Micro, Small & Medium Enterprises: MSME

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Micro, Small & Medium Enterprises: MSME






Contribution of MSME- Micro, Small and Medium Enterprises is 37.5 % of India’s GDP, 45% of the manufacturing output and 40% of the exports. In other words, this sector has shown an average growth of 12% in the last Five-Year Plan, which is higher than the annual increase of GDP. National Policy for manufacturing envisages a contribution of manufacturing sector from 16% to 25% in India’s GDP by 2022. After Agriculture, this sector generates largest employment. A growth in MSME sector can ensure industrialization in the backward areas also. They have already become the nursery of innovation and entrepreneurship. They are dispersed widely throughout the country and produce a diverse range of products and services to meet the demands of the national & international value chains, local and the global market. They help in generating foreign exchange for the country and contribute to the GDP of India. Active participation has been observed by this sector for the last fifty years. This sector does not require huge investment by any entrepreneur. Units under this sector can also act as ancillary unit of large scale industries.

Micro, Small and Medium Enterprises Development Act, 2006 – was enacted by Indian Parliament, published in Government Gazette on 16th June, 2006 which came into force with effect from 2nd October, 2006.

MSMED Act 2006 Definition of MSME                                                                         (In Lacs)
Initial Investment in Plant & Machinery
Category/Enterprise SizeMicroEnterpriseSmall EnterpriseMedium Enterprise
Manufacturing25.0025.00 to 500.00500.00 to 1000.00
Service10.0010.00 to 200.00200.00 to 500.00


There are 32 million MSME units in India, according to the latest survey, of which, 95% of the MSME units are unregistered. Unorganized sector consists of almost 30 million units.  Of the total MSME units 50% are in rural area.
Inspite of this fact that there is immense potential in this sector, yet it suffers from various constraints to its growth. There is always inadequate capital infusion with insufficient data for credit requirement. Poor infrastructure and inadequate market linkage are the constraints in the growth of MSME. It suffers because of high cost of credit which even does not reach on time, non-availability of collaterals in the hands of entrepreneurs, legal hassles in getting licenses, taxation (Both direct and indirect) constrains. Non financing is the result of Illiteracy/Ignorance/inability/un-willingness to share information. Mindset of the individuals working in unorganized sector may also be one of the reason for backwardness and poor growth.
The Central Government has realized the potential of MSME Sector in country’s growth and has taken various steps in promoting MSME and has also advised state governments to take initiatives.
Some of the steps include constitution of Nodal Institutions/bodies to promote, nurture and look after MSME:
Name of the Scheme/ InstituteNature of Assistance/ Facility
National Small Industries Corporation (NSIC)Promoting Finance and Marketing to SSI Units by supplying machinery on hire-purchase and lease hold basis
Credit Linked Capital Subsidy Scheme (CLCSS) through various Banks and Financial InstitutionsHelps for Technology up-gradation in Micro and Small Enterprises. The scheme provides a subsidy of 15% on finance from FIs/Banks for Rs.100.00 Lacs for investment in machinery. (Max. Subsidy Rs.15.00 Lacs)
Small Industry Bank of India (SIDBI)Finances on selective basis to Small Sector in promoting manufacturing and coordinating financing institutions in developing industries by refinancing.
PMEGP Training ProgrammePromotes training for micro and small sector entrepreneurs with finance facility and subsidy thereon. The facility is available to units with finance up-to Rs.25.00 lacs in manufacturing and Rs.10.00 Lacs in service sector and subsidy is allowed @25%  (35% to special category borrowers)
Small Industries Development Agency (SIDA)A single window service agency to help SSI units
National Bank for Agriculture (NABARD)Helps and refinances agricultural based direct and indirect farming and agro processing industry.
Technology Up-gradation Fund (TUF)TUF helps those units who want to improve technology skills. It provides 15% subsidy in the form of margin money to Textile sector and Jute sector and interest subsidy up-to 5% in TUF compatible specified machinery up-to Rs.200.00 Lacs
Credit Guarantee fund Trust for Micro and Small Enterprises (CGTMSE)Provides assistance to micro and small units by promoting collateral free loan through FIs/Banks.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI) through coir boardPromotes assistance to coir industry  for technology up-gradation, new product development capacity building and market development etc
Export Import Bank (EXIM Bank)For promoting Exports of various products and imports of essentials the bank provides credit assistance.
Moreover various states in India have also taken steps during the course of time by constituting various nodal agencies/funds/policies like State Finance Corporations, Handicraft Development Boards, Industrial Development Corporations, Small Industrial Development Corporations, District Industry Centers, Khadi and Village Industries Board, Biotechnology Development Funds, Automotive Development Policy, Agro and Food Processing Policy, ITE/IT Infrastructure Policy, Clusters Development Policy, Tech Zones, Tech Parks and the latest being Solar Policy.
Reserve Bank of India has also stipulated a sustained growth of 20% on year to year basis from Schedules Banks in India.
For improvement of MSME health, Banking/Financial Sector together has to play vital role with the steps like:
  1. Encourage financing with structural and affirmative development of MSME.
  2. Credit policies of Banks/FIs must show liberal parameters.
  3. Reduce Interest Rates, specially, for Micro and Small Enterprises.
  4. Awareness in borrowers mindset the pros and cons of CIBIL and defaults in loans.
  5. Rating Agencies are to be roped in for surveys and educating the unorganized entrepreneurs.
  6. Bank/FIs should not only rely on the financial data available with the entrepreneurs but should check business relationship through quantitative and qualitative analysis, discussions, meetings, benchmarks, cross industry & geographical comparisons, consumption details etc. For this outsourcing through independent agencies can be the option for reporting of micro, small and medium enterprises.
For Top priority in growth trajectory of India, building global competitiveness, inclusivity and sustainability, financial health of MSME has to play vital role. We can dream of prosperous India with sustained growth in GDP on year to year basis if our MSME grows.







