As you are aware that big and listed organizations have easy access to even international funds in the forms of equity, FCCBs, FII and FDI. On the other hand SMEs have to mostly depend on bank lending‚ and even the equity market is out of their reach. In India there is also no concept of an Alternative Investment Market (AIM) like in countries for example UK where there is an AIM under the London Stock Exchange (LSE) to access capital market by way of equity. SMEs in India have to solely be dependent on bank lending and that too mainly on the Public Sector Banks. Moreover India's experimentation of an AIM has not been so successful with Over the Counter Exchange of India (OTCEI) failing to bring any relief to SMEs. Somewhere down its journey the OTCEI, which started off as an exchange that would offer a platform for small businesses with a capital base as low as Rs. 30 lakh, to raise money from the public, became just another exchange on the lines of BSE and NSE. Actively revamping the OCTEI for SMEs with less trading charges and exemption from Securities Transaction Tax (STT) can be good options.

However these are just future solutions. In the current scenario, venture capital can and is the only source of financing for a successful SME. In the Indian context, though venture capital has been a relatively late entrant, it has already made a reasonable impact. Despite this, an average SME's understanding and appreciation of the venture capital concept has been woefully inadequate. Very often, it is these misconceptions which have stood in their way.

It is time that SMEs understand the concept of venture capital, appreciate its merits and are aware of the attendant obligations. Very often SMEs tend to perceive venture capitalists as corporate raiders whose ultimate objective is to take over their business. SMEs should understand that venture capitalists are only financial investors and they neither have the intention nor expertise to manage companies. That is why most of them prefer to limit their stake in the investee companies to 40 percent.

Another issue that puts off SMEs in venture capital investment is nominee directors. It is common for Venture Capital Funds to insist on having at least one nominee of theirs on the board of the investee companies , which SMEs oppose thinking that the nominee director will interfere in the affairs of the management of the company.

Yes, raising venture capital though might seem a painstaking one, but still it remains a viable fund raising alternative for SMEs. To start small is good, but to remain small is dangerous. SMEs should understand that if they are to survive, it is of utmost necessity that they grow and in the process equity dilution is inevitable.

Tradeindia Editor

(Tradeindia Expert)

Tradeindia.com

Tradeindia.com
New Delhi, India

There is life beyond the SME sector. Again a major contributor to the Indian economy and livelihood scenario. The tiny sector. This sector is not even recognised by the banks and the lending institutes. Units mostly run by individuals and friends, these face enormous problems.

Since institutional funding is not available, the money is borrowed from the market. Since these units are small the clients neglect to make payments in time.

Banks do advertise about the availability of funds to these units. But they are advertisements only. If you approach them believing the ads then one faces the bitterest truth, that the banks are not interested in lending to them.

There are lot of good ideas and projects in the tiny sector. Yet there is no one to hold hands. Ideas that could grow into big projects.

All lending institutions today behave like a traditional money lenders. They refuse to understand the dynamics of the business to which they are lending. So there is always friction between the bank and the borrower.

Maybe we could have a forum. 1. Individuals with ideas and workable projects. 2. Individuals with some money. These two, can be brought together to understand each other and help each other. The first individual gets financial support and the second individual gets better returns on investment than from fixed deposits. If inclined the second individual can become a participant in the venture.
There are opportunities in the tiny sector. The governments have done a half-hearted job in setting up mechanisms for finances to the tiny sector. Due to which most of the funds have been siphoned off into unviable projects and finally written off. This attitude serves no purpose, except further aggravating the problem.

There are solutions but serious thought needs to be given to these issues. Imaginative and practical solutions are needed which will improve the situation. It's not sufficient to eulogies about China. WE can do it and achieve it, Given a CHANCE.

Mr. Vijay Kumar Kunchum

Crafts Forever

Proprietor, Crafts Forever
Hyderabad, India

Free Member, Joined :10/14/2006
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