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TRANSCRIPT
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Principles and Practices of Banking
Management
Problems faced by MSMEs in India
Presentation by:
Neha Sharma
Roll No. 960
VI Semester, B.B.A. LLB (Hons.)NLU Jodhpur
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Introduction Emergence Of MSME Scope Of MSME Why We Need MSME? Performance Of MSME In India MSME Act, 2006 Role Of Govt. in Promoting MSME Commercial Bank Services And
Promoting MSME Factors affecting MSME Advantages Of MSME Problems faced By MSME MSME In Europe Conclusion
CONTENTS
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• MSME stands for Micro, Small and Medium Enterprises also
known as ‘Town and Village’ Enterprises.
• In India, the enterprises have been classified broadly into two
categories
1. Manufacturing
2. Services.
• Both categories have been further classified into micro, small
and medium enterprises based on their investment in plant
and machinery or on equipment.
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INTRODUCTION TO MICRO, SMALL AND MEDIUM ENTERPRISE
Manufacturing Sector:
Service sector:
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EMERGENCE OF MSMES UNITS IN INDIA
SMALL SCLAE INDUSTRIES PERIOD
MSMEs PRE-INDEPENDENCE
MSMEs POST INDEPENDENCE
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Before Independence, the present small scale industry was meant to
denote the village and the urban cottage industry.
This group included a variety of industries ranging from
manufacturing of Iron safes, locks, carpets, marble jigs,
baskets, hand-loom cloth and the like.
In fact, at that time the term Cottage and Small scale industries was
used in juxtaposition to large scale industries, which were established
under the British patronage.
They received encouragement and support during the freedom
movement.
The small scale industries found a prominent place in the economic
programme envisaged by the Indian National Congress.
MSMES PRE-INDEPENDENCE
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After 1947
Jawaharlal Nehru maintained separate entities of small scale industries.
He was of the view that a small industry was the middle sector and it
would overlap both the cottage and the large industries.
1977 Industrial Policy
The basic policy support of MSME sector had its roots in the Industrial
Policy Resolution 1977, laid emphasis on reservation of items.
The reservation economically viable and technologically feasible
products to be exclusively manufactured by small scale industry began
with a list of 47 items which was gradually extended to too many
products.
At Present 812 items are in the reserved list.
MSMES POST-INDEPENDENCE
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SCOPE OF
MSME UNITS
TRADING INDUSTRIES
SERVICES INDUSTRIES
MANUFACTURING
INDUSTRIES
SCOPE OF MSMES IN DIFFERENT SECTORS
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VILLAGE AND
COTTAGE INDUSTRIES
HANDLOOMS &
HANDICRAFTS
MANUFACTURING INDUSTRIES
THESE ARE CARRIED ON IN HOMES OF WORKER
(USE LOCAL RESOURSES , USE LOCAL
MARKET ,LOCAL SKILLS )
THESE INDUSTRIES INCLUDE ARTISANS,
SKILLED CRAFT MEN SHIP
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WHOLESALER
RETAILER
COMMISSION AGENT
TRADING INDUSTRIES
Person or firm that buys large quantity of goods from various producers or vendors, warehouses them, and resells to retailers.
A business or person that sells goods to the consumer, as opposed to a wholesaler or supplier, who normally sell their goods to another business.
Commission agents thrive in a variety of businesses. International agents work in the export/import arena. Insurance and real estate agents also often work on a sales-based commission.
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ACTIVITY WISE MSME
SOURCE: ANNUAL REPORT MSME, 2013-2014
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1. Predominantly rural , traditional household
industries;
2. Small and medium industries functioning with
obsolete technologies; and
3. Modern, small and medium enterprises which are
owned and operated by mostly young techno-
entrepreneurs operating in relatively newer fields like
Bio-technology.
