Presentation on theme: "Management of Finance in MSE"— Presentation transcript:
1 Management of Finance in MSE K V RameshAsst.Professor (Finance)IPE
2 What is MSE? Micro and Small Enterprises Micro, Small & Medium Enterprises Development (MSMED) Act, 2006Manufacturing Enterprises and Service Enterprises
3 TWO classesThe 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.
4 Manufacturing Sector Enterprises Investment in plant & machinery Micro Does not exceed Rs.25 lakhs. Small More than Rs.25 lakhs but does not exceed five crore rupees Medium More than Rs.5 crores but does not exceed ten crore rupees
5 Service Sector Enterprises Investment in equipments*original cost excluding land and building and furniture, fittings and other items not directly related to the service renderedMicro Does not exceed Rs 10 lakhs. Small More than Rs.10 lakhs but does not exceed two crore rupees Medium More than Rs.2 crore but does not exceed five core rupees
7 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.
8 Funding & Finance Policy of fiscal support Policy of priority credit Equity
9 GrowthMSMEs has shown constant growth rate of more than 10% every year from 2007 till , whereas in year growth rate was 19% which is approximately twice of the Growth rate recorded for previous years.1.74 lakh to 2.82 lakh
10 much-needed avenueThejo Engineering - the first company to get listed in NSE's Emerge segment. SME exchangeSept.18th ,2012.Sept.6th, –Rs.430
11 PSlPriority 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.
12 TargetsThe 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.
13 Banks must cater40 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 lakh20 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 , 55% in the year and 60% in the year
14 working capitalAs 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.
15 17 th Oct,2012Bank 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.
16 Cluster financingapproach 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.
17 List of clustersScheme 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
18 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.
19 Important concepts in BEP Analysis ContributionProfit volume ratio ( P/V ratio)Break even pointMargin of safetyAngle of incidence
20 Additional Disclosures item No.Disclosures required under the Micro, Small & Medium Development Act, 2006IDelayed payments due as at the end of each accounting year on account of Principal and Interest due – Rs.IITotal interest paid on all delayed payments during year -Rs.IIIInterest due on principal amounts paid beyond the due date during the year but without the interest amounts RSIVInterest 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)VTotal 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)
21 Schedule VI (a) Share capital (b) Reserves and surplus A EQUITY AND LIABILITIES1 Shareholders’ funds(a) Share capital(b) Reserves and surplus(c) Money received against share warrants2 Share application money pending allotment3 Non-current liabilities(a) Long-term borrowings(b) Deferred tax liabilities (net)(c) Other long-term liabilities(d) Long-term provisions4 Current liabilities(a) Short-term borrowings(b) Trade payables(c) Other current liabilities(d) Short-term provisions
22 B ASSETS (i) Tangible assets (ii) Intangible assets 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 assets2 Current assets(a) Current investments(b) Inventories(c) Trade receivables(d) Cash and cash equivalents(e) Short-term loans and advances(f) Other current assetsTOTAL
23 Profit and Loss Statement Particulars Note No. Figures current/ previous reporting periodI Revenue from operationsII Other IncomeIII Total Revenue (I + II)IV Expenses:Cost of Material consumedPurchases of Stock in tradeChanges in Inventories of Finished goods , Work in progress and stock in tradeEmployee Benefits expenseFinance costsDepreciation and amortisation expenses ,Other expensesTotal Expenses
24 V Profit before exceptional and extraordinary items and tax (III - IV) VI Exceptional itemsVII Profit before extraordinary items and tax (V - VI)VIII Extraordinary itemsIX Profit before tax (VII - VIII)X Tax expense:(1) Current tax(2) Deferred taxXI Profit (loss) for the period from continuing operations (VII - VIII)
25 XII Profit (loss) from discontinuing operations XIII Tax expense of discontinuing operationsXIV Profit/(loss) from discontinuing operations (after tax) (XII - XIII)XV Profit (Loss) for the period (XI + XIV)XVI Earnings per Equity Share:1) Basic2) Diluted