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Gillian Tett, a reporter with FT mentioned the following incident in a recent column.. ” A decade ago, I was working as a reporter in Tokyo when I was asked to investigate the impact of Japanese-style quantitative easing. Back then, the Bank of Japan was pouring gazillions of yen into the money markets and politicians were angrily exhorting the Japanese banks to lend. Indeed, at one point, the Tokyo government even created quotas, which stipulated that banks should make a certain level of loans to worthy small enterprises to combat a pernicious credit crunch. But, when I examined what the Japanese banks were actually doing, the results were almost comical. In public the banks claimed they were lending to small enterprises; in reality some were only meeting the targets by lending to subsidiaries of Toyota. Faced with a political order to lend, in other words, Japanese banks were ducking round the rules - and the liquidity was notably not ending up where politicians (or central bankers) had hoped”.
Statistics reveal that small and medium enterprises (SMEs) in India constitute over 80 per cent of the total number of industrial enterprises and are responsible for over 40 per cent of the value addition in the manufacturing sector. Today, with tastes altering, expectations rising and competition getting leaner and meaner, SMEs are under pressure to outperform in uncertain market conditions.
To cope with a rapidly changing market scenario and intense competition, SMEs need to form strategies to develop capacities and competencies, an effective method to assess customer needs and continually re-evaluate organizational functions. Moreover, clarity of vision is needed, which is a challenge for SME players.
However, the single largest road block on the path of growth for SMEs continues to remain availability of finance and the cost of the same. The global economic crisis and its domestic ramifications have made credit scarce and expensive for SMEs. With the risk appetite vanishing from the system, the lenders are reluctant to finance the SMEs and wherever they are willing, the risk premium is making the same unviable. Commercial lending will always be costly for SMEs and unavailable when they need the same .
In this context, it is extremely critical to note that couple of decades back the SMEs had easy access to the capital markets by way of listing through IPOs. Unfortunately, the growing sophistication of the capital markets in India has shut out the SMEs from listing . While it is understandable that large equity exchanges may have no space for SMEs, there is an urgent need to create a separate market place for SMEs. This SME Exchange(s) will facilitate raising of funds by SMEs through IPOs and finance their growth. This spin-off benefits for listing of an SME are also considerable in terms of brand building, visibility and recognition. Strict listing requirements also introduces discipline, appropriate governance and compliances. In US (NSDAQ) and UK (AIMs), the SME Exchanges have played a vital role in providing necessary growth engine to the SMEs.
