"SME" is the way forward for India

Small and Medium Enterprises or SME's as they are popularly known are what India must "bank" on to provide the next wave of industrial growth. Having realized this, the government of India has been working towards making the economic environment conducive for such enterprises.

Most Indians dream of having an enterprise of their own and this culture has resulted into a spurt in the number of small and medium enterprises in the country. The most important need of these companies is finance and I would like to highlight two recent moves made by govt. to make credit available to these companies:

1. SMERA - Small and Medium Enterprises Rating Agency of Indai Ltd.
Most banks in India have been hesitant to provide loans to SME's partly because they was no mechanism to rate these companies and partly because there were many bigger companies hungry for money and these companies were a safer bet. However, with the opening up of the banking sector, the lending market has been cluttered by the presence of many public and private banks. Thus there has been a constant pressure on the banks to cater to already over-banked corporations.
SMERA is a joint initiative by SIDBI, Dun & Bradstreet Information Services India Private Limited (D&B) and several leading banks in the country. It claims to be the country's first rating agency that focuses primarily on the Indian SME segment. SMERA's primary objective is to provide ratings to SME's which would facilitate greater and easier flow of credit from the banking sector to SMEs. Thus, with the onset of SMERA, the govt. has removed one reasons for bank's to deny credit to the small organizations.

2. Reserve Bank of India (RBI) committee's proposal for collateral-free loans
The RBI committe has proposed that SME's will soon be able to get collateral-free loans for up to Rs 10 lakh from banks. This move has become possible following an RBI panel's proposal to double the guarantee provided under a government scheme. In a recently released report, The RBI has proposed that banks do not insist on collateral or guarantees for loans from small businesses up to Rs 10 lakh as in such loans,the security will be provided under a guarantee by Credit Guarantee Fund Trust for medium and small enterprises (CGTSME).

If the second move materializes then that will be a big boost for the SME's that still find it tough to raise finances.

The cut-throat competition in acquisition of large business houses has already forced many bankers to take a serious look at the SME segment. Policy initiatives like the ones mentioned above will go a long way in ensuring sustainable credit availability for the SME's.