IRJC International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 7, July 2012, ISSN 2277 3622

ENHANCING SMES ACCESS TO GREEN FINANCE DR. J. VENKATESH*; MS. R. LAVANYA KUMARI** *Associate Professor, School of Management Studies, Anna University of Technology Coimbatore, Jothipuram Post, Coimbatore, Tamil Nadu, India. **Ph.D Research Scholar, Rayalaseema University, Kurnool, Andhra Pradesh, India. School of Business Management, JB Institute of Engineering & Technology, Yenkapally, Moinabad (Mdl), Andhra Pradesh, India.

ABSTRACT

INTRODUCTION Small business is human scale. And human scale is often green or at the least, sustainable. Small and medium size businesses are the backbone of communities and often generations of families. But small and micro businesses that are starting up often face economies of non-scale that large businesses don't face. Large businesses receive preferential treatment, quantity discounts and other perks that size provides. Yet both large and small are part of our ecosystem of human productivity, and "green" is a process that can bring them together. The key to poverty alleviation is economic growth that is inclusive and reaches the majority of people. Improving

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KEYWORDS: Finance, Green finance, MSMEs, SMEs & SIDBI. ______________________________________________________________________________

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Many governments of developing countries perceive micro, small, and medium enterprises as engines of employment, poverty alleviation, and broad-based economic growth. Growth and development of micro and small enterprises in developing countries can increase poor people‟s opportunities, security, and empowerment. Small and medium-sized private enterprises are expected to play a major role in creating jobs and maintaining economic dynamism in any countries. In transition economies, however, they are faced with a host of obstacles in their business activities. They include a multitude of administrative barriers, lack of entrepreneurship, limited access to finance, lack of skills and technologies, etc. Among these constraints, financing difficulty is often the most serious particularly for smaller businesses. Financing is necessary at every stage of a business life cycle. It is required to help MSMEs set up and expand their operations, and to develop new products. India has a well developed financial system, comprising banks, financial institutions, non banking financial companies and also venture capital companies. All these institutions through various schemes cater to the diverse financial needs of the industry. Green Finance is a market-based investing or lending program that factors environmental impact into risk assessment, or utilizes environmental incentives to drive business decisions.

IRJC International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 7, July 2012, ISSN 2277 3622

the performance and sustainability of local entrepreneurs and Small and Medium Enterprises (SMEs), which represent the backbone of global economic activity, can help achieve this type of growth in both business and governments can promote the growth of SMEs. SMEs and entrepreneurs play a significant role in all economies and are key agents of employment, innovation and growth. A significant number of entrepreneurs and SMEs could use funds productively if they were available, but are often denied access to financing, thus impeding their creation, survival and growth. Although SMEs form a broad spectrum as far as their relative size, sector of activity, seniority, location and performance are concerned; there is a vital need for innovative solutions for their financing in particular for innovative and high growth SMEs in a globalised knowledge-base economy.

There are three broad approaches to addressing the financing difficulties of SMEs in addition to various efforts to improve overall business climate for SMEs. First, as a way of reducing information gap between banks and small private firms, appropriate bookkeeping and accounting practices can be encouraged and loan application and evaluation processes can be simplified in light of the realities of these firms. Second, new financial institutions or facilities

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The global emphasis on Green and clean environment encompasses MSMEs also. In India Green growth is an adopted agenda. There has been increasing concern on environmental degradation caused by industrialization and realization of the need to take corrective measures to protect the environment. Apart from revisiting manufacturing Processes and technologies being used by MSMEs, the focus has shifted to adopting appropriate technologies or production processes to maximize energy conservation. Now Reduce (waste), Reuse and Recycle are emerging as thrust areas of various activities. Lack of information about availability of alternative clean technologies, lack of awareness of advantages of investing in such technologies and low skill sets of existing workforce to adapt to new technologies are major reasons for MSMEs lagging behind in up gradation and modernization of their facilities. The sector has to be provided technological support services along with credit facility on softer terms to invest in Cleaner Production (CP) options. As a principal & responsible Development Financial Institution engaged in promotion, financing & development of Indian MSMEs, SIDBI has since inception acted proactively in the area of sustainable development of MSME sector.