Indian MSME can be divided into three classes:
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• FOR EMPLOYMENT GENERATION
• FOR BALANCED REGIONAL GROWTH
• FOR MOBILISATION OF LOCAL RESOURCES
• FOR EXPORT PROMOTION
• FOR CONSUMER SURPLUS
• FOR DEVELOPMENT OF ENTERPRENEURSHIP
• FOR LARGE SCALE EMPLOYMENT WITH LOW
INVESTMENT
• FOR ATTAINING SELF RELIANCE AND SELF
DEPENDANCE
• FOR ENSURING EQUAL DISTRIBUTION OF
INCOME AND WEALTH
Why We Need Msme?
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Why MSME are more adoptable?
Simple to organize
Low risk
Innovation and new concepts
Low finance
Skill prompters
Independent structure
MSME
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MSME’s Financing Features
• Involvement of lesser amount of financial resources.
• Lower gestation period.
• They are mostly run by Sole proprietors /Owners.
• They are operated mainly in Rural and Semi Urban areas.
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PERFORMANCE AND CONTRIBUTION OF MSMES.
6000 products
MSMEs
31 Million Employment
40% Exports45% industrial
production
Creates more than 1 Million
jobs annually.
.
Contribution to GDP set to expand
to 22% by 2015 from current 17%.
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MSMES SHARE BY SECTOR
SOURCE: ANNUAL REPORT MSME, 2013-2014
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GROWTH PERFORMANCE OF MSMES IN INDIA
SOURCE: ANNUAL REPORT MSME, 2013-2014
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SOURCE: ANNUAL REPORT MSME, 2013-2014
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SOURCE: ANNUAL REPORT MSME, 2013-2014
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1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
0
50000
100000
150000
200000
250000
300000
Production (Rs. '000 crores) at 1993-94 prices
Production (Rs. 000' crores) at 1993-94 prices
PRODUCTION
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Rural
Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products
accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them
17.5%.
Urban
As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment.
Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products
between them accounted for 26.2% of employment.
EMPLOYMENT DISTRIBUTION
SOURCE: ANNUAL REPORT MSME, 2013-2014
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Tamil Nadu (14.5%)
Maharashtra (9.7%),
UttarPradesh (9.5%)
WestBengal (8.5%)
Gujarat (7.6%)
Karnataka (6.7%)
Punjab (5.6%)
STATE-WISE EMPLOYMENT DISTRIBUTION
DATA REALISED BY SIDO
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CONTRIBUTION OF MSME IN EXPORTS
MSME Sector plays a major role in India's present export performance.
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This takes place through merchant
exporters, trading houses and export
houses. They may also be in the form of
export orders from large units or the
production of parts and components for
use for finished exportable goods.
The product groups where the MSME sector
dominates in exports, are sports goods,
readymade garments, woolen garments
and knitwear, plastic products, processed
food and leather products.
MSME Sector contributes about 45%-50%
of the Indian Exports.
EXPORTS
Data realised by Commerce Ministry of India
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S. NO PRODUCT GROUP MAIN DESTINATION
1 Readymade Garment USA, West Asia, North Africa
2 Sports Goods UK, USA, Germany
3 Spices East Asia, Union , North Africa
4 Leather &Leather Items Germany , UK, Italy, USA, France
5 Wool & Woolen Knitted Garment Europe, Bangladesh , Japan , Sri Lanka , Bhutan ,
6 Processed Food Items Europe, Bangladesh ,Japan, USA
7 Tobacco And Tobacco Items East Europe
8 Electronic Item And Computer Software USA , UK , Hong Kong, UAE, Japan
9 Cashew Item USA, UK, Japan, Netherlands
10 Marine Products UK, USA, Germany, Europe, Bangladesh
MAJOR EXPORT DESTINATION
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RECENT TRENDS REGARDING MSMES
The contribution of micro, small and medium enterprises
(MSME) sector to manufacturing output, employment and
exports of the country is quite significant.
The MSME sector employs about 42 million persons in over
13 million units throughout the country.
There are more than 6000 products, ranging from traditional
to high-tech items, which are being manufactured by the
MSMEs.