Contribution of MSME- Micro, Small and Medium Enterprises is 37.5 % of India’s GDP, 45% of the manufacturing output and 40% of the exports. In other words, this sector has shown an average growth of 12% in the last Five-Year Plan, which is higher than the annual increase of GDP. National Policy for manufacturing envisages a contribution of manufacturing sector from 16% to 25% in India’s GDP by 2022. After Agriculture, this sector generates largest employment. A growth in MSME sector can ensure industrialization in the backward areas also. They have already become the nursery of innovation and entrepreneurship. They are dispersed widely throughout the country and produce a diverse range of products and services to meet the demands of the national & international value chains, local and the global market. They help in generating foreign exchange for the country and contribute to the GDP of India. Active participation has been observed by this sector for the last fifty years. This sector does not require huge investment by any entrepreneur. Units under this sector can also act as ancillary unit of large scale industries.

Micro, Small and Medium Enterprises Development Act, 2006 – was enacted by Indian Parliament, published in Government Gazette on 16th June, 2006 which came into force with effect from 2nd October, 2006.

MSMED Act 2006 Definition of MSME                                                                         (In Lacs)
Initial Investment in Plant & Machinery
Category/Enterprise SizeMicroEnterpriseSmall EnterpriseMedium Enterprise
Manufacturing25.0025.00 to 500.00500.00 to 1000.00
Service10.0010.00 to 200.00200.00 to 500.00


