They are the unknown faces of corporate India. Unlike the top corporate honchos of India Inc, they are far away from media and public glare. They may or may not scale the peaks that the Tatas, Birlas or Ambanis conquered in corporate India’s climb to success, but the one thing they do not lack is the grit and the determination. They are the micro-entrepreneurs of the nation and their elder counterparts, the SME players.
Consider these: After completing his diploma in electronic instrumentation from SSPMS Polytechnic in Pune, Mr Amin Ismail Almel started working for a private firm for a salary of Rs 2,000 a month in 1999. Being from an economically-backward family, he had to support his parents and a younger brother and sister. Unable to support his family with the salary, Mr Amin wanted to start a business of his own. Once when he had to gone to withdraw money from a bank, he saw the cashier using a fake currency detector.
Being from the electronic instrumentation stream, he saw this as a potential business avenue. He set up a workshop in his one BKH flat to produce such units and in the first year he clocked a turnover of Rs 1 lakh. He soon expanded his business after he received a loan of Rs 50,000 through an NGO, Bharatiya Yuva Shakti Trust (BYST). Today, he has a turnover of Rs 1 crore, with new products in his stable such as tyre inflators and LED displays. Today, he is talking about exports and tie-ups with foreign companies. “We are talking with Conergy Solar of Germany to set up a solar panel unit in India and they are quite interested,” he says. Mr Amin was the recipient of the Citi Micro Entrepreneur Award 2004.
Or take the case of Ms Manisha Kirad of Pune, who was the recipient of the Citi award in 2006. Her father, who was a heart patient, passed away in 1996 and she, being the eldest child of the family, had to take charge. After trying in vain to get a job, she decided to start a small business, using her knowledge about plastic moulding that she had gained after undergoing a month’s course in injection moulding of plastic. Starting in a small way by purchasing a second-hand manual plastic moulding machine, she expanded her business after getting a loan of Rs 50,000 through BYST. Today, she is a confident entrepreneur, planning to diversify into oil levers, gauges, solonoid bobbin, transformer bobbins and irrigation parts.
Says Mr Sanjay Nayar, CEO of Citi India: “The increasing number of responses to Citi’s awards programme is a testimony to the effective and efficient role that micro finance is playing in poverty alleviation and in improving the quality of life of the economically-weak across the country. Our endeavour is to further raise the awareness about the underlying potential of micro-finance.”
In fact Citibank and SKS Microfinance recently announced a $44-million (Rs.1.8 billion) financing programme, involving Citibank India purchasing loans that are originated by SKS. Mirroring Citibank’s increased foray into rural microfinance, the programme will deliver income-generating loans of between Rs 5,000 and Rs 20,000 to a population of over two lakh un-banked customers spread across 7,000 villages in 11 States of the country by financial year 2007-08.
Similar success stories abound in the SME sector in Maharashtra and Gujarat, significantly contributing to the exports from India. But when one tries to find out the statistics regarding the SME segment, it becomes difficult, as the SMEs are highly unorganised.
According to an analysis based on the cluster study conducted by SIDO, in Maharashtra, there are a total of 58 geographical clusters dedicated to specific sectors. Mumbai accounts for 11 clusters followed by Nagpur six and Pune six.
SBI’s plans for SMEs
The country’s largest bank, State Bank of India, is also one of the biggest lenders to the SME sector. It is targeting a growth rate of 29 per cent in this segment for 2007-08. The bank had a compounded growth of 32 per cent in this segment, in the last three years, between 2004 and 2007, said Mr Mr T.S. Krishnaswamy, DGM, SME.
SBI’s SME portfolio as on June 30 was about Rs 80,000 crore. This includes trade, manufacturing and service companies having a turnover of up to Rs 50 crore. In the western region, which includes Maharashtra, Ahmedabad and Bhopal, the size of the SME portfolio is approximately Rs 26,000 crore.
The level of non-performing assets in this segment is about six per cent and the bank is planning to bring it down to three per cent by 2009, said Mr Krishnaswamy.
“We brought down our NPAs in this sector with aggressive recovery, write offs and recourse to legal action under SARFAESI,” he said.
SMEs becoming sick
Currently, many SMEs are facing the prospects of becoming sick units due to economic developments and lack of infrastructure facilities. “There are three main reasons for this. One is the rising interest rates in the last two years, which has pushed cost of borrowing for SMEs. The second is the power situation, in the region. Due to the lack of adequate supply, the businesses are forced to use alternate power such as diesel, which is costly and pushed up the cost. The third is the rising rupee, which has affected export-oriented units. All these factors have led to the vulnerability of SMEs,” Mr Krishnaswamy feels.
As interest rates have increased by 1-2 per cent in the last two years, the lending rates for SMEs have gone up from 10-11 per cent to 12.5-13 per cent.
SBI has started passing on the two per cent interest subvention, announced to SMEs from April 2007 onwards. “This has helped some of our SME clients meet their export related shortfalls,” Mr Krishnaswamy said.
“Most of our SME clients don’t reach the minimum amount prescribed by the RBI for overseas borrowing, which is about $2,50,000. That is why we lend them foreign currency out of our FCNR deposits,” he said. Citing some success stories, Mr Krishnaswamy said companies such as Asian Paints and Ajanta Pharma started as SMEs with SBI.
Strong SME sectors
One of the major SME segment in Pune is the tooling sector, which includes design and manufacturing of welding fixtures. According to Mr Mukund Kondvikar, Chief Executive Officer, DRAN Engineers Pvt Ltd, the potential of Pune and the other surrounding industrial areas in this segment could be close to Rs 200 crore.
DRAN Engineers Pvt Ltd, an engineering company in Pune engaged in the design and manufacturing of welding fixtures, CNC machining fixtures and SPMs (special purpose machines), has set up a new modern manufacturing unit at Dhayri, Pune.
It has invested up to Rs 4.5 crore for setting up this new facility and is spread over three acres plot having a built-up area of 30,000 square feet. It has a ‘Design Centre’ with a team of CAD designers. “We would soon be getting into mass manufacturing of sub-assemblies required for all types of industries.
A special area is being developed with an additional investment of Rs 1.5 crore in the new plant itself. This facility would be utilised when the requirement of job work would be in the range of 10,000-15,000 jobs per month. This facility would be operational by end of September,” Mr Kondvikar said.
The company is also focusing on providing one stop solution for creating automated welding lines and would also be getting into the manufacturing of SPMs for primary and secondary packaging required for food processing and other similar industries.
One of the demands of the user industry, according to Mr Atul Nagpal, Managing Director, Walter India, one of the main players in the tooling segment, is that the customers want to enhance the productivity of their machining setups and aim to have a competitive manufacturing cost per component.