‘Financial literacy a must for SMEs’ | SupportBiz

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‘Financial literacy a must for SMEs’

The availability of finance at an attractive cost is a major concern for SMEs. The Small Industries Development Bank of India (SIDBI) claims it is working towards addressing this issue. The SME sector in India accounts for about 8 percent of India's gross domestic product (GDP).

RK Das, General Manager, SIDBI, feels that entrepreneurs should know of the various options available to them in terms of finance, and choose wisely to build their business.“Financial literacy is an important area for SME entrepreneurs,” Das said in an exclusive interview with SupportBiz.com Edited excerpts from the interview:

What is the key issue in the area of finance for Indian SMEs?

SMEs need financial support in order to meet their growth. This financial support should be provided according to the specific needs of SMEs. For example, there has to be adequate credit support at an affordable cost. Credit to SMEs must be delivered on a timely basis. This is very important, as smaller businesses not only face a financial crunch, but also work under pressure of time.

What are the major trends that you are witnessing in SME finance?

One of the major trends that we are currently witnessing in this domain is that SMEs are adopting newer means to raise capital for their business.

Leveraging equity capital can be a good option for any SME which has a strong business action plan, for the purpose of expansion.

Apart from fund raising, what are the other critical issues that SMEs face with regards to finance?

Delayed payment is one of the biggest challenges that smaller businesses are facing today, which badly affects their attempts at maintaining a cash flow. The recently introduced Factoring Regulation Act will be a great boost for SMEs that are facing the issue of delayed payments from their clients. However, there is a need to create more awareness among SMEs regarding this.

There are various dimensions of a business which require financial support. Do you think categorization of financial support is essential?

Yes, I do think so. We have dedicated schemes for areas like environmental issues, marketing and technology. We have witnessed a huge demand for credit support for the purpose of meeting environmental norms and for energy conservation.

Apart from this, we also provide re-financing schemes.

The service sector is an important segment within the SME domain. The business scenarios of the firms in this sector are far different from those in the manufacturing segment. We have initiated a dedicated program for SMEs in the service sector, so that affordable finance can be made available to them.

I think it is very important to motivate entrepreneurs to develop their competencies in key business areas other than their core business.

How do you look at the critical issue of approaching SMEs and banking institutions in order to bring understanding about financial support? Can SIDBI play a role in this?

Awareness towards financial issues is poor among SMEs. On the other hand, there is a need for banking institutions too to understand SME-specific business requirements, issues, and trends. There is no doubt that it is very important to bring forth a common dialogue between these two concerned parties.

SIDBI plays a role in this respect by motivating SMEs to market themselves in a better way. We are working very aggressively towards enabling business clusters, which will bring to light the capabilities of specific business verticals, and help bankers understand specific issues.

Apart from streamlining internal financial processes, what are the key business strategies that SMEs must adopt?

Firstly, brand building is very important for any SME.

Then, SMEs should get expert advice about various aspects of business, and implement them. Hiring experts or consultants can be a good move in this direction.

Also, I think it is extremely important for SME entrepreneurs to have a deep financial literacy. They should be aware of the various options available to them in terms of finance, and choose wisely to build their business.

I think bankers should also consider these areas as important for business growth, and allocate funds accordingly.