There are 32 million MSME units in India, according to the latest survey, of which, 95% of the MSME units are unregistered. Unorganized sector consists of almost 30 million units.  Of the total MSME units 50% are in rural area.
Inspite of this fact that there is immense potential in this sector, yet it suffers from various constraints to its growth. There is always inadequate capital infusion with insufficient data for credit requirement. Poor infrastructure and inadequate market linkage are the constraints in the growth of MSME. It suffers because of high cost of credit which even does not reach on time, non-availability of collaterals in the hands of entrepreneurs, legal hassles in getting licenses, taxation (Both direct and indirect) constrains. Non financing is the result of Illiteracy/Ignorance/inability/un-willingness to share information. Mindset of the individuals working in unorganized sector may also be one of the reason for backwardness and poor growth.
The Central Government has realized the potential of MSME Sector in country’s growth and has taken various steps in promoting MSME and has also advised state governments to take initiatives.
Some of the steps include constitution of Nodal Institutions/bodies to promote, nurture and look after MSME:
Name of the Scheme/ InstituteNature of Assistance/ Facility
National Small Industries Corporation (NSIC)Promoting Finance and Marketing to SSI Units by supplying machinery on hire-purchase and lease hold basis
Credit Linked Capital Subsidy Scheme (CLCSS) through various Banks and Financial InstitutionsHelps for Technology up-gradation in Micro and Small Enterprises. The scheme provides a subsidy of 15% on finance from FIs/Banks for Rs.100.00 Lacs for investment in machinery. (Max. Subsidy Rs.15.00 Lacs)
Small Industry Bank of India (SIDBI)Finances on selective basis to Small Sector in promoting manufacturing and coordinating financing institutions in developing industries by refinancing.
PMEGP Training ProgrammePromotes training for micro and small sector entrepreneurs with finance facility and subsidy thereon. The facility is available to units with finance up-to Rs.25.00 lacs in manufacturing and Rs.10.00 Lacs in service sector and subsidy is allowed @25%  (35% to special category borrowers)
Small Industries Development Agency (SIDA)A single window service agency to help SSI units
National Bank for Agriculture (NABARD)Helps and refinances agricultural based direct and indirect farming and agro processing industry.
Technology Up-gradation Fund (TUF)TUF helps those units who want to improve technology skills. It provides 15% subsidy in the form of margin money to Textile sector and Jute sector and interest subsidy up-to 5% in TUF compatible specified machinery up-to Rs.200.00 Lacs
Credit Guarantee fund Trust for Micro and Small Enterprises (CGTMSE)Provides assistance to micro and small units by promoting collateral free loan through FIs/Banks.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI) through coir boardPromotes assistance to coir industry  for technology up-gradation, new product development capacity building and market development etc
Export Import Bank (EXIM Bank)For promoting Exports of various products and imports of essentials the bank provides credit assistance.
Moreover various states in India have also taken steps during the course of time by constituting various nodal agencies/funds/policies like State Finance Corporations, Handicraft Development Boards, Industrial Development Corporations, Small Industrial Development Corporations, District Industry Centers, Khadi and Village Industries Board, Biotechnology Development Funds, Automotive Development Policy, Agro and Food Processing Policy, ITE/IT Infrastructure Policy, Clusters Development Policy, Tech Zones, Tech Parks and the latest being Solar Policy.
Reserve Bank of India has also stipulated a sustained growth of 20% on year to year basis from Schedules Banks in India.
For improvement of MSME health, Banking/Financial Sector together has to play vital role with the steps like:
  1. Encourage financing with structural and affirmative development of MSME.
  2. Credit policies of Banks/FIs must show liberal parameters.
  3. Reduce Interest Rates, specially, for Micro and Small Enterprises.
  4. Awareness in borrowers mindset the pros and cons of CIBIL and defaults in loans.
  5. Rating Agencies are to be roped in for surveys and educating the unorganized entrepreneurs.
  6. Bank/FIs should not only rely on the financial data available with the entrepreneurs but should check business relationship through quantitative and qualitative analysis, discussions, meetings, benchmarks, cross industry & geographical comparisons, consumption details etc. For this outsourcing through independent agencies can be the option for reporting of micro, small and medium enterprises.
For Top priority in growth trajectory of India, building global competitiveness, inclusivity and sustainability, financial health of MSME has to play vital role. We can dream of prosperous India with sustained growth in GDP on year to year basis if our MSME grows.




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