencies in
the firm) against the mid-rating value (i.e., 3) as Test Value, 12.455is with def. (degree of
freedom) of 90 and 99% Confidence Level. Therefore, the null hypothesis that ‘firms have
not faced the problem of hostile attitude of government agencies’ ‘Rejected’ as the mean is
3.79and the p-value (.000) is less than .01 at 99% Confidence Level. Z value, on the scale of
1(firms strongly disagree for inadequate assistance from commercial banks to firms) to
5(firms strongly agree for inadequate assistance from commercial banks to firms) against
the mid-rating value (i.e., 3) as Test Value, is 17.721with def. (degree of freedom) of 90 and
99% Confidence Level. Therefore, the null hypothesis that ‘firms have not faced the problem
of Inadequate Assistance from Commercial Banks to Firms’ ‘Rejected’ as the mean is
4.30and the p-value (.000) is less than .01 at 99% Confidence Level.

Table 5.4- Z test for financial problem faces by MSME’s

44
 Test Value = 3

z def. Sig. (1-tailed) Mean 99% Confidence Interval of

Difference
Variables the Difference

Lower Upper

Shortage for Fixed 7.055 149 .000 .793 .50 1.09

Capital in the Firms

Hostile Attitude of 12.455 149 .000 1.300 1.03 1.57

Government
Agencies

Inadequate 17.721 149 .000 1.533 1.31 1.76

Assistance from
Commercial Banks

to Firms

Source; Field Survey

From this analysis observe that p-values of variables are less than .01 so the null hypotheses
rejected, it can be said that entrepreneurs have faced all these finance problems in the
business in Howrah district of West Bengal.

Problems faced by MSME in the Business.

Table explains the problems that the entrepreneurs have faced in the business. Most
entrepreneurs have faced the problems cost of production, the problem of skilled workers,
the problem of competition from large player, the problem of marketing, the problem in
product branding.

From the Table it seen that 91 respondent, entrepreneurs’ mean rating for firm face the
problem of cost of production on the scale of 1 (firm never face problem of cost of
production in the business) to 5 (firm usually face problem of cost of production in the
business) is 3.57 with Std. Deviation of 1.676. Entrepreneurs’ mean rating for the firm face
the problem of skilled workers and manager on the scale of 1 (firm never face the problem
of skilled managers in the business) to 5 (firm usually face the problem of skilled managers
in the business) is 1.79 with Std. Deviation of 1.543. Entrepreneurs’ mean rating for the firm

45
face the problem of competition on the scale of 1 (firms never face the problem of
competition from big player) to 5 (firms usually face the problem of competition from big
player) is 3.87 with Std. Deviation of 1.692. Entrepreneurs’ mean rating for the firm face the
problem of marketing on the scale of 1 (firms never face problem in the marketing in the
business) to 5 (firms usually face problem in marketing in the business) is 3.97 with Std.
Deviation of 1.57. Entrepreneurs’ mean rating for the firm face the problem of product
branding on the scale of 1 (firms never face the problem of product branding) to 5 (firms
usually face the problem of product branding) is 2.29 with Std. Deviation of 1.637.

Table 5.5 – Problem faces by MSME in Business

Rating Scale: 1 to 5 N Range Minimum Maximum Mean Std.

Deviation

Firm face problem of cost of 91 4 1 5 3.57 1.676

production

Firm face problem of skilled 91 4 1 5 1.79 1.543

managers in the business

Firm face problem of 91 4 1 5 3.87 1.692

competition
from big player

Firm face problem of 91 4 1 5 3.97 1.597

marketing
in the business

Firm face problem of product 91 4 1 5 2.29 1.637

branding in the business

Source; Field Survey

From the Table it is observed that 91 respondent, Z value, on the scale of 1 (firms never face
problem of cost of production in the business) to 5 (firms usually face problem of cost of
production in the business) against the mid-rating value (i.e., 3) as Test Value, is 4.189 with