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Financing is necessary at every stage of a business life cycle. It is required to help MSMEs set up and expand their operations, and to develop new products. India has a well developed financial system, comprising banks, financial institutions, non banking financial companies and also venture capital companies. All these institutions through various schemes cater to the diverse financial needs of the industry. Green Finance is a market-based investing or lending program that factors environmental impact into risk assessment, or utilizes environmental incentives to drive business decisions. In India, SIDBI has taken several initiatives to promote lending for green and energy efficient technologies in MSME sector. SIDBI has been operating focused lending schemes for promoting investment in clean production and energy efficient technologies or production process under bilateral Lines of credit from Germany and Japan. These focused schemes have two pronged approach, i.e. concessional lending to encourage investment in green or energy efficient technologies and launching of cluster specific information dissemination.

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may be established to better meet the financing needs of SMEs and to support start-up firms. They may include specialized banks, non-bank financial institutions (NBFIs), and various funds for investment or lending to SMEs. Especially, community-based NBFIs are supposed to have a comparative advantage in monitoring small business firms in their community. Sometimes, microfinance initiatives go beyond helping the poor households to support small businesses. Finally, the government can help SME financing by putting in place financial infrastructure geared to better generation and dissemination of information about the creditworthiness of SMEs. They include institutions for credit guarantees and credit rating and credit bureaus. The SMEs in most of these countries still face serious financing difficulties which are as follows: Enhancing SMEs ‟ access to conventional finance through reduced information gap (between SMEs and financial institutions) or lower cost of evaluating loan applications, Strengthening financial infrastructure for improved information about creditworthiness of SMEs, and Institution building for innovative financing schemes for SMEs including leasing, factoring, venture capital, microfinance, securitization, and e-finance. GREEN FINANCE Since the global financial crisis and economic recession, green growth has been drawing global attention as one of the new economic growth engines, which can achieve both environmental protection and economic development. In this respect, green finance is the core instrument to support green growth. In general, green finance is future-oriented, which pursues economic growth, environment protection, and financial industry‟s development. Particularly, the green finance is one of “targeted financing” since it is focused on green economic activities such as export financing, financing for small and midsize firms, and financing for the IT venture industry. The green finance can be divided into two parts:

More specifically, the former includes indirect financing such as green loan and direct financing markets such as green index development and launching green fund, in the capital market. Particularly, given that the capital market has the high-risk and high-yield such as hedge fund and environmental fund, securing funds is relatively more facilitated. The latter is tantamount to cutting off the financing of environmental disruption activities and the role of commercial lender, who creates self-imposed screening and evaluation and implements it. The development of Green Finance considers the following five factors: (1) The establishment of the specific concept on the green finance and its social awarenessraising are required.

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(2) The finance to prevent environmental costs.

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(1) The finance to supporting green growth and

IRJC International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 7, July 2012, ISSN 2277 3622

(2) In building the infrastructure of green finance, the strategy for the advancement and road map of the government and financial institution ought to be established. (3) The role of the financial institutions for green finance ought to be strengthened. (4) Nurturing green investors and its related professionals is required. (5) In order to address the regulation of global greenhouse gases, based upon the market mechanism, the development support of the carbon market as the most cost efficient alternative to cut back on greenhouse gases is essential. The world is trying to “go green.” Smart cars have been introduced to reduce emissions and many supermarkets offer customers reusable bags for their groceries. Also manufacturers are pushing “energy efficient” versions of common household items. Even schools are educating students about the importance of preserving the environment around them through acts such as recycling. Financial institutions around the globe are beginning to catch the green wave as well, by offering green products and services in an attempt to appeal to more environmentally-friendly consumers such as green car loans, energy efficiency mortgages, alternative energy venture capital, eco-savings deposits, and “green” credit cards. In an age where environmental risks and opportunities abound, so too have the options for reconciling environmental matters with lending and financing arrangements. GREEN PRODUCTS AND SERVICES In order to qualify as a green product or service, the item must offer the customer a transparent option to reduce the indirect impacts of their banking activities, reduce negative environmental impacts or provide environmental benefits.

(2) ENERGY-EFFICIENT MORTGAGES One of the most popular forms of a green banking product is a green home mortgage. Green home mortgages, or Energy-Efficient Mortgages (EEMs) as they are commonly known, offer a remarkably lower interest rate for customers who purchase new energy efficient houses or invest in green power. In order for a financial institution to make this option more attractive to customers, it should promote green mortgages by covering the cost of switching a house from conventional to green power.

