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Milagrow IMT Study: Practices for SME Development from EU, North America and Latin America and Recommendations

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Some highlights of Milagrow IMT study "Practices for SME Development from Europe, North America & Latin America - Recommendations for the Policy Makers". This is one of the several studies made as …

Some highlights of Milagrow IMT study "Practices for SME Development from Europe, North America & Latin America - Recommendations for the Policy Makers". This is one of the several studies made as Milagrow World SME Conference 2009. To know more about World SME Conference, visit www.wsme.in

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  • 1. presents
    a path breaking study on
    Best Practices in SME Development from Europe, North America and Latin America
    “Recommendations for Indian Policy Makers”
    Prepared under the mentorship of:
    Mr. Rajeev Karwal
    Founder Director
    Milagrow Business & Knowledge Solutions
    Dr. Anwar Ali
    Director
    Institute of Management Technology
  • 2. Agenda
    Challenges faced by Indian MSME Sector
    Countries and Areas of focus
    Best Practices & Recommendations for Indian Policy Makers
  • 3. Challenges faced by Indian MSME Sector
    Inadequate financial support
    Inability to promote their products & services in domestic & international markets
    Lack of support from Government organizations, large enterprises, etc.
    Lack of appropriate need-based training and development programs
    Lack of knowledge about low-cost brand communication solutions
    Unavailability of latest news, trends and technologies
    Lack of adequate networking opportunities
    Poor knowledge management
  • 4. Countries & Areas of Focus
  • 5.
    • Big role of Government in implementing MSME supportive policies in country to develop the industry
    • 6. Government  is supportive in investing huge funds in development of MSMEs in the economy which also reflects in funding of R&D efforts of small business
    • 7. MSMEs account for almost 80% of employment, 62% of sales and 50% of exports
    • 8. Supports long-term policies & development through strategic plans for MSMEs
    • 9. Availability of huge funding resources & technological support
    • 10. 99.7% industries are MSMEs, accounted for 70% employment in economy
    • 11. Innovation driven culture in MSMEs supported by extensive R&D
    • 12. 99.7% industries are MSMEs, accounted for 61.5% employment & 52% of turnover
    • 13. Top ranked country for supporting entrepreneurs
    UK
    Sweden
    Spain
    Italy
    Germany
    Finland
    European Countries
  • 14.
    • Important role of supportive organizations in the development of MSMEs
    • 15. MSMEs account for 45% GDP, 60% jobs & 75% of net employment growth
    • 16. OMSME, the supporting organization plays an accountable & not just a responsive role
    • 17. MSMEs contribute to more than 50% GDP & 40% workers are skilled
    • 18. Policies are supportive of funding, marketing & women entrepreneurs’ development
    • 19. Strong penetration of ICT in MSMEs
    • 20. Important role of supporting organizations like Sebare & Apex
    • 21. Role of Government in Infrastructure development, training, technical assistance to MSMEs to enhance their workers’ productivity and welfare
    • 22. Private sectors plays an important role in development of MSME
    • 23. Business regulations have been largely simplified for the MSMEs
    Venezuela
    Canada
    USA
    Brazil
    Mexico
    Argentina
    North & Latin American Countries
  • 24. Areas of focus
    Funding Structure
    Technology Upgradation Assistance
    MSME Policy Framework
    Role of Supporting Organizations
    Infrastructure Development and Marketing Assistance
    Training and Skill Development Programs
  • 25. Best Practices & Recommendations
  • 26. Funding Structure: Priority Sector Lending
    Best practice prevails in
    Findings
    Obama Administration wants lending to small businesses to be reserved at a much higher levels than the already existing levels.
    On an average, banks with more than $1 billion in assets typically devote about 21% of their commercial loan portfolios to small business loans while, community banks with less than $1 billion in assets devote 56%.