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Growth in GDP. MSME’s not only account for 80% of the total
number of Industrial Enterprises in the country but are also the
second largest employment providing sectors in the country
after agriculture.
This sector is a growth-driver in the economy.
40-50% of output/services originated from this sector.
40% of Indian Exports are on account of MSMEs.
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MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006
SALIENT FEATURES:
1. Industry replaced by enterprise which include
service enterprises also.
2. Constitution of MSME Board.
3. Simplification of registration procedure.
4. Progressive credit support.
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INDUSTRIAL POLICY
RESOLUTION 1948
INDUSTRIAL POLICY
RESOLUTION 1956
INDUSTRIAL POLICY
RESOLUTION 1977
INDUSTRIAL POLICY
RESOLUTION 1991
INDUSTRIAL POLICY
PACKAGE FOR SSI 2001-02
INDUSTRIAL POLICY ON SSIS
2004-05
GOVERNMENT POLICIES FOR MSMES
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ROLE OF GOVERNMENT IN PROMOTING MSMES
Role of Govt.
Reservations
Concessions in Excise
Sale Tax Exemption
Supply Of Raw Material
Financial Incentive
Industrial Estates
Marketing Assistance
SIDBI
Purchase Assistanc
e
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NATIONAL SMALL INDUSTRIES CORPORATION LTD. (NSIC)
SMALL INDUSTRIES DEVELOPMENT ORGANIZATION (SIDO)
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)
SMALL INDUSTRIES –SERVICE INSTITUTE (SISI)
SMALL INDUSTRIES DEVELOPMENT CORPORATION (SIDC)
TECHNICAL CONSULTANC ORGANISATION (TCOs)
OTHER INSTITUTION ALSO HELP TO PROMOTE SSI
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GANGULY COMMITTEEThe “Ganguly Committee’ has thoroughly examined the
issues confronting SMEs and suggested the
following:
Institutional Finance should be made available on
suitable terms.
SIDBI/Banks to promote national level MSME
development fund.
SIDBI to provide technical support.
To promote a specific SME Rating Agency to
provide comfort to the banks financing SMES.
Setting up of Micro Finance Intermediaries to
accelerate the growth of MSMEs.
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ROLE OF BANKS IN PROMOTING AND
SERVICING MSMES
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COMMERCIAL BANKS IN PROMOTING MSMES
STATE BANK OF INDIA (SBI)
BANK OF INDIA
PUNJAB NATIONAL BANKS (PNB)
UNION BANK OF INDIA
SYNDICATE BANK
CANARA BANK
Loans upto Rs.10 lakh extended to units in the MSE sector.
(WITHOUT TAKING ANY COLLATERAL SECURITY)
Banks may, on the basis of good track record and financial
position of the MSE units, increase the limit of dispensation of
collateral requirement for loans up to Rs.25 lakh (with the approval
of the appropriate authority).
Public sector banks have been advised to open at least one
specialised branch in each district.
STEP TAKEN BY COMMERCIAL BANKS TO IMPROVE THE FLOW OF CREDIT TO SMALL
BUSINESSES
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RBI issued detailed Guidelines
to Scheduled Commercial
Bank for timely assistance to
Potentially Viable MSME Units
at Reduced Rate in 2002.
RBI advised Soft Loan
Assistance to Women
Entrepreneurs besides Usual
Term Loan in MSME to
promote Women
Entrepreneurs.
CONTD..
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SCHEME OF SMALL ENTERPRISES FINANCIAL CENTERS (SEFCS):
As per announcement made by the Governor in the Annual Policy
Statement 2005‐06, a scheme for strategic alliance between branches
of banks and SIDBI located in clusters, named as “Small Enterprises
Financial Centres” has been formulated in consultation with the
Ministry of SSI and Banking Division, Ministry of Finance,
Government of India, SIDBI, IBA and select banks and circulated
to all scheduled commercial banks on May 20, 2005 for
implementation. SIDBI has so far executed MoU with 15 banks
(Bank of India, UCO Bank, YES Bank, Bank of Baroda, Oriental Bank of
Commerce, Punjab National Bank, Dena Bank, Andhra Bank, Indian Bank,
Corporation Bank, IDBI Bank, Indian Overseas Bank, Union Bank of India, State
Bank of India and Federal Bank).
