Alternative funding for MSMEs sought

Alternative funding mechanism is the need of the hour to solve the financial issues of micro, small and medium enterprises (MSMEs).

Speaking to the media here on Wednesday, Ramesh Datla, chairman, Confederation of Indian Industry - National MSME Council, said, even after the banks had increased their funding, MSMEs are facing a huge financial crunch, affecting over 30-40 per cent of the units.

Giving an example of alternative funding, Datla said the proposed SME Exchange, which is expected to be operational by the next financial year, would also help SMEs raise funds and facilitate their growth.

“More than 60 per cent of the MSMEs rely on debt as a mode of financing for their long-term financial needs. For the short-term, close to 75 per cent use debt financing, while 15 per cent use equity and the rest use both equity and debt,” he said.

The CII in its pre-budget memorandum for MSMEs for the year 2012-13, has recommended that the banks create a platform for interaction of business angel networks and venture capitalists with their SME clients to match the investment preferences of investors with equity requirements of MSMEs. A database of SMEs should also be created based on their location, capital requirements, sector and areas of venture, etc.

It has proposed setting up of two funds — Green Technology Fund and R&D fund — specially for them.

“We have proposed this separate technology fund as pollution control is another big challenge for the MSME sector. Technology is expensive and banks are not coming forward to fund it,” he said.