46
def. (degree of freedom) of 90 and 99% Confidence Level. Therefore, the null hypothesis
that ‘none of the entrepreneurs have faced the problem of the cost of production in the
business’ is ‘Reject’ as the mean is 3.57 and the p-value (.000) is less than .01 at 99%
Confidence Level. Z value, on the scale of 1 (firms never face the problem of skilled
employee and managers in the business) to 5 (firms usually face the problem of skilled
employee and managers in the business) against the mid-rating value (i.e., 3) as Test Value,
is -9.580 with def. (degree of freedom) of 90 and 99% Confidence Level. Therefore, the null
hypothesis that ‘none of the MSME have faced the problem of skilled workers in the
business’ is ‘Reject’ as the mean is 1.79 and the p-value (.000) is less than .01 at 99%
Confidence Level. Z value, on the scale of 1 (firms never face the problem of competition
from big player) to 5 (firms usually face the problem of competition from big player) against
the mid-rating value (i.e., 3) as Test Value, is 6.321 with def. (degree of freedom) of 90 and
99% Confidence Level. Therefore, the null hypothesis that ‘in general, none of the MSME
have faced the problem of competition from big player’ is ‘Reject’ as the mean is 3.87 and
the p-value (.000) is less than .01 at 99% Confidence Level. Z value, on the scale of 1 (firms
never face problem of marketing in the business) to 5 (firms usually face problem of
marketing in the business) against the mid-rating value (i.e., 3) as Test Value, is 7.466 with
def. (degree of freedom) of 91 and 99% Confidence Level. Therefore, the null hypothesis
that ‘in general, none of the entrepreneurs have faced the problem of marketing in the
business’ is ‘Reject’ as the mean is 3.97 and the p-value (.000) is less than .01 at 99%
Confidence Level. Z value, on the scale of 1 (firms never face problem of product branding)
to 5 (firms usually face problem of product branding) against the mid-rating value (i.e., 3) as
Test Value, is -5.288 with def. of 149 and 99% Confidence Level. Therefore, the null
hypothesis that ‘in general, none of the entrepreneurs have faced the problem of
product branding in the business’ is ‘Reject’ as the mean is 2.29 and the p-value (.000) is less
than .01 at 99% Confidence Level.

Table 5.6- Z test for problem faces by MSME’s in business.

47
 Test Value = 3

z def. Sig. (1- Mean 99%

Difference
tailed) Confidence
Interval of the
Difference
Variables
Lower Upper

Problem of Cost of production faced 4.189 149 .000 .573 .22 .93
by
Firms

Skilled or Experience Manager are not -9.580 149 .000 -1.207 -1.54 -.88
available in the market

Competition from another Firms 6.321 149 .000 .873 .51 1.23
Facing in
the Business

Problem in Marketing facing by Firms 7.466 149 .000 .973 .63 1.31
in the
Business

Problem in Product Branding facing -5.288 149 .000 -.707 -1.06 -.36
by Firms in the Business

Source; Field Survey

Chapter – 6 SUMMARY AND CONCLUSION

48
Summary

As we know that MSME sector is the backbone of the Indian economy. MSMEs’ contribution
45% in Industrial production, 40% of national exports, and 29% of GDP proved that MSMEs
is the base of Indian Economy. MSME sector faces various problems in business. These
problems are the obstacles in the way of development of MSME sector. The problem in
marketing, the problem in skilled Labour, the problem inadequate access to finance at exact
time is the main problems that these small-scale industries face? This entire study focuses
on the finance problem that this sector faces in the business in the Howrah district of West
Bengal state of India. In Howrah district investment of MSME sector is less than some other
districts like Burdman, Hooglly, and Kolkata. In this study, we observed that finance problem
in MSMEs is the one aspect responsible for less development of MSMEs in Howrah district.

The study covers the different aspects related to financing in MSMEs. The present study
explores the socio structure of entrepreneurs, which type of sources the enterprises used
for fixed capital, the managerial problem faced by entrepreneurs and also the finance
problems faced by enterprises in MSMEs in Howrah. For the attainment of above
objectives, the study comprehensively relies on primary survey along with secondary
sources. The primary data is collected from various types of enterprises in Howrah city on
the basis of the purposive sampling technique. The sources, namely MSME annual reports,
reports on Howrah Industrial Profile, West Bengal Industrial Profile are used for the
investment comparison of states as well as a different district in Howrah. To find out the
finance problems in MSMEs in Howrah district is the main issue of the present study.