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Retail Banking Covers personal and business banking products and services designed for individuals, households and SMEs, rather than large corporate or institutional clients and services in the retail space include loans and mortgages, debit and credit card services, and insurance, among others. We will see two of the most popular green products in retail banking sector.

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(1) RETAIL BANKING

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(3) GREEN CREDIT CARDS Green credit cards are another new initiative. The incentives of having a green credit card are hard to measure, even infinite. Many banks in Europe offer emissions offset programs, provide discounts and grant low borrowing rates to customers who purchase green products and services. Some banks offer to donate card-member rewards to organizations that are dedicated to improving the environment or allowing cardholders to redeem these rewards for “green” products. ENHANCING SMES’ ACCESS TO GREEN FINANCE Enhancing SMEs‟ access to finance has to deal with both the demand (borrower) side and the supply (lender) side. On the demand side, SMEs should prepare themselves to be more eligible for bank loans by better keeping and disclosing business records and by presenting better business plans. On the supply side, there are alternative ways of evaluating loan applicants. Larger banks might utilize credit scores for potential borrowers supplied by outside agencies or internally. Smaller banks might prefer relationship banking with their corporate clients in order to obtain more accurate information, to monitor them better, and to have a secure business base. In a similar way, community-based smaller financial institutions and informal finance can play a role in reducing information gap and enhancing smaller businesses‟ access to finance. In India, SIDBI has taken several initiatives to promote lending for green and energy efficient technologies in MSME sector. SIDBI has been operating focused lending schemes for promoting investment in clean production and energy efficient technologies which are as follows: A) FINANCING FOR ENERGY EFFICIENCY

SIDBI has so far provided assistance under the JICA scheme to more than 2000 MSMEs with aggregate assistance of more than Rs.800 crore for cleaner production and energy saving investments. Some of the major initiatives of SIDBI for achieving energy efficiency which has benefited a large number of MSMEs in clusters are as under; ELECTRONIC WASTE RECYCLING FACILITY IN BANGALORE SIDBI assisted E- Parisara Pvt. Ltd., Bangalore for electronic waste recycling project. The project caters to wastes generated by IT, Telecom & Electronic industries in and around Bangalore. The advantages accruing from the project includes helping more than 100 MSMEs to

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B) GREEN FINANCING

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SIDBI has taken several initiatives to promote lending for green and energy efficient technologies in MSME sector. SIDBI has been operating focused lending schemes for promoting investment in clean production and energy efficient technologies or production process under bilateral Lines of credit from Germany and JICA (Japan International Cooperation Agency). These focused schemes have two pronged approach, i.e. concessional lending to encourage investment in green or energy efficient technologies and launching of cluster specific information dissemination.

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become compliant with regulatory requirements or environment audit, reduction in waste treatment cost and reuse & recycling of treated metals or materials. COMMON EFFLUENT TREATMENT PLANT (CETP) a) MSME textile dyeing & printing units in and around Surat – Gujarat Environ Protection & Infrastructure Ltd. has been assisted to set up Treatment Storage and Disposal Facilities (TSDF) in Surat to help MSME textile dyeing and printing units in proper waste disposal. Majority of 300 MSME members units have been able to become compliant with pollution control norms. b) CETP, Bangalore- Eco Green Solution Systems (P) Ltd. has been assisted for setting up of a Treatment Storage and Disposal Facilities (TSDF) facility for toxic waste generated from the electroplating, powder coating, and metal finishing industries in and around Bangalore. It has helped more than 300 MSMEs in reuse and recycling of treated effluent, reduction in waste treatment cost per unit etc. A. MUMBAI TAXI FINANCING SCHEME SIDBI has entered into arrangements with Mumbai Taxmen's Association / Union and Maruti Suzuki Ltd. for providing assistance to taxi drivers (micro entrepreneurs) to phase out their old taxis. Under the Scheme, taxi drivers have been provided assistance to buy new taxis without any collateral security under CGTMSE coverage. More than 700 Micro entrepreneurs have so far been provided finance under this arrangement. The initiative has helped in promoting clean technology thus controlling pollution. B. AUTO RICKSHAW FINANCING 600 CNG fitted Auto Rickshaws were provided assistance in Chandigarh by Delhi Finance Corporation (DFC). SIDBI provided refinance to DFC for this clean energy initiative.