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PNB SCHEMES FOR MSME’S MSEs credit growth through financial inclusion by way of collateral free and without third
party guarantee lending
As per RBI mandatory guidelines, loans upto Rs.10 lakh to Micro and Small Enterprises,
which are eligible for coverage under Credit Guarantee Scheme, are to be considered on
merits without accepting any collateral security / third party guarantee and all such cases
must be got covered under guarantee scheme of CGTMSE.
Further, as per Banks guidelines, MSE proposals up to Rs.100 lakh, which are eligible
under Credit Guarantee Scheme, are to be sanctioned by the competent authority without
taking any collateral security/third party guarantee.
Disposal of Loan Applications within the prescribed time limit is to be ensured as under:
1. Upto Rs. 2 lakh 2 Weeks
2. Above Rs.2 lakh & upto Rs.50 lakh 4 weeks
3. Above Rs.50 lakh & upto Rs.100 lakh 5-6 weeks
4. Above Rs.100 lakh & upto Rs.100 crore 6-7 weeks
5. Above Rs.100 crore 8-9 weeks
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CONTD..
Sufficient Loaning Powers have been vested to ensure
faster disposal of MSMEs loan applications: i) Branch
Managers have been vested with higher powers to directly
dispose of proposals at branch level for financing Micro
Enterprises (manufacturing/service).
At present there is a system of online filing of loan
applications by MSEs on Bank’s website. The Bank is
providing 20% concession in processing/upfront fee, in
case such applications received online.
Special concession to Women owned enterprises have
been extended in margin requirement and interest rates,
irrespective to the amount of loan.
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The Bank has approved Credit Rating
agencies like SMERA, CRISIL, ICRA,
ONICRA and BRICKWORK for rating
of the MSME units and is extending
interest concession of 0.50% for
first two rating grades and 0.25% to
third rating grade only.
PNB: MSMEs and Credit Rating
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PARAMETERS CONSIDERED BY BANKS WHILE LENDING TO MSMES
The following parameters are used in various connotations by
banks/FI for their lending decisions:
1. Prospects: This refers to both the Industry and Firm analysis in terms of
growth prospects, financial stability, threat perceptions and the like.
2. Purpose: The need and form of Loan.
3. Payment: The possibility of repayment.
4. Person: The will and ability of a person to repay.
5. Protection: The type of security provided to the lender, its value and
ease of liquidation.
Applying the same parameters, without factoring their uniqueness,
has resulted in a skewed Net Bank Credit to the MSMEs sector:
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Of the Rs. 477,899 crore Net Bank Credit,
only 11.1% was available to the MSME sector.
The lending, based on category of the
borrowers as opposed to a fair and systematic
credit appraisal system has led to the longevity
of the informal sector despite its atrocious
lending rates and recovery mechanisms.
Organizational structure of MSMEs also play a
critical role in Banks decision of lending to
MSMEs.
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SOURCE: ANNUAL REPORT MSME, 2013-2014
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SOURCES OF FINANCE FOR MSMES
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FACTORS AFFECTING MSMES Accessing adequate and timely financing on
competitive terms, particularly longer tenure
loans.
Factors that include policy, legal/regulatory
framework (in terms of recovery, bankruptcy and
contract enforcement), institutional
weaknesses (absence of good credit appraisal
and risk management/ monitoring tools), and lack
of reliable credit information on MSMEs.
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CONTD. It has become difficult for lenders to be able to assess risk premiums
properly, creating differences in the perceived versus real risk profiles of
SMEs.