FINDINGS

49
 From the field survey, we observed that at the time of establishment of their
business most of the entrepreneurs have used the self-finance another borrows
from friends and relatives or from the money lenders. They have not used other
financial sources like venture capital funds, loan from public or private banks,
borrow from SIDBI.
 It is observed that 34.7 percent enterprises are borrowing from banks and 65.3
percent enterprises are not borrowing from banks, 100 percent enterprises are using
their own capital, 28.7 percent enterprises are borrowing from Friends & Relatives
and 71.3 percent enterprises are not borrowing from Friends & Relatives , 3.3
percent enterprises are borrowing from SIDBI and 96.7 percent enterprises are not
borrowing from SIDBI, 100 percent enterprises are not borrowing from Private
equity venture, 100percent enterprises are using their self-finance for their needs of
working capital.
 In the field survey we observed that in the Howrah, 63 percent enterprises have
availed credit with either with buyers or sellers even both.
 The firms which have loan, 34 percent firms have availed working capital loan and
2.7 percent have availed term loan. From the total enterprises, 31.3 percent firms
have availed credit from banks, 31 percent firms from financial intuition and only 0.7
percent availed from venture capitalist.
 Major problems in finance that these enterprises facing in the Howrah are, lack of
efficient fixed capital, working capital, hostile attitude of finance agencies, lack of
collateral requirements, high cost of capital, complex paperwork using by banks
while taking credit from banks, complicated documentation by banks, inadequate
and timely finance to them, lack of knowledge. These are the major issue faced by
enterprises in Howrah. This can be the reason of less investment in this District of
Howrah, West Bengal.
 Majority of the firms (80.5 per cent) are not preparing any daily cash budget for
estimating the future inflow and outflow of cash and 16.6 per cent of the firms are
preparing a cash budget for one month in advance.
 Majority of MSME firms don’t have working capital management system, and most
of the firms faces issues in working capital management.

50
  From 100 percent, 54 percent entrepreneurs did not know the system of these
public funds so they did not get these funds, 11 percent entrepreneurs knew the
system but they think that the required documentation is too complicated, 2 percent
entrepreneurs knew the system but they think that the interest rate on these funds
is too high, 7 percent entrepreneurs knew the system they think that they have less
sufficient collateral, 4.7 percent entrepreneurs knew the system but they think that
the timing to get these funds were inappropriate and 21.3 percent entrepreneurs did
not need to use these funds.

RECOMMENDATIONS

 Awareness programs should be implemented, which should encourage to

enterprises about different credit schemes. Ease of doing business, ease of
registration process of MSMEs and Credit Guarantee Fund Scheme are the main
schemes for MSMEs.
 Simplicity in the documentation system of banks, easy availability of credit should be
provided to entrepreneurs by finance agencies. Knowledge should be provided
about the public funds. These funds can be helpful for the efficient needs of finance
of enterprises.
 Encourage the enterprises, subsidies should be provided by government or other
financial institutions for the fulfilment of their needs of finance. With this effort
these enterprises will do more investment and the development of the MSME sector
will be increased.

 Financial institutions should provide finance to enterprises in as hurt time. Finance

institutions take months to provide finance to entrepreneurs, so they don’t like to
borrow from them. For the fulfilment of the financial needs of the enterprises,
financing institutions should provide finance at the short time.