    Current Policy in India
    Indian MSMEs contribute 40% or thereabouts to industrial economic activity whereas their share of credit is around 10%. Most public sector banks do not even accomplish their MSME lending targets
    Recommendations
    Reserve 20% lending for MSMEs: Government must make it mandatory that like agriculture, the MSMEs must have atleast a 20% quota out of the total 40% priority sector lending quota.
    Recognize credit rating for easier credit: The commercial sector banks must recognize the government-approved credit rating agencies and disburse faster and cheaper credit with much lesser documentation.
    US
  • 27. Funding Structure: Credit Guarantee Lending
    Best practice prevails in
    Findings
    Italy’s credit guarantee system takes the help of private funds and implements a 3 layer system, which helps in dividing the responsibility clearly in different levels. The Mutual Guarantee Institution, Banks & Government work together and credit guarantee is as high as 80% for direct lending & 90% for MGI lending . The fee is minimally less at about 0.125%
    In US, the Small Business Administration works in tandem with the Treasury Department and plans to increase the maximum size of its guaranteed loans for small businesses from $ 2m to $5m.
    Current Policy in India
    MSMEs have to go through a lengthy process for placing loans requests.
    CGTMSE in India gives only 75% guarantee on MSME lending and charges 1.5% as the fees
    Recommendations
    Disburse collateral-free credit faster: CGTMSE must work with the public & private sector banks, & the government organs at the centre & the state, to ensure that collateral free credit is disbursed faster
    Raise collateral free limit: Upto 100% collateral free credit for highest credit-rated MSMEs and at a minimal fee of less than 1% upto Rs. 1 crore.
    Treat CGTMSE loans differently: CGTMSE must make the norms for declaring a loan as NPA by Member Lending Institutions easier & transparent, so that they are not dis-incentivized.
    Italy
    US
  • 28. Funding Structure: Access to Bond Markets
    Best practice prevails in
    Findings
    Government facilitates access to international capital market for MSMEs
    The financial structure is rebalanced through long maturity bonds
    Low-cost and collateral-free credit is extended
    Current Policy in India
    MSMEs in India have no access to international capital-market bonds
    Recommendations
    Recognize credit rating: The Ministry of MSME and the CGTMSE must recognize the credit rating given by the credit-rating agencies
    Facilitate access to international capital markets: CGTMSE should provide assurance against default for issuance of international capital-market bonds for the highest credit-rated MSMEs. The bonds such issued will come in without any collateral and at a much cheaper rate than the PLR in the traditional lending system
    Italy
  • 29. Funding Structure: Reciprocal Guarantee Societies
    Best practice prevails in
    Findings
    Reciprocal Guarantee Societies (RGSs) issue certificates to improve the creditworthiness of MSMEs
    These certificates enable the MSMEs to seek loans from the banks at rates applicable for better credit-rated organizations
    The RGSs ensure that the credit rating of the borrowing MSME improves within stipulated time
    They also offer advisory and technical assistance to MSMEs and foster their partnerships with banks
    Current Policy in India
    The loans are disbursed to MSMEs as per their existing credit ratings
    No organization exists which can guarantee the improvement of credit rating of the borrower and thereby get the loan disbursed at a lower cost
    Recommendations
    Assist MSMEs to improve their credit rating: Reciprocal Guarantee Societies must be set up, may be even through Industry Associations with good track record
    RGSs must work towards improvement of credit-worthiness of the MSMEs, even as they ensure that they are not deprived of cheaper loans when they need it the most.
    Argentina
  • 30. Funding Structure: Equity and Management Capital
    Best practice prevails in
    Findings
    Canadian venture capital industry plays a major role in extending not just equity but even managerial support and other resources to the MSMEs
    Brazil has implemented a “New Ventures Program” along with World Resources Institute, which aims to build competitiveness and promote long-term sustainability by providing skill-development, social networking and environmental benefits to the MSMEs.
