SEBI’s relaxed listing norms: Impact on SMEs

Small and medium Enterprises are increasingly being seen as the next drivers of growth in India. Currently, they account for almost 90% of the industrial units in India and 40% of the value addition in manufacturing sector. SMEs also contribute 35% to India’s merchandise exports. Moreover the SMEs are the main source of employment generation in the country. In these circumstances, it is only reasonable that the government encourage the growth of the SMEs and provide a favorable environment for their growth

However the SMEs face problems in raising capital for their growth. According to a study done by SEBI in which they discussed the problems of SME with many industry experts and market participants, they found out that the SMEs face the problem of not being able to raise adequate capital for their survival and growth. The areas of concern are
1) The cost of raising capital for SMEs is quite high
2) The SMEs do not have easy access to the VC, PEs etc. Funding at the angel state is almost non-existent.
3) The compliances which are to be followed are quite cumbersome and tough on the SMEs. Moreover, the costs of the compliances are quite high
4) The loan proposals are also either not acknowledged or disposed. Banks continue to discourage credit guarantee cover in lieu of collateral.

This is why it was imperative that steps be taken to ensure that the SMEs have easy access to capital, looking at their importance in the broad scheme of things. A committee has been formed under the direct supervision of the Prime Minister to address the industry’s concerns.

Concerns and comparative evaluation
According to the November 2009 data, almost 90% of the 2.61 crores MSMEs depend either on banks or on informal sources to finance their business. Yet only about 8% of the total bank credit finds its way to this sector. This is very appalling specially considering the fact that to create one job in the MSME sector, only around 70000 Rs are required while Rs. 5.5 lakhs are required for the same purpose in the organized sector. Again this over-reliance on bank credit turns out to be cumbersome and disadvantageous because not only are there stringent norms for SMEs taking loans, the interest rates are also harsh on them. Many banks do not pass on the benefit of the rate cuts to the SMEs. The cost of sourcing capital from informal sources is also very steep.

Internationally countries have provided for eased norms when it comes to SMEs. London, Japan and Hong Kong have provided for a separate stock exchange/trading platform where SME stocks can be traded. Other norms and policies have also helped SMEs. For e.g. the credit guarantee system followed by Japan has prevented the country from slipping into a deflationary spiral. Under the scheme, the government provided repayment guarantees of more than 30 million yen. The program has helped alleviate the financial constraints on the SMEs in Japan. The government of the city of London has also come up with...................................

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