Export-Import Bank of India’s experiments with finding newer ways to finance SMEs have met with great success; the case of considering competency as a collateral being a resounding success in recent times.

Exim Bank partnered with International Trade Centre, Geneva and the European Commission to develop a methodology to assess and test the competency of an SME and to accept its proven competency as collateral, instead of insisting on physical guarantees, against industrial loans.

It was a tool that provided an alternative to handle risk and uncertainty while accommodating traditional capital and collateral conditions, said S. Muthukumaran, chief general manager of Exim Bank. He was speaking to The Hindu after presenting a paper on Exim Bank’s role in helping SMEs at the ongoing 7th Commonwealth-India Small Business Competitiveness Development Programme. Mr. Muthukumaran said that the new method had been tested in 11 cases and that it was a sound practice for helping SMEs that have traditionally found it hard to access industrial finance.

He said that most SMEs were unable to meet the stringent criteria imposed by financial institutions while screening applications for loans. Most of the SMEs are also not competent enough to assess their financial needs.

This methodology assesses the future potential of an SME by considering its managerial capacities, its capability to design a business strategy, to make sound allocation of resources etc.

To test the new method, the bank established a specific SME lending programme for which the Bank set aside $ 11 million representing “a major window of opportunity for a number of enterprises that have the potential and the commitment but lack the resources needed to start and implement their project,” he said.

SMEs operate in an atmosphere where there is a lot of volatility and it is not just enough to ascertain their future potential. Constant monitoring and training, if needed, are imperative to see that the chosen SME realises its potential. Close scrutiny of the business plans and strategies of an SME will reveal not only its strengths but also its weaknesses.

The weaknesses are addressed gradually to help it attain the desired level of efficiency.

Subiksha Ayurvdics, manufacturer and exporter of incense sticks was the first case that Exim Bank took up to test its new methodology. Vittal Prakash, promoter of Subiksha based in Coimbatore, says that it was a totally new experience for him with Exim Bank.

He said that he had nearly wound up the unit for lack of funds when he contacted Exim Bank which financed a major export programme that put the company on its growth trajectory.

Mr. Divya Aggarwal

Money Management Consultants Ltd

Senior Copy Editor, Money Management Consultants Ltd
New Delhi, India

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