MSMEs face financial crunch as large clients delay payments
NEW DELHI: Companies with deep pockets may seem dream clients for micro enterprises, but their attitude towards the latter is turning many a dream upside down.
Sanjive Mehta, an IIT Delhi alumnus who runs a micro enterprise in Delhi had to wait for two years to get ` 6 lakh for servicing a big public sector undertaking. Worse, Mehta did not even receive the penalties, which would have amounted to ` 4 lakh as per rules.
The Micro, Small and Medium Enterprises Development Act, 2006 imposes a penalty three times the prevailing Reserve Bank of India’s bank rate on payments made after the agreed date.
“I felt doing business in this country is terrible,” Mehta said. “It hurt my balance sheet, as I was paying about ` 1 lakh inter- est every month on the loan that I had taken.” Mehta is not alone. A study by the International Financial Corp in 2012 estimated a minimum 90-day delay in payments for MSMEs. An internal survey by Power2SME, a company with many SME clients, this year also threw up similar numbers.
The survey showed that over 60% of micro enterprises received payments after 60 days.
“For large companies, each MSME is just a small drop in an ocean,” said R Narayan, founder and CEO, Power2SME and vice-president, FICCI Confederation of MSME.
The stress on the books leads to growing non-performing assets (NPA). Of the total 13.3 million MSMEs in the country, around 248,890 were reported sick in March 2013, according to RBI data. Micro small and medium enterprises (MSEMs) had the highest NPA ratio of 7.7% as on June 30, 2015.
The ministry of MSME did not respond to e-mails till the time of going to print.
About 480 mn people currently work in various sectors, and an estimated 15 mn people join the workforce every year.
THE SURVEY SHOWED THAT OVER 60% OF MICRO ENTERPRISES RECEIVED PAYMENTS AFTER 60 DAYS.