    Current Policy in India
    Presently, the private & state-government venture funds as well as other organizations like SIDBI provide equity financing only
    Recommendations
    Mentoring & hand-holding MSMEs: The organizations like SIDBI, State Government venture funds, etc. must not only fund the MSMEs with equity financing but also provide sufficient hand-holding and implementation help through private partnerships
    Canada
    Brazil
  • 31. Technology Upgradation: Access to Foreign Technologies
    Best practice prevails in
    Findings
    Italy is a member of PIN-SME association, which brings together several small technology businesses on a single platform
    MSMEs in Italy benefit as they get an access to the newer technologies at affordable rates from the member countries
    MSMEs of member countries are also able to gain access to EU-funded projects
    Current Policy in India
    Indian MSMEs do not get a platform where they can network with MSMEs from other countries and get an access to newer and affordable technologies
    Recommendations
    Provide opportunities for international partnerships: For the industries/ clusters, where Indian MSMEs have an inherent competitive edge, the Ministry of MSME should create platforms through institutions like NSIC or even private partnerships where they can network with MSMEs from other countries.
    This will not only provide an opportunity to Indian MSMEs to gain access to latest low-cost technologies, but will also enhance foreign trade
    Italy
  • 32. Technology Upgradation: Assistance from Large Firms
    Best practice prevails in
    Findings
    National Strategic Framework (NSF) 2007-2013 in Italy focuses on :
    Instituting long term relationship between large enterprises & MSMEs
    Enhancing dialogue between the research sphere and the small businesses
    Current Policy in India
    No effort or long term strategic plan for encouraging large enterprises to assist and mentor small businesses
    Recommendations
    Involve large enterprises in development of MSME clusters: The Ministry of MSME in India should implement a long-term strategic plan and facilitate MSMEs to build long-term relationship with large enterprises & research supply institutes
    The Ministry of MSME, through PPP model, must incentivize the larger organizations in adopting clusters which are mainly into B2B/ ancillary business, to improve their technology absorption
    Italy
  • 33. Technology Upgradation: e-Governance & e-Procurement
    Best practice prevails in
    Findings
    e-Procurement facilities including online certification is available
    Online alerts are sent to MSMEs whenever new business opportunities arise
    Has a complete electronic trade data-management system
    As a part of the e-Governance initiative, all the information related all policy changes, trends & new technologies is available online
    Current Policy in India
    No e-procurement & trade data management system available
    Unavailability of online information and processes for legal jurisdictions
    Recommendations
    e-Governance & e-Procurement, a must for easier compliance: Online mechanisms should be provided to MSMEs to carry out all the necessary transactions for conducting business in domestic and international markets
    Online access to rules and regulations, electronic methods for registration and electronic applications for government schemes, certificates, licenses and realization of incentives should be provided to the MSMEs
    Brazil
  • 34. Technology Upgradation: Low cost ICT solutions
    Best practice prevails in
    Findings
    Brazil has SME Metasys, which has the objective to provide MSME with a complete and low cost ICT solution specially designed to improve their efficiency.
    This robust solution, which uses open source software and does not require special skills for its installation and operation.
    Current Policy in India
    Lack of knowledge about low-cost Information & Communication Solutions, which leads to loss of opportunities
    Recommendations
    Promote low-cost ICT solutions: The Ministry of MSME in India should facilitate MSMEs in procuring complete and low-cost ICT solutions to improve their capacity and productivity.
    Awareness of these tools should also be increased among the MSMEs
    Brazil
  • 35. Technology Upgradation: Support for R&D
    Best practice prevails in
    Findings
    In Italy, Science & Technology Parks, Business Innovation Centers, Integrated Centers for Entrepreneurship Development and Incubators support innovation and transnational technology transfer with MSMEs
    in UK, tax relief is available to MSMEs, who invest in research and development (R&D) under the MSME scheme
    Current Policy in India
    No Government policy to include national technology excellence centers for the training & technical assistance to MSMEs
    Recommendations
    Create and promote an innovation and R&D culture: The Government sector institutions at the cutting edge of research and innovation can be opened up for use by MSME innovators, who otherwise struggle in getting funding and technology to convert their ideas to successful product launches.
    A method may be designed where the cost of such research help can be offset by taking a percentage of the successful projects through royalties, even as the IP belongs to the innovator MSME.
