Everybody hears of the success stories of large companies that are listed in the stock market. But the micro, small and medium enterprises (MSMEs) that don't attract as much media glare sometimes manage to grow faster, actually far faster, than the listed industrial sector.
Do you know that MSMEs contribute almost 39 per cent of India's total manufacturing output and 33 per cent of the country's total exports? The the Small Industries Development Bank of India has been a nodal organisation in creating a supportive environment for MSMEs.
Aided by World Bank and other multinational agencies, SIDBI's MSME programme is an effort to improve the growth of the micro, small and medium enterprises by giving them funding support and introducing them to technological advancements in the field.
The Chennai leather cluster that makes about 60 per cent of the Indian leather industry's output is one among the 18 clusters that is receiving SIDBI's support. The Chennai leather cluster has developed from being an export hub for hides and skins in the 1900s to a hub for manufactured leather goods.
Following our recent interaction with Dr B. Krishnama Naidu, Cluster Manager (Chennai), Entrepreneurship Development Institute of India (EDI), that is implementing the development programme at the Chennai Leather Cluster, we profile the key initiatives of SIDBI and how entrepreneurs are making the best out of it.
Scope
The Chennai leather cluster has 170 tanneries and 300 finished product manufacturing units giving work to about 40,000 people. All efforts and development programmes initiated by SIDBI through the Entrepreneurship Development Institute of India is extended to these units. The programme is extended to not just tanners who process raw hides but also those making leather garments such as jackets and sportswear, footwear manufacturers and makers of belts, gloves, hand bags, wallets and travel goods.
Currently, the effort is wholly from EDI's side. EDI members are reaching out to entrepreneurs in the cluster individually and introducing the various benefit schemes. Entrepreneurs are also welcome to approach EDI for any support they require.
The project desk at EDI offers services that improve productivity and competitiveness of the business units in the cluster. From arranging for energy audits (that help conservation of power in the factory), and technology up-gradation at the factory, IT/MIS training for employees, Web site creation to give better visibility for enterprises in the global export market to arranging for collateral free loans from SIDBI is done by EDI. All these services of EDI, however, require an expert advisor and a team of competent people. This is where Business Development Service (BDS) providers come into picture.
BDS providers offer advisory support to entrepreneurs, be that in any area- raw material sourcing, production technologies, raising finance, training and skill development. These players are established in the market but MSMEs lack awareness about them and can't pay for the cost of the service of these providers.
SIDBI steps in here to help MSMEs. Through its project team SIDBI introduces business development service providers to enterprises that need support and also shares a part of the cost of the service. For instance, EDI shared 70 per cent of the fee cost of a programme on design training it organised for leather garment makers last month.
While this training programme (on basic designing) conducted by the Central Leather Research Institute originally cost Rs 10,000 an individual, the participants had to spend only Rs 3,000. The cost sharing proportion differs from project to project, in some cases 50:50 or even 30:70.
One of the flagship initiatives of EDI in recent months has been mooting the idea for formation of a special purpose vehicle by tanners for procuring chemicals from Ahemdabad (a source of quality dyes).
The tanneries in Chennai's suburbs tended to procure chemicals from intermediaries at a significantly marked-up price. A study by the EDI's project team showed that even if the tanners get a reduction of Rs 2/kg in raw material cost, it will help them in the cluster as a total save up to Rs 7 crore a year. On factual evidence that tanners could make a 25-30 per cent savings in cost Dr Krishnama Naidu and his team at EDI suggested the tanners form a special purpose vehicle and procure chemicals directly from Ahmedabad. With the idea appealing to them, 22 entrepreneurs joined hands and formed the SPV. The SPV is functional now and the first order has been placed.
Dr Naidu notes that the benefits of this initiative may be lasting, even after this particular project of EDI comes to an end. A total of 350 business units in the leather cluster in Chennai have benefited from the initiatives of SIDBI's project till date since the project work kicked off in September 2009.
Funding for MSMEs
The credit guarantee fund trust (set up by SIDBI in association with the Government of India) for micro and small enterprises has tied with several public sector banks to offer collateral-free credit up to Rs 1 crore for MSMEs.
Though many entrepreneurs have a viable project, they lack awareness about the credit guarantee fund and some find it difficult to do to the paperwork that is required for the loan. To address this issue, the Entrepreneur Development Institute of India connects MSMEs to Business Development Service providers who, in turn, connect entrepreneurs to banks.
The work of a BDS provider here is to meet the beneficiary, study the financial viability of the project, prepare the project report, do all the other required paper work and then approach the bank, present the case and get the loan approved for the beneficiary. For his service the BDS provider charges a fee. This fee is 70 per cent paid by EDI and the remaining paid by the beneficiary.
Entrepreneurs in the Chennai leather cluster can reach the above contacts at www.ediindia.org
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