First-generation entrepreneurs of micro and small enterprises are facing the problem of inadequate credit flow. H P Kumar, chairman and managing director, National Small Industries Corporation, tells Business Standard about the recent initiatives taken by the corporation to tackle it.

What is the objective of the NSIC?

The NSIC is a corporation established under the Ministry of micro, small and medium enterprises for the development of this sector. Within this objective, we implement certain programmes and ask the government to assist us financially.

Our recent programmes aim at increasing credit flow to the SME sector and assist them in their marketing strategies. We currently have over 20,000 registered members and over 1,00,000 temporary members.

What are you doing to ensure easy credit flow to the SME sector?

The NSIC has signed agreements with seven banks, from both the public as well as the private sector. In this case, we become intermediaries for SMEs to get loans by forwarding their proposals to the banks of their choice.

This facility enables small businesses to apply for credit facilities like term loan, working capital, bank guarantees among others, in any of these seven banks.

Do you also rate these enterprises?

We have introduced both performance as well as credit rating schemes for the SME sector. These schemes are used to establish their credit worthiness and with this ranking they can apply for loans and also negotiate the rate of interest with the banks.

We have tie-ups with all international rating agencies like Crisil, ICRA, SMERA and others. The choice is with the customer.

The performance rating helps them present themselves in front of their bulk buyers and foreign buyers, and transaction becomes easier. We are also subsidising the cost of rating, and pay around 75 per cent of the fees.

How many partner associations do you have?

We have signed agreements with 45 associations across the country so that all the backward sections, needing our services, are covered. Work has started from April this year.

Our officials, from our branches in various parts of the country, visit these associations and work in collaboration to organise seminars and campaigns for the members of these associations. These members can then avail all the facilities provided by us.

How much has the appreciating rupee impacted the SME sector?

Our membership largely comprises micro and small enterprises, 95 per cent of which are not exporting units. However, the rest 5 per cent have surely been hit by the 10-15 per cent appreciation in the rupee.

What do you think is the major problem facing this sector?

Finance has been a problem. We, initially, thought we would be able to mobilise all the resources. But getting finance still remains a difficulty. Banks are extremely cautious when it comes to micro and small scale projects, as they consider the latter risky.

What more do you think the government should do?

Some more credit flow should be ensured for the first generation entrepreneurs or the beginners, as those already in business are able to mobilise resources.

These first generation entrepreneurs, especially with small demands like Rs 50-10 lakh, should receive the necessary assistance. That is where the problem lies.

Though the ministry of SMEs is making efforts to resolve the crisis, and is also in talks with the Ministry of Finance, concrete decisions are yet to come.