Access to skilled manpower, R&D facilities and marketing channels
is limited.
Availability of finance at cheaper rates and good management and
accounting practices, and access to modern technology.
Bribery, corruption, red tapism.
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EMPLOYMENT GENERATION
MEETS THE DEMAND OF THE
MARKET
SHARE IN NATIONAL INCOME
SOCIAL ADVANTAGES
MAKE USE OF INDUSTRIAL
WASTE
REDUCES REGIONAL DISPARITY
EXPORT PROMOTION
MOBILIZATION OF LOCAL
RESOURCES
Advantages Of MSME
ADVANTAGES OF Establishing MSME
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PROBLEMS FACED BY MSME IN INDIA
INTERNAL PROBLEMS
FAULTY PLANNING
POOR PROJECT IMPLEMENTATION
POOR MANAGEMENT
INADEQUATE FINANCE
PROBLEMS
LABOUR PROBLEMS
EXTERNAL PROBLEMS
LOCATION
POWER PROBLEMS
INPUT
MARKET PROBLEMS
GOVT. POLICY
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Comparative Analysis with Europe MSME’s Sector
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Europe’s MSME’s structure
23 million MSME’s • 57% sole
proprietorship
80% Private sector
employment
Source: 2008/09 European commission
52Source: 2008/09 European
commission
Europe
Italy&
Greece
o Italy and Greece – Highest MSME’s, Employees and Micro enterprise.
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Positive Points of Europe MSME’s structure
o Business friendly environment
o European Commission categories MSME’s in (2005) (for simplify
administrative and management)
- Staff headcount
- Turnover and/or balance sheet
o Europe Commission made Small Business Act, 2008.
- In which all Europe countries became member and promote
MSME’s sector in structure format and develop MSME friendly
environment. It is the first comprehensive EU SME policy framework,
including legislative proposals, which aims to:
• Facilitate MSMEs access to funding
• Help MSMEs to get most out of the EUs Single Market
• Create an entrepreneurial environment.
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The Portal gathers all information the EU provides on for MSMEs, ranging from practical advice to policy issues.
EU Small Business Portal
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This site helps MSMEs to apply for finance supported by European Union.
Access to Finance
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Apart from above, other European Commission support to MSME’s sector are…
o Simplified financial and administrative procedure o Promote Education and Business Environment
o Government policy support
o Simplify communication, creating awareness and improve information structure.
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European Commission Target 2007 to 2013
The structural funds 2007/13• Around 27
billion Euros support
• Promote technological support and innovations.
Launched JEREMIE (Joint European Regional Development Fund)• MSME access
finance through financial instruments
• Equity, Debt, Quasi equity and Technology transfer fund
European Globalisation Fund (EGF)• Utilize at the time
Economic crisis.
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What should India adopt from the Europian MSME’s industry?
1. Increase utilization of installed capacity
2. Increase information, orientation and facilities
3. Specialized training for administrative, local, national and world market, research and development, innovation and education
4. Improve - Management - Accounting - Consulting and supporting services - Primary and industrial education level
5. Improve quality of input-output by using more innovative and economic tools in all the level
CONCLUSION
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6. Create awareness about global trade laws
7. Subsidies import and export policy of
SME’s
9. Government should reserve rural market
for SME’s and protect them from
competition by big industrial houses
10. Facilitate by credit instruments support
and lowering down rates for start ups and
at the time of economic crisis.
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Seed Bed refers to
preparing the soil for
sowing of seeds for a
good crop. As it
provides conducive
conditions for the
Development And
Growth of
Entrepreneurs.
E.G:-Amul, Saras,
Himalaya.Pvt.Ltd
SMALL BUSINESS AS A SEED BED OF LARGE BUSINESS
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To sum up we can say that MSME
serves as a seed bed of
entrepreneurship as it provides
conducive conditions for the
development and growth of
entrepreneurs.
Small enterprises require low
investment and simple
technology and use local
resources to meet local demands
through personal contacts.
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