D. RICKSHAW SANGH PROGRAMME SIDBI and American India Foundation (AIF) have signed a Memorandum of Understanding to provide livelihood support to the low-income groups through a joint initiative called the "Rickshaw Sangh Programme", under which SIDBI has sanctioned financial assistance of Rs. 50 lakh to Bhartiya Micro Credit (BMC) under its Micro Credit Scheme for microfinance as well as for financing livelihood of programmes of BMC. Under the programme, BMC has provided 500 rickshaws to poor people residing in and around Lucknow with credit support from the SIDBI and Technical support from AIF. Under the programme, the beneficiaries would also

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Friends of Women's World Banking (FWWB), a MFI was sanctioned assistance of Rs.10 crore for providing assistance to micro entrepreneurs for acquiring Solar Lanterns of 2 watts each. 50, 000 micro entrepreneurs are proposed to be covered under the assistance.

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C. SOLAR LANTERNS

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be provided license and Municipal permit, uniform, life insurance for client and his spouse, accident insurance etc. E. INFORMATION DISSEMINATION SIDBI has organized several awareness campaigns for propagating JICA supported scheme for achieving Energy Efficiency in high energy intensive MSME clusters to create awareness about environment friendly and energy efficient technologies suitable for the respective clusters. The campaigns have received good response. In such seminars, MSMEs were given information on green technologies, better production processes, investment required and cost benefit analysis of each investment. So far 18 awareness campaigns have been organized in MSME clusters across the country. F. FURTHERING GREEN GROWTH WITH DEVELOPMENTAL SUPPORT Under multi-activity-multi agency MSME Financing and Development Project (MSMEFDP) being implemented by SIDBI, various initiatives are being undertaken to enable the emergence of competitive MSMEs with provision of financial and non - financial services. Credit facility (CF) has been channelized to over 2050 MSMEs spread across major cluster centers across the country. Project has adopted international best practice of Environment and Social Risk Assessment framework (E&S) in its appraisal process. More than 100 credit officials have been trained on E&S. In its cluster development initiative aimed at soft infrastructure development, the Project has adopted a long term intervention strategy. Starting with value chain mapping of a cluster, an action plan is devised, in consultation with stakeholders and is pursued with sustainability angle. Instilling Energy Efficiency (EE) in these adopted clusters has emerged as one of the cross cutting issues. The following major initiatives have been attended in EE area under MSMEFDP.

H. KNOWLEDGE SERIES In order to attend to challenges of information asymmetry, the Project has brought out knowledge series publications on energy efficiency in Fruit & Vegetable Processing, Ceramics, Foundry and Engineering clusters. These along with a 'Tip sheet on Energy efficiency' (providing simple housekeeping) tips to MSMEs has been widely disseminated among MSMEs. The project has supported India SME Technology Services Ltd (promoted by SIDBI and leading public sector banks) to prepare Carbon Credit Guidebook for MSMEs, update its existing basket of 800 technologies and flag them as carbon free, clean, energy efficient technologies. Project

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SIDBI has entered into a Memorandum of Understanding (MoU) with the Bureau for Energy Efficiency (BEE) for creation of a shelf of energy efficient technologies for 25 MSME clusters, awareness creation and capacity building of local Business Development Services (BDS) providers for implementing energy efficient technologies. This shall be integrated with financial support to eligible proposals for adopting energy efficient technologies & measures.

