Banks,can,avail,themselves,wit business, insurance Banks can avail themselves with rich rewards by SME funding

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Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable{mso-style-name:"Table Normal";mso-tstyle-rowband-size:0;mso-tstyle-colband-size:0;mso-style-noshow:yes;mso-style-priority:99;mso-style-qformat:yes;mso-style-parent:"";mso-padding-alt:0in 5.4pt 0in 5.4pt;mso-para-margin-top:0in;mso-para-margin-right:0in;mso-para-margin-bottom:10.0pt;mso-para-margin-left:0in;line-height:115%;mso-pagination:widow-orphan;font-size:11.0pt;font-family:"Calibri","sans-serif";mso-ascii-font-family:Calibri;mso-ascii-theme-font:minor-latin;mso-fareast-font-family:"Times New Roman";mso-fareast-theme-font:minor-fareast;mso-hansi-font-family:Calibri;mso-hansi-theme-font:minor-latin;mso-bidi-font-family:"Times New Roman";mso-bidi-theme-font:minor-bidi;}But timeshave changed. Lenders to small and moderate enterprises are in for a wonderfulchance of profiting up to a whooping INR 50,000-crore.That’s an opportunity nolender would want to miss.RecentCRISIL research on the models of financing done for SME’s i.e. small andmedium-sized enterprises in India, reveals that it is possible for banks toincrease their lending to the SME’s by INR 50, 000 crore. Towardsthe acceptable banking practice of financing 75% of incremental working capitalrequirements of SMEs, on an average, only 60% of the projects were fundedbetween 2006-07 and 2008-09. TheseSME’s met the bulk of their residual funding needs from their own funds.AV Realty Corp is a firm specializing infinancial and investment management services. Varun Joshi, one of the founding partners of AV Realtysays “long standing perception that the enterprises are over-leveraged isdebunked by the study of the SME's working Capital. “When it comes toincreasing funding support to these SME’s, study has indicated that there is agreater scope for urban bank branches as opposed to the semi-urban or ruralareas.”The studyprimarily analyzed the composition of the balance sheets. The SME’s considered in thestudy clearly showed how 74% growth in the balance sheet was contributed by thegrowth in current assets whereas 26% of the remaining contribution was byaugmentation in fixed assets. When itcomes to working capital, banks are permitted to fund up to 75% of theincremental requirements viz increase in current assets and current liabilities-of borrowers. As Increase in Balance-Sheet Sizeindicates, banks can fund 75% of increase in current assets (74%) less increasein current liabilities (21%).AnubhavTamhane, one of the founding partners of AV Realty says “whilebanks can fund up to 40% of SMEs’ incremental working capital requirements, theactual funding provided by banks was only 25%. This reveals a significantincremental funding opportunity (IFO) — the difference between the actualbank funding and the maximum permissible levels — of 15% of SMEs’ incrementalworking capital requirements.”Itclearly indicates a really huge incremental funding opportunity (IFO) which isthe difference between actual funding by the bands and the maximum permissiblelevels i.e. 15% of SME’s incremental working capital requirements.When it comes to size, the size of fundingrequirements for small and medium enterprises is much smaller. To obviate thedifficulty of limited size, initiatives of pooled securitization ofreceivables/lending to SMEs have been launched by several countries. AV Realtyin India and London has been running SME loans securitization program.The prime motive of AV Realty to take up thisinitiative was to encourage entrepreneurship, which is precisely why they haveintroduced a number of initiatives to increase the choice of finance forstart-up and growth businesses.SMEs have numerous problems when it comes tocapital or funding. They lack adequate knowledge, exposure and entrepreneurialskills. They also lack the ability to expand their market beyond local shores.They lag in technology, relying on traditional methods and processes.Difficulty in accessing funding, inadequatecash-flow management and insufficient assets and collateral are common problemsamong SMEs.It’s a well known fact that SME’s are thebackbone of all economies and they bring in financial sustainability. AV Realtyplans to achieve financial sustainability by helping the SME’s raise theadequate funds.