MSME- an abbreviation of Micro, Small & Medium enterprises- is the pillar of economic growth in many developed, and developing countries in the world. Often rightly termed as “the engine of growth” for India, MSME has played a prominent role in the development of the country in terms of creating employment opportunities-MSME has employed more than 50 million people, scaling manufacturing capabilities, curtailing regional disparities, balancing the distribution of wealth, and contributing to the GDP.
The Cabinet in its meeting held on February 07, 2018 approved the proposal for amendment to the Micro, Small and Medium Enterprises Development Act, 2006.
|Micro Enterprises||Less than or equal to Rs. 5 crores|
|Small Enterprises||More than Rs. 5 crores but not exceeding Rs. 75 crores|
|Medium Enterprises||More than Rs. 75 crores but not exceeding Rs. 250 crores|
Once this amendment takes effect, the MSMEs shall be classified in relation to their turnover, and not in line with the investment in Plant and Machinery.
How to register as an MSME?
The government has introduced various schemes and aids to ensure the MSME lead a struggle free existence in the country, and also contribute, to the Indian Economy. Some of these schemes have been initiated by the central government, while others are promoted by the state government. The registration process as an MSME is easier and can be done at https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx
Arranging Finance under MSMEs:
|No MSME unit can take off without monetary support. This need for finance can be classified into following types:|
|• Long and medium term loans
• Short term or working capital requirements
• Risk Capital
• Seed Capital/Marginal Money
• Bridge loans
|Financial assistance in India for MSME units is available from a variety of institutions. The major ones are:
• Commercial/Regional Rural/Co-operative Banks.
• SIDBI: Small Industries Development Bank of India (refinance and direct lending)
• SFCs/SIDCs: State Financial Corporations (e.g. Delhi Financial Corporation)/State Industrial Development Corporations.
|Long and medium-term loans needed to fund purchase of land, construction of factory building/shed and for purchase of machinery and equipment, are provided by Banks, SFCs, SIDBI and SIDCs.
The short-term loans are required for working capital requirements, which fund the purchase of raw materials and consumables, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks.
The commercial banks also sanction composite loan comprising of working capital and term loan up to a loan limit of Rs.1 crore.
For loans from financial institutions and commercial banks a formal application needs to be made. The details of documentation that need to be provided with the loan application are:
• Documentation for Loan Application
• Balance Sheet and Profit Loss Statement for last three consecutive years of firms owned by promoters
• Income Tax Assessment Certificates of Partners/Directors
• Proof of Possession of Land/Building
• Architect’s estimate for construction cost
• Partnership deed/Memorandum and Articles of Associations of Company
• Project Report
• Budgetary Quotations of Plant and Machinery
A sanction or rejection letter is issued by bank after its assessment of the application. After receiving a sanction letter, applicants need to indicate in writing their acceptance of terms and conditions laid down by FI/Banks.
Benefits of being registered as an MSME:
Benefits from Banks: All banks and other financial institutions recognise MSMEs and have created special schemes for them. This usually includes priority sector lending, which means that the likelihood of your business being sanctioned a loan is high, and lower bank interest rates. There may also be preferential treatment in case of delay in repayment. Filing of Entrepreneurial Memorandum is mandatory for enterprises engaged in the manufacturing process where as it is optional for enterprises engaged in rendering services. The banks are directed by the Reserve bank of India to allocate certain percentage of their lending to priority sectors like agriculture, Micro, small and medium sized enterprises, loans to poor students for their education, etc. However, medium sized enterprises do not fall under priority sector as they are financially sound. So, filing of entrepreneurial memorandum ensures the MSME enterprises get the benefit lending from banks.
Tax Benefits: Depending on your business, you may enjoy an excise exemption scheme as well as exemption from certain direct taxes in the initial years of your business.
Benefits from State Governments: Most states offer those who’ve registered under the MSMED Act subsidies on power, taxes and entry to state-run industrial estates. In particular, there is a sales tax exemption in most states and purchase preference on goods produced.
Benefits from Central Government: The central government, from time to time, announces schemes to benefit MSMEs, such as the credit guarantee scheme:
Credit Guarantee Scheme (CGTMSE): One of the major struggles that the small scale industries face is credit and input of income from various sources to support them. The Credit Guarantee scheme, introduced to support MSME, comes with modifications to make it more beneficial for small traders.
Reservation Policy Reservation policy is one of the most vital benefits given to enterprises in the form of a policy under this sector. To ensure that the MSME sector is not affected by the stiff competition in the market, the central government has given exclusive rights to manufacture certain products only to this sector. Under the Government Stores Purchase Program, the central government has reserved the purchase of more than 300 products exclusively from this sector. For example, wooden furniture and fixtures, pickles, bangles, ground nut oil, mustard oil, bread, jute, brakes and clutches for automobile corporations, among others.
Protection against the delay in payment from Buyers: The MSMED Act provides protection to Micro and Small Enterprises from delayed payments. It specifically provides that where a Micro and Small Enterprise supplies any goods or renders any services to a buyer, the buyer is required to make the payment on or before the date agreed upon by them and in no case, the period can exceed 45 days from the date of acceptance.
Right of interest on delayed payment: In the case where the buyer fails to make the payments, he shall be liable to pay compound interest with monthly rests to the supplier on that amount from the date falling after the due date, at three times of the bank rate notified by the Reserve Bank of India.
Time-bound resolution of disputes with Buyers through conciliation & arbitration: MSMED Act provides that in case of any dispute arising out of non-payment of dues, Micro and Small Enterprises may refer the dispute to the Micro and Small Enterprises Facilitation Council, which shall conduct conciliation in the matter and where such conciliation does not give fruitful results and is terminated without any settlement thereof, the Council may itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services.
SUPPORT SERVICES PROVIDED BY STATE GOVERNMENTS: