Enhancing Banks' Value Addition To SMEs

A winning strategy and operational intervention to improve the performance of SMEs

The concept, scope and implementation

Project Report By MV GOPINATH Motivational speaker, chief trainer, lead consultant

The Important Role Of SMEs in National Economy

SME’s play an important role in economic development of our country. Their role in production, employment generation, contribution to exports and in equitable distribution of income are critical for the growth of the economy. Infact in the market economy the SME’s are the engine of growth.

An overview

Few Key Statistics

SMEs in India

SME Employment Oportunity Products GDP Contribution SME Output SME Exports Bank Lending Fixed Assets SME Growth Rate

: The number is estimated to be at 42.50 million - A staggering 95% of the total industrial units in the country.

: Employs about 106 million. 40% of India’s workforce. Next only to the agricultural sector.: Produces more than 6000 product categories.: Currently around 6.11% of the manufacturing GDP and 24.63% of Service sector GDP.: 45% of the total Indian manufacturing output.: 40% of the total exports.: Accounts for 16% of bank lending.: Current fixed assets at INR 1,471,912.94 crore.: Has maintained an average growth rate of over 10% Plus.

To support and promote MSMEs, the Government of India has launched various subsidies, schemes and incentives.

Some of the Govt’s recent initiatives to boost SME’s development

1. A slew of recent measures, including tax concessions in the budget, for micro, small and medium enterprises (MSMEs) has been taken with an aim to transform 6.33-crore MSMEs into growth engine for New India'.

2. Ease Of Doing Business

3. Startup India

4. 59 Min Loan Approval etc

SME Classification in IndiaSME’classification in India is based on the investmentin plant & machinery or equipment of the entity.Service sector and manufacturing sector have different thresholds for SME classifications

Investment in equipmet of less than Rs 5 crores

Medium

Investment in equipmet of less than Rs 2 crores

Small

Investment in equipmet of less than Rs 10 lakhs

Micro

Investment in machinery of less than Rs 10 crores

Medium

Investment in machinery of less than Rs 5 crores

Small

Investment in machinery of less than Rs 25 lakhs

Micro

Challenges for SMEs to improve their overall performance

14 Critial Areas of Focus

The consultancy services will cover study, evaluation, evolving solution and implementing solutions to achieve profitability, growth, people development, customer satisfaction and new business development

1. Management & LeadershipThe process of organizing, planning, leading and controlling resources within an entity with the overall aim of achieving its objectives. The organizational management of a business needs to be able to make decisions and resolve issues in order to be both effective and beneficial. Organizational leadership deals with both human psychology as well as expert tactics. It emphasizes on developing leadership skills and abilities that are relevant across the organizations. It means the potential of the individuals to face the hard times in the industry and still grow during those times. It clearly identifies and distinguishes the leaders from the managers.

2. Financial Management Good financial management is critical to the success of any business, but it is particularly important in small to medium enterprises (SMEs). A key concern for small business owner-managers is cash flow management, or more specifically the cash conversion cycle. This is the firm’s ability to generate cash from its customers’ invoices, and the time it takes to collect these accounts receivable. Closely related to the cash conversion cycle is the working capital cycle, which is the movement of cash and other liquid assets through the business as a process of regular trading. How efficiently a business manages its working capital, and speed of its cash conversion cycle will impact on firm’s overall profitability.

4. Competence of Human ResourceCompetence is closely related to performance, both individual performance and the performance of organizations. Competence of human resources is needed to face new challenges in the face of increasingly fierce market competition. Competence is defined as the ability to perform tasks that include workplace skills that are supported by knowledge and skills

3. Entrepreneurial Aspect Entrepreneurial aspect is important because one of the critical success factors in the performance of a business organization is human behaviour that will run a variety of other management aspects in that business. Individual personality significantly influence the success of SMEs business organizations. Characteristics such as motivation. optimism, self-efficacy, and self-management can determine the success of an entrepreneur in business management.

6. Assembling the Right Team One of the key success factors of a business is putting together a group of people whose talents, experiences, skills, and personalities mesh together. You can hire the most talented people in the industry, but if they don’t work together to resolve conflicts and create solutions to problems, the business won’t flourish. Must hire employees who have bought into your company’s vision and are committed. When a company’s staff takes ownership of every aspect of running the business, the buy-in can yield huge dividends.

7. Supply Chain Management According to SCM experts, it's also defined as the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. The other areas that SCM is related to are operations, logistics, procurement, and information technology.

8. Human ResourceHuman Resource competence is closely related to performance, Individual performance is based on understanding of knowledge, skills, and behavioural skills necessary to do a good job. The labour skills is an important contributor to the growth of the company.

9. Production managementProduction management means planning, organising,directing and controlling of production activities. Production management deals with converting raw materials into finished goods or products. It brings together the 6M's i.e. men, money, machines, materials, methods and markets to satisfy the wants of the people

10. Quality Product or ServiceIt probably goes without saying, but another of the key elements to running a successful business is offering a quality product or service. you can create a product that is tailored to meet the wants and needs of your targeted audience, and ensure that the product is well made. First-time customers become repeat customers if they perceive that your product has value, which is why quality is one of the essential success factors of a public company.

5. Marketing Strategy The biggest challenge for SME is lack of marketing strategy. In many SME’’s CEO acting as Marketing Manager. SME’s are started marketing without having any market strategy, plan, SWOT analysis, PESTEL analysis, Market analysis Segmentation,Target and Position. If SME’s have proper marketing Strategy definitely they will succeed in market with low budget.

11. Lack of TechnologyOne of the crucial factor that decides the success or failure of an Enterprise is the use of Technology for the production. The best technology helps the enterprise to reduce it’s cost of production, improves productivity and brings efficiency, but SMEs fails to cope up with the latest technology due to lack of finance.

12. InnovationAs “generator, acceptance and implementation of new ideas, processes, products or services.” Innovation is a key element in maintaining and improving organizational performance. SMEs generate a creative product as result of their innovation, and technology  that allows companies to produce better products than its competitors. The organization must be risk seeking and not risk aversion.

13. Performance ManagementPerformance management is a continuous process of identifying, measuring and developing performance in organisations by linking each individual’s performance and objectives to the organisation’s overall mission and goals.Performance management is critical to small and large organisations – domestic and global – all industries. After all, the performance of an organisation depends on the performance of its people, regardless of the organisation’s size, purpose or other characteristics.

14. Systems and ProceduresSystems, processes, and procedures. Too many businesses and organizations fail to create systems, processes, and procedures in order to standardize the way things are done. And even in those organizations in which some standardization is present, often those systems are not adequate and even documented.

Marketing Potential for Consultancy Services

for SMEs

Every SME’s is potential client since most of the SME are not operating at their optimum capacity but would like to improve their performance levels especially in the context of global competition and The cost of improving the performance is far less compared to cost of not doing it. Hence there is a huge need for effective consultancy services.

The following banks have exclusive SME branch - Assuming 500 SME’s per branch the total SME populationin Bangalore is as under

NAME OF THE BANK NUMBER OF BRANCHES

NUMBER OF SMEs/BRANCH TOTAL SMES

Bank Of India Bangalore SME

Canara Bank

Kotak Mahindra Bank

Andhra bank

State Bank of India

Vijaya Bank

1

2

2

2

9

4

500

500

500

500

500

500

500

1000

1000

1000

4500

2000

10000

Name Of The Bank Number Of Branches

Number Of SMEs/branch Total SMEs

11111

1

500500500500500500500

500

500

500500500500500500500

500

500

Non Exclusive SME Banks

Lakshmi Vilas BankHDFC BankICICI BankBank of BarodaStandard Chartered BankDeutsche Bank

HSBC Bank

Corporation Bank

IndusInd Bank

1

1

1

4500

Total Number of SMEs 14500 Out of this our target is 10 SME clients per month or 120 per year (less than 1%)