51
References

 Grablowsky, B.J. (1984). Financial Management of Inventory, Journal of Small

Business Management, July 1984. And Research Conference, Blackpool.
 William, A.J. (1975). Why so Many Small Businesses Fail, Real Estate Journal, pp. 16-
22.
 Hall,B. and Young,B.(1991) Factors Associated with Insolvency amongst Small Firms,
Int. Small Business Journal,9(2),54-63
 Nayak,A. and Greenfield,S.(1991).Very Small Businesses, accounting information and
business decisions: a question of definition,14th ISBA National Small Firms Policy
 Berryman, J. (1994). Small Business Failure and Bankruptcy: A Survey of the
Literature, international Small Business Journal,1983, pp. 47-59.
 Shaw, E. (1997). The Real Network of Small Firms’ in Deakins, D., Jennings, P. and
Mason, C., (eds.), Small Firms: Entrepreneurship in the Nineties, London, Paul
Chapman Publishing.
 Turner, R. (1997). Management Accounting and SMEs: A question of style?’,
Management Accounting, July/August, pp.24-25
 Das A.K. and Day N.B. (2000) Effective management of receivable in small business,
pp 20-44
 Graham JR and Harvey CR (2001) The theory and practice of corporate “finance:
evidence from the field, pp 187-243
 Rani and Rao (2008) Bank finance for small and medium-sized enterprises: issues and
policy reforms, pp 32-43
 Garcia-Teruel, P.J.G., Solano, P.M. (2007). Effects of working Capital Management on
SME Profitability. Int. J. of Managerial Finance. 3(2):164-177, 2007
 Uyar,A.(2009).The Relationship of Cash Conversion Cycle with Firm size and
Profitability: An Empirical investigation in Turkey. Int. Research J. of Finance &
Economics, ISSN 1450-2887, Issue 24, Euro Journal Publishing Inc.
 Padachi,K.(2010).Accounting Services among Manufacturing SMEs : A Neglected
subject,http://www.oum.ac.mu/sitesiirssm/papers/Padachi-2045.pdf

52
 Czarnitzki,D. and Hottenrott, H.(2010) R&D Investments and Financing Constraints of
Small and Medium sized Firms,Small Business Economics,36(1),65-83
 Newman, A., Gunessee, S. and Hilton, B. (2012). Applicability of Financial Theories of
Capital Structure to the Chinese cultural context: A study of privately owned SMEs,
Int. Small Business Journal,30(1),65-83
 Lahiri (2012) PROBLEMS AND PROSPECTS OF MICRO, SMALL AND MEDIUM
ENTERPRISES (MSMEs) IN INDIA IN THE ERA OF GLOBALIZATION, pp 38-49
 Jindrichovska, I. (2013). Financial Management in SMEs, European Research Studies,
Vol. XVI, Special Issue on SMEs
 Abanis, T., Burani,A., and Eliabu,B.(2013).Financial Management Practices in Small
and Medium Enterprises in selected districts in Western Uganda, Research Journal in
Finance and Accounting, ISSN 2222-1697,Vol.4,No.2
 Biswas, A. (2014) “Bank Lending to MSMEs in India”. Research in social and
management sciences. International Research Communion’s international journal of
multidisciplinary research in social and management sciences. Vol.2 Issue-3. Pp.6
 Vohra,P.S. and Dhillon,J.S.(2014). Best Financial Practices Lead Financial Performance
of SMEs,Int. Journal of Accounting and Financial Management Research ,ISSN(P):
2249-6882; ISSN(E): 2249- 7994,Vol. 4, Issue 3, Jun 2014, 5-16.
 Mazzarol,T., Reboud,S.B. and Clark,D.C.(2015). The financial management practices
of small to medium enterprises, Small Enterprise Association of Australia and New
Zealand,28th Annual SEAANZ Conference Proceedings,1-3 July Melbourne 2015
 Singh, C., and K. P. Wasdani. (2016) Finance for Micro, Small, and Medium-Sized
Enterprises in India: Sources and Challenges, pp 1-24
 Reserve Bank of India. 2005. Policy Package for Stepping Up Credit to Small and
Medium Enterprises. Mumbai.
 https://msme.gov.in/sites/default/files/MSME-ANNUAL-REPORT-ENGLISH%202020-
21.pdf
 https://www.ndsu.edu/faculty/horsley/Introduction_and_describing_variables.pdf
 http://web.mit.edu/15.053/www/AMP-Chapter-03.pdf

53
 Annexure

Questioner.

54
55
56
57