    Italy
    UK
  • 36. MSME Policies: Cluster competitive programme
    Best practice prevails in
    Findings
    Division of labour between the different firms within the same local context comprising of large number of firms individually specialized in just one or a few stages of the production process, in a reciprocal arrangement and at the same time competing in the market with finished products.
    These reduce the cost of production due to standardization of components and technologies in the same/ similar sectors
    Extensive availability of productive resources (technical skills) at the local level make these clusters competitive in the international market.
    Current Policy in India
    No effective cluster competitiveness programme which can focus on providing value-added end-to-end solutions.
    Recommendations
    Develop integrated cluster competitiveness programs: The cluster competitiveness program should be revamped. Rather than giving the authority of these clusters to associations, which may or may not be competent, it should be given to bodies, which understand the value chain of the respective industry.
    These bodies must provide end-to-end solutions, which are benchmarked globally in terms of competitive technology and effective training.
    Italy
  • 37. MSME Policies: Support for New Exporters
    Best practice prevails in
    Findings
    Export policies are designed to guide & encourage the development of sectoral partnerships.
    Technical assistance is provided to assist in designing and implementing export strategies.
    In “Support for New Exporters” programme, the MSME Under-secretariat provides advice to MSMEs located throughout the country on launching export operations including analyzing and diagnosing problems, training, and tutorials for designing and implementing a strategic export plan.
    Current Policy in India
    Monetary support is available for the new exporters but nothing in terms of educating, training and assisting MSMEs in designing the export plans
    Recommendations
    Enable and then subsidize: Special training should be extended to the MSMEs, who enter the international trade to avoid any problems during the process. Only the MSMEs which undergo these programs should be offered subsidies for foreign travel required for trade and export promotion
    Argentina
  • 38. MSME Policies: Effective Implementation of Schemes
    Best practice prevails in
    Findings
    US legal framework promotes transparency in contracts, protection of intellectual property, and the regulation of fraud. The U.S. Small Business Administration ranks as one of the most effective public sector agencies in the world for the promotion of MSMEs.
    Current Policy in India
    In the past, Ministry of MSME has launched several policies and schemes for the benefit of the MSMEs. However, no reports are available in the public domain which informs about their reach and the effectiveness.
    A study conducted recently by Milagrow showed that 70-80% MSMEs are still unaware of the existing schemes provided by the Ministry.
    Recommendations
    Measure the effectiveness of the policies: The Ministry of MSME should implement and measure the effectiveness of its various schemes at the ground level through third-party organizations
    US
  • 39. MSME Policies: Offsets in Government Procurement
    Best practice prevails in
    Findings
    The offsets provided by different countries to MSMEs in government procurement
    Canada: 43%
    Germany: 35%
    United States: 33%
    Current Policy in India
    No offset has been provided by Indian Government till yet. Although, a proposal in this respect has been made
    Recommendations
    Provide reservation for procurement from the MSME sector: Offsets should be provided to the MSME sector in the procurement done by the government and public sector units
    To determine the exact offset that should be provided to MSMEs, another comparative study is being done by Milagrow to analyze the procurement policies of nations across the world. The study will be released shortly
    Canada
    US
    Germany
  • 40. MSME Policies: Encouragement for Green Businesses
    Best practice prevails in
    Findings
    Sweden focuses on the environment driven business development.
    The design for environment has been successful and has resulted in 13 projects through the participation of 122 MSMEs
    7% MSMEs have comprehensive systems for energy saving in Sweden as compared to 4% in EU.
    50% MSMEs apply at least simple energy saving measures as compared to 29% for the EU
    Current Policy in India
    No policy related to encourage MSMEs which are involved in doing eco-friendly businesses
    Recommendations
    Encourage Environmental Compliance at an early stage: The Ministry of MSME should encourage those MSMEs, which are involved in clean and green businesses by providing enhanced subsidies than available to large business.