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G. ENERGY EFFICIENCY INITIATIVE WITH BUREAU OF ENERGY EFFICIENCY

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has initiated steps, in association with DSIR, Ministry of Science and Technology, to evolve policy document on ' Technology Vision for Indian MSMEs- 2020'. It is expected to be a tool, providing boost to innovative traits of Indian MSMEs. I. GREEN RATINGS With support under MSMEFDP, SME Rating Agency (SMERA) - an associate of SIDBI, is gradually introducing rating variants and the latest is “Green Rating" model. This initiative is aimed to encourage MSMEs engaged in industrial activity to adopt better technologies and processes to prevent un-mitigated environmental damage. It will act as a risk mitigation tool for MSMEs to effectively face business continuity risks associated with rapidly changing regulatory prescriptions on environment governance & compliances. SCHEMES FOR WOMEN Various government schemes for MSMEs provide certain special incentives and concessions for women entrepreneurs. For instance, under Prime Minister‟s Rozgar Jojana (PMRY), preference is given to women beneficiaries. The government has also made several relaxations for women to facilitate the participation of women beneficiaries in this scheme. Similarly, under the MSE Cluster Development Programme by Ministry of MSME, the contribution from the Ministry of MSME varies between 30-80% of the total project in case of hard intervention, but in the case of clusters owned and managed by women entrepreneurs, contribution of the M/o MSME could be up to 90% of the project cost. Similarly, under the Credit Guarantee Fund Scheme for Micro and Small Enterprises, the guarantee cover is generally available up to 75% of the loans extended; however the extent of guarantee cover is 80% for MSEs operated and/ or owned by women. Small Industries Development Bank of India (SIDBI) has also been implementing special schemes for women entrepreneurs are as given below: 1. PRIME MINISTER’S EMPLOYMENT WOMEN

GENERATION PROGRAMME FOR

In case of women entrepreneurs, beneficiary‟s contribution is 5 per cent of the project cost while in the case of beneficiaries belonging to general category; it is 10 per cent of the project cost. Bank finance in the form of loan is 95 per cent of the project cost in case of women and other weaker section borrowers and 90 per cent of the project cost in case of those belonging to general category.

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For urban women beneficiaries, margin money subsidy is provided at the rate of 25 per cent (for general category, it is 15 per cent) of the project cost while it is 35 per cent for women in rural areas (25 per cent for general category).

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The Government of India is implementing a nationwide employment generation programme, under which relaxation is provided to women in the following ways:

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2. RASHTRIYA MAHILA KOSH The National Credit Fund for Women (NCFW) commonly known as Rashtriya Mahila Kosh (RMK) was set up by Government of India in 1993 to meet the credit needs of the poor and asset needs of the women in the informal sector. RMK extends micro credit through MFIs for various activities including setting up of micro enterprises. 3. TRADE RELATED ENTREPRENEURSHIP ASSISTANCE DEVELOPMENT SCHEME FOR WOMEN (TREAD)

AND

With a view to encourage women in setting up their own ventures, government implements a Scheme, namely, “Trade Related Entrepreneurship Assistance and Development (TREAD). The Scheme envisages economic empowerment of women through the development of their entrepreneurial skills in non-farm activities. There are three major components of the scheme: Govt. grant upto 30% of the total project cost to the Non-Government Organizations (NGOs) for promoting entrepreneurship among women. The remaining 70% of the project cost is financed by the lending agency as loan for undertaking activities as envisaged in the project. Government of India grant to training institutions or NGOs for imparting training to the women entrepreneurs, subject to these institutions or NGOs bring their share to the extent of minimum 25% of Government of India grant and 10% in case of NER. Need-based Government of India grants up to Rs. 5 lakh to National Entrepreneurship Development Institutions and any other institutions of reputed for undertaking field surveys, research studies, evaluation studies, designing of training modules etc. FOR

MICRO

AND

SMALL

Promoted by Government of India along with SIDBI, provides credit guarantee for collateral free loans up to Rs. 100 lakh for MSEs under its Credit Guarantee Scheme (CGS) with special concession to loans extended to women entrepreneurs i.e. the guarantee coverage is provided up to 80%. As on August 31, 2010, CGTMSE has covered 78,400 guarantees of Rs. 2,571 crore run by women entrepreneurs, which constitutes around 20% of total guarantees. 5. PROMOTIONAL & DEVELOPMENTAL ASSISTANCE The Indian Government is fully committed to promote the great spirit of women entrepreneurship through various promotional and developmental support.

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TRUST

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4. CREDIT GUARANTEE FUND ENTERPRISES (CGTMSE)

