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SMEs, startups should start raising funds through capital market, say experts

Listed SMEs and startups will become globally competitive and offer a significant contribution to India's economic development and job creation, say experts.

July 29, 2021 / 08:06 PM IST

The micro, small and medium enterprises sector in India is said to be the second-largest employment creator after agriculture, providing employment to an estimated 11 crore people. It contributes 30 percent of the GDP and accounts for 48 percent of the exports.

However, as a result of the consecutive lockdowns in 2020 and 2021, the MSME sector has been facing a wide range of issues including massive liquidity and supply crunch, shortage of labour and non-payment of dues.

Speaking at a FICCI webinar on Alternate Sources of MSME Funding & Start-up Listing, RK Chhajer, Chair, FICCI MSME Committee, West Bengal said, "A common challenge that the SMEs and startups face is a lack of access to appropriate capital, both from the banking sector and from capital markets due to stringent conditions. Moreover, in the last few years in India, the banking circle has become more regressive because of NPAs which have come into the system and bankers have become very wary of giving loans."

Chhajer further said that it is essential that SMEs access the capital market to raise equity capital and stressed that the exchanges must support SMEs and startups so that they can raise funds and keep their business running.

"Listed SMEs and startups will become globally competitive and offer a significant contribution to India's economic development and job creation," he noted.

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With the current pandemic situation and increasing uncertainties, SMEs and startups need to look beyond traditional fund raising options and explore alternate routes for wealth and fund creation not only for increased valuation, but also for image building and branding, Chhajer observed.

Mou Sen, Joint Director of MSME, Directorate of MSME, Govt. of West Bengal also emphasised the need for SME and startup funding from the capital market. "The growth potential of the startups is very large and so is their need for credit. However, banks call for a lot of documentation before increasing the credit limit," Sen noted.

Jayesh Taori, AVP, Listing BD, National Stock Exchange of India, also highlighted the need for MSMEs to look beyond the traditional route of raising credit through banks.

"We are providing them with the opportunity so they can raise equity capital from the market. They will always require loan funding from the bank and they need to maintain the debt-equity ratio. So, in the near future they must be aware, there is one more platform where they can come forward and raise equity also," Taori said.

According to Raghav Kanoria, Founder, Neoleap Accelerator, Co-Founder, Calcutta Angel’s & Partner, Anchor Group, listing a company on an SME platform gives it credibility and liquidity.

He further noted that the SMEs should look at tapping into central government schemes like credit linked capital subsidy scheme, prime minister's employment programme among others for receiving funding.

Commenting on the alternate modes of raising funds, Kanoria noted that at the first level small amounts of capital can be raised from friends and family or by dipping into savings.

Then the firm can move to institutionalised funding bodies like incubators and accelerators, incubators that provide market linkages, mentorship and crowdfunding, Kanoria added.
Shreeja Singh
first published: Jul 29, 2021 08:06 pm
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