The Ficci-IIFT (Indian Institute of Foreign Trade) knowledge paper today gave a 20-point strategy for the innovative financing of Small and Medium Enterprises (SMEs) to overcome the current bias of banks against lending to SMEs.
The knowledge paper, titled 'Innovation Readiness of Indian SMEs: Issues and Challenges', firstly called for the establishment of a strong accounting system and reduce opacity.
Further, the report also emphasised on the importance of developing a comprehensive business plan. "The more detailed plan the better chance of a loan getting sanctioned. It also shows your understanding and analysis as well as depth of knowledge in vetting various aspects of the business. It works in resolving certain amount of information asymmetry," said the report.
The mandatory disclosure of information was also highlighted as an important aspect in the knowledge paper. Also, it advised SMEs to have a strategic partner in business.
Among the other suggestions were outsourcing part process, strong organisational structure, use of information communication technology, proper succession planning, debt management and co-creation of products.
In conclusion, the knowledge paper called for cheque-based transactions and tapping micro-credit finance and being aware of the laws. "SMEs are required to work from growth so that it shows on the balance sheets and ways the decision of the lenders on favour of the enterprise. All lenders seek companies with good health and steady growth of not exponential in nature to feel secure about their finance," the report said.
