The current approach when lending to SMEs (small and medium enterprises) is very different from what used to be practised earlier by the public sector banks, says ‘India Micro, Small & Medium Enterprises Report 2010’ (www.isedonline.org).
Earlier, these banks funded SMEs mainly to meet their priority sector targets, and sanction as well as follow-up and control rested with bank personnel at the branch level, leading to immense scope for corruption, the report notes. “Loans were made haphazardly, often without a proper study of the environment in which the SME operated. Bankers in the sector often had no expertise in handling small loans.”
Among the examples of ‘marked change in lending practices’ is the initiative of State Bank of India (SBI) to have several branches dedicated to SME lending and to adopt newer ways for ensuring that loans are repaid.
For instance, an SME is seen as a responsible business entity through the reference of OEM (original equipment manufacturer). “Banks prefer to fund SMEs that are dedicated suppliers of raw materials or components to larger OEMs, since they would have already passed the due diligence process of a large corporate.”
Another example is of ICICI Bank, which adopts the scorecard methodology for assessing SMEs in the manufacturing and construction sectors; 85 per cent of its business comes from parametrised, cluster-based trade financing, the report informs. “The bank also finances standalone SMEs and believes that financing is moving towards invoice discounting, where there is no legal recourse on the corporate to pay the bank.”
The ‘green’ chapter narrates ‘a story from Varanasi,’ about energy management in brick manufacturing, which is a traditional SME sector in the country. Considering that the major energy consuming part in the process is the brick kiln chimney, fired with coal or wood, with fuel constituting 30 to 40 per cent of cost, the Bureau of Energy Efficiency has made an assessment of conservation.
Accordingly, ‘a technology upgradation involving brick extruders, crushers, box-feeders, roller mills, hammer mills, cutters, driers etc.’ can lead to energy saving ‘between 0.5 to 0.8 mega joules per kg of brick.’
The report frets that a major problem faced by SMEs in most parts of India is the erratic supply of electricity. “According to the summary results of the Fourth all-India Census of MSMEs, only 18.68 per cent of SMEs depend upon electricity.”
In this context, what is highlighted as a ray of hope is the model shown by the Karnataka Vikas Grameen Bank. Since many of the bank’s rural branches face acute power problems, nearly 10 per cent of its 400-plus branches now have solar power facility.