SME survey: PE sector unregulated, govt should step in to safeguard cos' interests

Is money flowing into the small and medium enterprises (SME) sector in India? Is there a spurt in the growth in the SMEs sector? We believe so given that the news reports are gung ho about either startup A or startup B having received private equity funding.

We at _Firstbiz_were in for a surprise in a survey we did with the Greyhound Knowledge Group. What we found was that while e-commerce continues to remain the favourite milch cow of PE investors, while other enterprises struggle to find backers.

The Firstbiz-Greyhound Knowledge Group survey found that funding was the major blip on the SMEs’ radar. The top concern of SMEs was the difficulty to access credit access and finance.

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This difficulty was not region or sector specific. Across India, the unanimous sentiment of businesses was that it is extremely challenging to obtain collateral free term loans from banks (80 percent). As regards private equity funding, 72 percent complained that PE funding leads to a dilution in company control, while 65 percent said PE funding is tough to obtain. However, 86 percent of the respondents still wanted the government to step in to encourage private equity firms to provide funds.

“The PE and VC (venture capital) market is unregulated, there is no government regulation to secure SME interests,” said Sanchit Gogia, chief analyst and CEO, Greyhound Knowledge Group. “SMEs want the government to step in and safeguard the companies’ interests (with regard to PE funding) since the government has no vested interest in these SMEs - the government will want these businesses to grow, to employ people and contribute to the country’s GDP."

The table below shows the various funding related issues SMEs are currently facing.

In January-February 2013, SMEs saw a decline of 51 percent in investments by Private Equity (PE) in just one year.

The sector fell from $306.27 million to $151 million. Funds focussing on SMEs are having difficulties in raising money because of the prevailing conditions. The total gap in MSME funding is estimated at $126 million.

So what do SMEs hope the Union Budget will do for them?

Ninety-two percent of SMEs are rooting for the introduction of easy financing and credit tools.With regard to financing and credit tools, nearly all businesses surveyed (97 percent) are expecting the budget will introduce a new policy that makes it easy for SMEs to obtain a term loan from banks without high emphasis on collaterals and complex paper work and at reduced interest rates.

Firstbiz and Greyhound Knowledge Group commissioned a survey across 540 small and medium businesses across India. The survey covered 9 Indian cities. In order to ensure we got a diverse slice of opinions we targeted 3 Tier 1, Tier 2 and Tier 3 cities. Tier 1 cities covered were Delhi, Mumbai and Chennai; Tier 2 Cities covered were Chandigarh, Ahmadabad and Coimbatore; and Tier 3 cities covered were Nasik, Indore, and Kanpur.

You can download the entire report here .