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The Ministry of MSME, Government of India, accords considerable emphasis on promotion of women entrepreneurship, particularly among first generation women, through various training and support services. Similar entrepreneurship development programmes, especially for women, are also regularly conducted by various state level developmental institutions, banks or FIs and NGOs. These women-centric programmes are tailor-made to train the potential women entrepreneurs in improving their technical/managerial knowledge and skill with a view to facilitating them to start MSEs in various fields. These programmes are often called “Out-reach Programmes” as they are conducted in rural or less developed areas. 22.5% of total target of ESDPs/EDPs are conducted exclusively for SC, ST, Women and Physically Challenged persons. No fee is charged from SC/ST, women and physically handicapped. SIDBI also supports various institutions for conducting EDPs. It was found that EDPs assisted by SIDBI have helped in grounding many women micro enterprises at the grass root level. 6. MARKETING ASSISTANCE Ministry of MSME has formulated a scheme for women entrepreneurs to encourage Small & Micro manufacturing units owned by women in their efforts at tapping and developing enterprises under MSME stall at International Trade Fairs or Exhibitions, to enhance export from such units. Under this scheme, provide rent free space (6/ (Sq Mts) in the exhibitions and reimburse 100% economy class air fare for one representative; the overall ceiling shall however be Rs. 1.25 lakh.

1. LEASING Leasing is a medium-term financial instrument typically used for the purchase of machinery and equipment. Leasing institutions (lessors) purchase machinery or equipment usually selected by the lessees, and provides it to the lessees for a specified time period in return for periodic payments of agreed amount. Leasing institutions include banks, leasing companies, insurance companies, other non-bank financial institutions and equipment producers or suppliers. At the end of a lease period, the ownership of the equipment may or may not be transferred to the lessee.

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Finance for SMEs and small businesses are often delivered through specific financial tools or specialized financial institutions. While bank loans are still the predominant form of formal finance for SMEs, there are other alternatives. These alternatives may be better suited to serve the financing needs of smaller firms. Such financing schemes include leasing, factoring, venture capital, e-finance, securitization of SME loans, and microfinance for small businesses. Although some of these schemes are not yet available or in the early stage of development in many Asian developing and transition economies, they are advised to promote these financial services by providing relevant institutional infrastructure and other enabling environment.

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INNOVATIVE FINANCING SCHEMES FOR SMEs

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Leasing offers the lessee several advantages over conventional bank financing. First, for SMEs in most developing countries, leasing might be the only available form of medium- to long-term financing for fixed investment particularly. Second, the lessors are mainly concerned about the Lessees‟ ability to generate steady cash flow rather than their balance sheets or credit history, which makes leasing easier to access for SMEs. Third, capital requirement at the start of business is much smaller with lease financing compared with conventional bank financing. Finally, the lessees do not have to put collateral since the equipment is owned by the lessors, which makes leasing much preferable for credit suppliers in countries, which poorly protect creditor rights and have weak collateral laws and registries. Promotion of leasing usually requires appropriate legislative and regulatory frameworks since existing legislation and regulation may not be conducive to the development of leasing. A minimum capital requirement may be imposed for leasing institutions, but this should not be as high as to serve as a significant entry barrier for the industry. Licensing is usually not required for leasing in many countries. Direct subsidization of leasing for certain industries has often proved to be counter-productive due to its distortion of the market. However, preferential tax treatments might be given to lease financing for a limit period of time as a w ay of stimulating fixed investment.

3. VENTURE CAPITAL Venture funds typically provide equity and may or may not also provide tied credit. Good quality venture funding can improve the credit rating of the company allowing it to access

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Factoring is “purchase” (prepayment) by a factor (institution providing factoring service) of clients‟ sales invoices as they are issued. Unlike bank lending, factoring companies effectively „own‟ the invoiced debt with full right of recourse. It has distinct advantages as a financing instrument. First, factors typically do not seek collateral, since they take the sales invoices they purchase as security. This is a big advantage for new or smaller enterprises that tend to lack collateral. In environment with poor contract enforcement and weak protection of creditor rights, factoring may be the only source of financing for most SMEs. Second, factors generally process the financing application much faster than bank loans, since they do not spend much time on assessing the overall creditworthiness of their clients or the customers (w ho are to pay the invoices). Third, factors usually offer a range of professional services to their clients including advice on credit management, protection against bad debt, and credit insurance (in addition to collecting payments from the customers). These services are most appreciated by smaller businesses. From these advantages, it is clear that factoring is more relevant to SMEs than larger enterprises. However, SMEs using factoring are not so many, even though factoring service is increasing fast in recent years. Factoring is not well known to SMEs yet, and, in many countries, it is viewed as a financing tool of last resort when companies are in serious financial distress. On the supply side, factoring requires a relatively large amount of capital, which poses as a natural barrier to market entry. For the development of factoring, legal framework is also important particularly with regard to the ownership transfer of debt and creditor rights in cases of default.

