Management of Finance in MSE K V Ramesh Asst.Professor (Finance) IPE.

Management of Finance in MSE

K V Ramesh

Asst.Professor (Finance)

IPE

What is MSE?

Micro and Small Enterprises

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006

Manufacturing Enterprises and Service Enterprises

TWO classes

The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951). The Manufacturing Enterprises are defined in terms of investment in Plant & Machinery.

The enterprises engaged in providing or rendering of services. Service Enterprises defined in terms of investment in equipment.

Manufacturing Sector

 Enterprises  Investment in plant & machinery

 MicroEnterprises

 Does not exceed Rs.25 lakhs.

  SmallEnterprises

 More than Rs.25 lakhs but does not exceed five crore rupees

  MediumEnterprises

 More than Rs.5 crores but does not exceed ten crore rupees

Service Sector

Enterprises  Investment in equipments*original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered

MicroEnterprises

 Does not exceed Rs 10 lakhs.

 SmallEnterprises

 More than Rs.10 lakhs but does not exceed two crore rupees

  MediumEnterprises

 More than Rs.2 crore but does not exceed five core rupees

What is Finance ? Finance stands for provision of money as and

when required. Process of raising, providing and administering

all money/funds to be used in a corporate enterprise.

Is concerned with the acquisition and conservation of capital funds in meeting the financial need and overall objectives of business enterprise.

Funding & Finance

Policy of fiscal support

Policy of priority credit

Equity

Growth

MSMEs has shown constant growth rate of more than 10% every year from 2007 till 2010-11, whereas in year 2011-12 growth rate was 19% which is approximately twice of the Growth rate recorded for previous years.

1.74 lakh to 2.82 lakh

much-needed avenue

Thejo Engineering - the first company to get listed in NSE's Emerge segment. SME exchange

Sept.18th ,2012. Sept.6th, 2012 @Rs.402 –Rs.430

PSl

Priority sector lending include only those sectors as part of the priority sector, that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises.

Targets

The domestic commercial banks are expected to enlarge credit to priority sector and ensure that priority sector advances (which include the micro and small enterprises sector) constitute 40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Banks must cater 40 per cent of the total advances to MSE sector should go to micro

(manufacturing) enterprises having investment in plant and machinery up to Rs. 5 lakh and micro (service) enterprises having investment in equipment up to Rs. 2 lakh

20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10 lakh. Thus, 60 per cent of MSE advances should go to the micro enterprises.

  While banks are advised to achieve the 60% target as above, the allocation of 60% of the MSE advances to the micro enterprises is to be achieved in stages viz. 50% in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13.

working capital As per Nayak Committee Report, working capital

limits to SSI units is computed on the basis of minimum 20% of their estimated turnover up to credit limit of Rs.5crore.

A composite loan limit of Rs.1crore can be sanctioned by banks to enable the MSME entrepreneurs to avail of their working capital and term loan requirement through Single Window in terms of Master Circular on lending to the MSME sector.

17 th Oct,2012

Bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification as direct finance to MSE Sector under priority sector upto an aggregate loan limit of Rs.2 crore per borrower/unit, provided they satisfy the investment criteria for equipment as defined under MSMED Act, 2006.

Cluster financing

approach to lending is intended to provide a full-service approach to cater to the diverse needs of the MSE sector which may be achieved through extending banking services to recognized MSE clusters. approach may be more beneficial

(a) in dealing with well-defined and recognized groups (b) availability of appropriate information for risk

assessment (c) monitoring by the lending institutions and(d) reduction in costs.

List of clusters

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

Micro and Small Enterprises Cluster Development Programme (MSE-CDP)

located in 121 Minority Concentration Districts. Credit Guarantee Fund Trust for Micro and Small

Enterprises ( CGTMSE) with a view to facilitate flow of credit to the MSE sector without the need for collaterals/ third party guarantees

The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral- free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 85 per cent of the outstanding amount in default.

The CGTMSE would provide cover for credit facility up to Rs. 100 lakh which have been extended by lending institutions without any collateral security and /or third party guarantees. A guarantee and annual service fee is charged by the CGTMSE to avail of the guarantee cover.

Presently the guarantee fee and annual service charges are to be borne by the borrower.

Important concepts in BEP Analysis

Contribution

Profit volume ratio ( P/V ratio)

Break even point

Margin of safety

Angle of incidence

Additional Disclosures

item No. Disclosures required under the Micro, Small & Medium Development Act, 2006

I Delayed payments due as at the end of each accounting year on account of Principal and Interest due – Rs.

II Total interest paid on all delayed payments during year -Rs.

III Interest due on principal amounts paid beyond the due date during the year but without the interest amounts RS

IV Interest accrued but not due– Rs, XXX (interest accrued as at the end of the year but not due as interest is computed at monthly rests from the due date)

V Total Interest Due but not paid – Rs. XXX (all interest amounts remaining due together with that from prior year(s) until such date when the interest was actually paid to the small enterprises. Mainly to ascertain the amount of interest disallowable for income tax purposes)

Schedule VIA EQUITY AND LIABILITIES

1 Shareholders’ funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants 2 Share application money pending allotment 3 Non-current liabilities (a) Long-term borrowings (b) Deferred tax liabilities (net) (c) Other long-term liabilities (d) Long-term provisions 4 Current liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions

B ASSETS1 Non-current assets(a) Fixed assets (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets 2 Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets TOTAL

Profit and Loss Statement

Particulars Note No. Figures current/ previous reporting period

I Revenue from operations II Other Income III Total Revenue (I + II) IV Expenses: Cost of Material consumed Purchases of Stock in trade Changes in Inventories of Finished goods , Work in progress and stock

in trade Employee Benefits expense Finance costs Depreciation and amortisation expenses ,Other expenses Total Expenses

V Profit before exceptional and extraordinary items and tax (III - IV)

VI Exceptional items VII Profit before extraordinary items and tax (V - VI) VIII Extraordinary items IX Profit before tax (VII - VIII) X Tax expense: (1) Current tax (2) Deferred tax XI Profit (loss) for the period from continuing operations

(VII - VIII)

XII Profit (loss) from discontinuing operations

XIII Tax expense of discontinuing operations

XIV Profit/(loss) from discontinuing operations (after tax) (XII - XIII)

XV Profit (Loss) for the period (XI + XIV)

XVI Earnings per Equity Share:

1) Basic

2) Diluted