    Stringent norms should be implemented to analyze the working of the MSMEs and incentives should be provided to them to develop and sustain their operations and products
    Sweden
  • 41. Role of Supporting Organizations: Effectiveness
    Best practice prevails in
    Findings
    In Brazil, the supporting organizations work on effectiveness measurement along with Government
    Office of Small and Medium Enterprises, in Canada, is working within the government to ensure the procurement system treats MSMEs fairly
    Current Policy in India
    In India, the goals and targets of supporting organizations are neither highly specific nor monitored effectively
    According to a recent study conducted by Milagrow, “More than 97% acknowledge or choose to avoid giving direct answer on corruption & bribery”
    Recommendations
    Government Funded Support Organizations must have effectiveness targets measured by a third party: The supporting organizations should effectively work on specific targets and their working should be transparent.
    The effectiveness of these organizations should also be based on the feedback from the MSMEs in the respective areas through a third party.
    Canada
    Brazil
  • 42. Role of Supporting Organizations: PPP Model
    Best practice prevails in
    Findings
    In Brazil, APEX & SEBRAE are two organizations which are private and have taken responsibility from Government in their respective sectors through an act of law and are functioning only for MSME development.
    SEBRAE is a private sector non-profit organization focusing on the SME development. It is a union of public sector and private sector and Brazil’s main fostering and research entities. Its been created by law and the Govt. and the business community have come together for common purpose.
    Current Policy in India
    All the supporting organizations are mainly controlled by government officials or the organs of the government and the Ministry
    Recommendations
    Encourage PPP to develop the MSME Sector: To enhance the performance and effectiveness of the supporting organizations in the MSME sector, the Ministry should establish a Public-Private Partnership model
    Brazil
  • 43. Infrastructure: Incubators’ Assistance on Softer Aspects
    Best practice prevails in
    Findings
    With approximately 400 incubators and a well-developed incubation ecosystem, Brazil leads one of the most successful incubation movements in Latin America, through innovation and adaptation of incubator models to suit indigenous needs.
    Current Policy in India
    The incubators hardly exist in India and those which do, mainly focus on providing meager infrastructural resources only
    Recommendations
    Encourage Incubation with best in class practices: The incubation centers set by the Ministry of MSME should extend support on the softer aspects, to the MSMEs beyond the infrastructural resources, like networking & management assistance, etc.
    Brazil
  • 44. Marketing Assistance: Advertisement & Promotions
    Best practice prevails in
    Findings
    In Brazil, the supporting organization Apex assists the MSMEs to market their products and services.
    Apex has also launched a portal, which is dedicated to promote MSME products only.
    SEBRAE, in Brazil, has 6 channels, which are dedicated to the MSME sector. These channels show MSME focused programs &news and also provide TV advertising options to MSMEs at special rates.
    Current Policy in India
    More focus on quality and export orientation than promoting/ selling the products in domestic markets
    Recommendations
    Incentivize promotion of MSME products through organizations like DAVP: The Ministry of MSME should incentivize organizations who advertise MSME dedicated channels & programs. It must also use the clout of DAVP to get special media buying rates for MSMEs.
    Brazil
  • 45. Training & Development: Programs for Common Needs
    Best practice prevails in
    Findings
    Government of Mexico has implemented a program that provide subsidized training and technical assistance to SMEs.
    It starts with analyzing the constraints faced by MSMEs & then come out with a comprehensive package of integrated training & business support services required.
    They involve best in class organizations in identification of training needs, management and then executing the training programs.
    Current Policy in India
    Mainly tool-room based technical training is provided.
    Some quality-development training has been proposed but not effectively implemented yet.
    Recommendations
    Provide best in class training and have an industry and ‘management function’ wise plan: Similar structured and need-based training programs with constant feedback and control mechanisms should be implemented by Ministry of MSME to check the effectiveness
    The Ministry should also facilitate training programs for newer technologies and best practices, which are undertaken by large organizations to enhance their productivity and competence.
    Mexico
  • 46. T
    hank
    Y
    ou

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