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2. FACTORING

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commercial loans or other forms of finance. However, there are some expected problems with exit that can impact funds entry into these areas. 4. ANGEL INVESTORS Angels are typically high net worth individuals who wish to invest some of their surplus funds in new ventures. They can prove to be a good source of capital and advice at an early stage in the development of the company. For the investor, they bring opportunity to make high returns from investing at an early stage in an MSME. 5. INCUBATORS Incubators are support programs designed to accelerate the successful development of entrepreneurial companies through a range of business support resources and services. These resources/services may be offered either in the incubator or through its network of contacts. Unlike research and technology parks incubators are dedicated towards startup and early-stage companies. Incubators help in many different ways; apart from helping the potential entrepreneur in the early stages, they also introduce the potential entrepreneur to the networks and commercial mind-set etc. SOME OF THE MAJOR ISSUES AND CHALLENGES OF SME GROWTH AND DEVELOPMENT ARE AS FOLLOWS They are unable to capture market opportunities, which require large production facilities and thus could not achieve economies of scale, homogenous standards and regular supply. They are experiencing difficulties in purchase of inputs such as raw materials, machinery and equipments finance, consulting services, new technology, highly skilled labor etc.

They are unable to compete with big players in terms of product quality, range of products, marketing abilities and cost. And most importantly, absence of a wide range of Financing and other services those are available to raise money and sustain the business. Absence of Infrastructure, quality labor, Business acumen and limited options or opportunities to widen the business.

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Emphasis to preserve narrow profit margins makes the SMEs myopic about the innovative improvements to their product and processes and to capture new markets.

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Small size hinders the internalization of functions such as market research, market intelligence, supply chain, technology innovation, training, and division of labor that impedes productivity.

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Poor IT and Knowledge infrastructure. KEY MESSAGES TO GOVERNMENT IN VIEW OF PROMOTING SMES A thriving SME sector is critical to inclusive economic growth and job creation. An enabling regulatory environment is critical. SME registration and monitoring needs to be cheaper, simpler, speedier, and more transparent. Governments can help address the dire need for start-up funds for SMEs by providing incentives for SME financing. Governments play an essential role in providing capacity building for SMEs by means of vocational training. Business believes that governments could help further by: o

setting up municipal-level agencies for start-up development and management, in the form of, for example, an “Enterprise Advice Bureau”, and

o

helping to promote the importance of and need for more entrepreneurs.

Governments can provide advice and an enabling environment to encourage environmental stewardship from the SME sector.

REFERENCES Berger, Allen N., and Gregory F. Udell, (2002). “Small Business Credit Availability and Relationship Lending: The Importance of Bank Organizational Structure.” Economic Journal, 112. Claessens, Stijn, Thomas Glaessner, and Daniela Klingebiel, (2001). “E-Finance in Emerging Markets: Is Leapfrogging Possible?” Financial Sector Discussion Paper No. 7. World Bank.

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The green economy is the way of the future, and our SMEs are the innovators that will bring forward the innovative products and technologies that drive green growth. The Green agenda includes challenges in strengthening MSMEs managerial capability, creation of awareness on economic values of technologies and benchmarking quality up to global standards. Towards this goal, SIDBI has been engaging with several international partners and has been proactive in assimilating international best practices in green financing. Considering SIDBI's apex role in promotion, financing and development of MSME sector, the Bank would continue to play an active role of a change agent and engage in activities aligned to government's national priorities and Millennium Development Goals with overall emphasis on three Ps of People, Planet and Profit.

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CONCLUSION

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Deelen, Linda and Klaas Molenaar, (2004). Guarantee Funds for Small Enterprises: A manual for guarantee fund managers. International Labor Organization. Klapper, Leora, 2005. “The Role of Factoring for Financing Small and Medium Enterprises.” Policy Research Working Paper 3593. World Bank. Kacker Stuti, “Overcoming Barriers to Innovation for Indian SMEs”, Ministry Small Scale Industries, (2005), Government of India Report. “Competition Policy and Green Growth, Interactions and challenges”, A joint report by the Nordic Competition authorities, October 2010 “Competition Policy and Green Growth”, Note by the Delegations of Denmark, Finland, Iceland, Norway and Sweden msmestartupkit.com/node/22 fsckorea.wordpress.com/2012/01

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