IIBF MSME Short Notes Part 1 – Micro, Small and Medium Enterprise

IIBF MSME Short Notes Part 1 – Micro, Small and Medium Enterprise

In Banking Industry, the importance of MSME finance has grown in recent times. This course on MSME is supposed to equip practicing banking & finance professionals to have in-depth knowledge in the field of MSME finance.

While you prepare for IIBF MSME Certificate Course, going through Micro, Small and Medium Enterprises notes helps immensely in the preparations! And Learning Sessions has prepared MSME notes (pdf) so that you can easily get an overview on the topics covered under MSME.

MSME (short notes) has been prepared based on the syllabus prescribed by IIBF:

To check out the detailed syllabus of IIBF MSME click here.

MSME NOTES: PART-1

Role of the Ministry of Micro, Small & Medium Enterprises

MSME on World Level: On worldwide scale, Micro, Small and Medium Enterprises (MSMEs) have been accepted as the engine of economic growth & a means for promoting equitable development.

Read Also:- MSME Registration Process Updates

MSMEs constitute over a 90% of the total enterprises in most of the economies & are credited with generating the highest employment growth rates & they account for a major share of industrial production & exports. 

In India, MSMEs, too play a pivotal role in the overall country’s industrial economy. MSMEs in India account for more than 80% of the T. no. of industrial enterprises and they produce over 8000 value-added products. It is estimated that in terms of value, the MSME sector accounts for 45% of the manufacturing output and 40% of the total export of the country and employs over 6,00,00,000 people. 

Further, in recent years the MSME sector has registered higher growth rate consistently compared to the overall industrial sector. The major advantage of the MSME is its employment potential at a low cost of capital. 

Read Also:- GST : Is it Mandatory for MSME ?

As per the available statistics, this sector has employed an estimated 6 crore persons that are spread over 2.6 crore enterprises & the labour intensity in the MSME sector is estimated to be almost 4 times higher than the large enterprises. 

Problems of MSMEs 

Despite forming over 80% of the T. No. of industrial enterprises and supporting industrial development, many MSMEs in India have problems such as sub-optimal scale of operation, supply chain inefficiencies, technological obsolescence, increasing domestic & global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenarios. 

Read Also:- IIBF MSME Short Notes Part 1

Focus of the Government 

The Government is planning to increase financial assistance for micro, small and medium enterprises (MSMEs) upto 80% of the capital requirements in the Eleventh Five Year Plan. This financial aid will go towards technology upgradation and plugging of gaps of financial nature. It will be available for existing MSME clusters. 

Focus of Banks 

As of late, many banks have focused their attention on the MSMEs.  In fact, some of them have launched specific fund facilities to meet MSMEs capital requirements. 

Rating of MSMEs 

Even though the avenues of fundings for MSMEs are increasing, still credit penetration in this sector is low. The primary reasons for this low penetration is insufficient credit information available on MSMEs, low market creditability of SMEs and analysis constraints. 

To handle this problem, the SME Rating Agency of India (SMERA) was launched in the year 2005 by SIDBI – Small Industries Development Bank of India in association with Dun & Bradstreet (D&B), Credit Information Bureau (India) Ltd (CIBIL) & leading public and private sector banks. 

Important Topic:- MSME Course by IIBF in detail

Cluster Initiative 

This concept of cluster development has some new insights to offer into the potential role of MSMEs. It is estimated that there exists a 400 MSME clusters in India. 

A cluster may be defined as a local agglomeration of enterprises (mainly MSMEs) that produce & sell a range of related and complementary products & services. Example of MSMEs can be a localized leather industry, including leather tanning units, leather finishing units, leather garment manufacturers, leather goods producers, designers, merchant buyers, sub-contractors, and exporters. 

MSMEs-Success Story 

In spite of the problems that this sector faces, it has grown by leaps & bounds and has caught the fancy of Indian Corporations. In fact, MSMEs have fared better than most large organizations between the period 2001 & 2006.

For example: The companies net profit whose turnover is between the range of Rs. 50 to 100 crore has increased by over 700% in that period, compared to an increase of over 150% in the net profit of corporations that are large. 

During the same period, MSMEs have also outperformed large corporations in terms of net sales and operating profits!

Read Also:- 1 Crore MSME loan in 59 minutes in Hindi | 1 crore Loan in 59 Minutes Government Scheme

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 

The Government of India (GoI) had enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on June 16, 2006 that was notified on October 2, 2006. MSMED Act 2006 enactment has made the paradigm shift that has taken place is the inclusion of the services sector in the definition of Micro, Small & Medium enterprises, apart from extending the scope to medium enterprises. The MSMED Act, 2006 has modified the definition of MSMEs that are engaged in manufacturing or production and rendering of services. RBI has notified the changes to all scheduled commercial banks. 

Definition of Micro, Small and Medium Enterprises:

(a) Manufacturing Enterprises 

i.e. Enterprises engaged in the production or manufacture, processing or preservation of goods as specified down below: 

• Micro enterprise: An enterprise where investment in plant and machinery does not exceed Rs. 25 lacs; 
• Small enterprise: An enterprise where the investment in plant and machinery is more than Rs. 25 lacs but does not exceed Rs. 5 crore; & 
• Medium enterprise: An enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs. 10 crore. 

In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small-Scale Industries 

Important Topic:- IIBF MSME STUDY MATERIAL 2021-2022

(b) Service Enterprises 

i.e. Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified down below: 

• Micro enterprise: An enterprise where the investment in equipment does not exceed Rs. 10 lacs; 
• Small enterprise: An enterprise where the investment in equipment is more than Rs. 10 lacs but does not exceed Rs. 2 crore; and 
• Medium enterprise: An enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.