The Concept of Unique Consulting Services

The consulting firm (CF) is a 360 degrees support system to SME’s in areas of management, operations, HR, finance, marketing and new business, products development etc. in 14 focus areas. Most SME’s do not perform at their optimum capacity in most of their internal parameters and are stunted instead of growth and is prone to sickness in global competitive environment. The CF guarantees to achieve profitability / growth and smooth functioning of the SME. Actually CF is a profitcentre for SME’s-- meaning that promoters/management of SME does not invest any funds for this service. It is a “Zero investment plan” to enhance the performance of the unit.

It is a short 3 months intervention the SME will be provided with the tools, technique, and know how to actualize the recommendation of CF based on a diagnostic study. If there is no tangible financial advantage the company does not pay any compensation whatsoever for the efforts of the CF. In the event that SME achieving a higher profits CF is paid an agreed % of the improved profit accrued by its efforts.

This concept of Zero investment profit is unique, fresh and bold initiative based on the expertise and experience of a professional team, a combined experience of more than 100 years will be at the disposal of SME.

It is a winning proposition to SME and the key stake holder-the lending banks.

Zero Investment Plan

The Consulting Firm as a “Profit Centre” for SMEs

Banks will play role of one time co-ordinator between CF and SME. The following are perceived advantages to the banks 1. Bank are now concerned only with security and recovery of the loan to SME’s there is an opportunity for non-financial support at almost no cost. 2. A healthier SME is a guarantee by CF intervention for the money advanced –means less monitoring and timely re payment. Aparts from minimizing the potential NPA’s 3. When the SME is growing the financial requirement also grows which is turn results in the growth in lending for banks. 4. Banks are also in a competitive situation. This non-financial initiative to support the CF in popularizing among their client SME it will be a differentiator for the banks 5. Better relationship building exercise –it is good and cheaper to grow with existing growing clients rather than looking for new accounts for expansion of business. 6. An excellent mechanism to have feedback on the trends, environment, direction, needs, strength and weakness of SME’s and create a data base that helps the banks for future reference.

Why Banks would like to try this concepts

Operational Details

The Consulting Team

W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4Aug 2019 Sept 2019 Oct 2019 Nov 2019 Dec 2019

Assignment 9

Assignment 1Assignment 2

Assignment 3

Jul 2019Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019

Assignment 4Assignment 5

Assignment 6Assignment 7Assignment 8

Assignment 22

Assignment 11Assignment 12

Assignment 13Assignment 14

Assignment 15Assignment 16

Assignment 40Assignment 40

Assignment 29Assignment 30

Assignment 31Assignment 32Assignment 33Assignment 35

Assignment 10

Assignment 36Assignment 37Assignment 38

Assignment 39

Assignment 23Assignment 24

Assignment 25Assignment 26Assignment 27

Assignment 28

Assignment 17Assignment 18Assignment 19Assignment 20Assignment 21

Financials

Variables to increase the businessIf the company turnover is higherIf the profitability is increasedIf the cycletime/tenure of the assignment is shortenedIf the number of Assignments are increased

MethodolgyPhase 1: A diagonistic study spanning 15 to 30 days for a fee of One Lakh Phase 2: Evolve solutionsPhase 3: Implementation of solutions - 3 months

Company Turnover ₹ 30,00,00,000.00

Current profit of the business @ 8% ₹ 2,40,00,000.00

Increase in profitability by 10% of current profit ₹ 24,00,000.00

Income/75% from the increased profit ₹ 18,00,000.00

No of Assignments per year 15

Revenue Generated for the year ₹ 2,70,00,000.00

Expenses for the year ₹ 80,04,000.00

PBT ₹ 1,89,96,000.00

An ExampleAssumptions

Annexures

1. The potential SME evaluation report

2. Contract

3. Acceptance of status report

4. Acceptance of solution report

5. Outcome acceptance report

6. Progress report - Milestones