Considering the diverse Indian landscape, people managing micro enterprises come from all walks of life. Various Micro funding options generally available to the micro and small sector are discussed below:

i.                     Bank Loans: One of the most traditional and commonly used funding options for micro businesses is a bank loan. For a startup or a lesser organized concern, bank loan may be a cumbersome option.

ii.                   Micro-Finance Institutions: A prominent option gaining popularity recently in India. Quick loans up to 2 lakhs, could be categorized as a micro finance. This is convenient since the scrutinization process is very liberal as compared to a traditional bank. Loans of up to 1 lakh with an interest outlay of 24% p.a.

iii.                   Government Schemes: The Indian government offers various funding schemes for small businesses. On 2nd Nov 2018, hon’ble PM made 12 key announcements to address challenges faced by the MSME in terms of market access, ease of business, social security etc. Some of these schemes, since their inception are having a major impact on the micro enterprises. The most popular is the Pradhan Mantri Mudra Yojana (PMMY), which provides loans up to Rs. 10 lakhs to small businesses, starting at an interest outlay of around 7.50%

iv.                  Non-Banking Finance Companies (NBFCs): Having a USP for quick financing and minimal documentation and quick turnaround and flexible repayment option, NBFCs are among the most popular finance options. The catch however is the high interest rates.

v.                   Regional Rural Banks: According to the agricultural statistics at a glance 54.6% of the population is agrarian, most of these are micro enterprises based in rural areas. RRBs provide financing to these micro enterprises at district and state level. These provide the benefit of interest rates in the lower range from 5% - 8%

vi.                  Angel Investors & Venture Capitalists: Both play an important role in financing new and early-stage ventures. Angel Investors are HNIs funding the initial stages of a startup. Whereas, a Venture Capitalist offers comparatively larger access of funds to more established organizations. Both of these can be a mix of debt and equity.

I.                    Mrs. Kavitha has come at a crucial stage of raising funds for growth and expansion. Considering nature of business, Kavita has various micro-financing options:

1.       Bank Loans:  Commercial Banks provide loans for small businesses like that of Kavitha, requiring capital for expansion, marketing and purchase of inventory and other working capital needs. The bank shall apart from considering the usual perimeters like her business’ turnover, gross earnings, profitability would also consider the stability and growth aspects.

In the future as business progresses, Kavitha can also avail the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) to avail collateral free loan of up to Rs.5 Crores.

2.       Government Schemes: As discussed, most popular is the Mudra Loan scheme, Kavitha can avail funds up to Rs. 10 lakhs at a lower interest rate. MSME Development Institutes (MSME-DIs) are field offices of ministry of MSME, providing wide spectrum of services to MSMEs including granting access to Finance, Insurance, Technology, Common facility Infra. etc. It facilitates credit to MSMEs through “Udyam Mitra” portals. Kavitha can also avail access to credit through the “59-minute” loan portal (one of the 12 key announcements). Through this portal about 2.20 Lakh loans have been sanctioned as on 31st Dec ’21 with an average ticket size of around 30 Lakhs.

3.       Venture Capitalists: In exchange for equity, venture capitalists provide funds to small businesses. These professionals are interested in high-growth potential businesses and may even involve themselves in the management of the company. Since, Kavita has a stable business and a proven track record, venture capital might be an option to consider.

II.                   Mr. Saurabh & Mr. Jiten, kicking off their entrepreneurial endeavor.

To consider Bank loan as a funding option might not work out. Firstly, being traditional, bank loans consider historical data, a critical function in credit appraisal & assessment. Lack of any experience and historical data, will nullify that option. Secondly, even if certain neo-banks consider the future prospects, none of them would provide any assistance without a collateral and high interest rates. So, what can work out?

1.       Angel Investors: Angel investors are typically interested in innovative ideas and high growth potential businesses. Saurabh & Jiten, being young individuals, having a promising business module enabled with latest tech, have a seemingly great potential for growth. For any Investor this may turn out to be a gold-mine.

Finding an angel investor can be challenging, but it's a great option for small businesses looking to scale up quickly. To find an Angel investor, Saurabh & Jiten can find a local Angel Network. The Chennai Angels, Venture catalysts, Keiretsu, Let’s Venture are some of the prominent angel networks among others.

2.       Venture Capitalists: Since venture funds like to invest in a growing business which has been in existence for some time, it might be challenging for Saurabh & Jiten to attract a venture capitalist. Venture capitalists, like Angel investors are interested in tech-enabled businesses and high-growth potential businesses. At this stage, it would be advisable to the grads to identify some prospective investors and occasionally connect with them over SM. Some recognized names in the industry would be Kalaari Capital, Sequoia Capital, 100x.vc.

3.       Government Schemes: Mudra Loan scheme as stated earlier, is also an option. However, the limit to such funding is 10 lakhs.

Startups like that of Saurabh & Jiten’s can take the advantage of Scheme for Promotion of Innovation, Rural Industries & Entrepreneurship (ASPIRE) by getting in touch with the Technology Business Incubators (TBIs) in their towns. Further Common Facility Centers (CFCs) can be utilized as a common center for holistic business resource processing center.

III.               Mr. Jagannatha, the agriculturist living in a rural area, would be having following possibilities:

1.       Bank Loans: Financing for farmers who own land becomes much easier, since most nationalized banks like SBI, PNB, Bank of Baroda etc. offer the option of Kisan Credit Card (KCC) to farmers and land owners without any past history of banking, with an interest as low as 4%.  Apart from banks, there are always new Government schemes in offing.

2.       Government Schemes: India being an agrarian economy, government provides plentiful options for the agricultural sector. Some of the options are:

i)        Pradhan Mantri Krishi Sinchai Yojana (PMKSY): Scheme to promote and improve irrigation and water use in agriculture that provides subsidy of 55% of the drip irrigation unit cost to small farmers and 45% to other farmers.

ii)       Pradhan Mantri Kisan Sampada Yojana: Since, Jagannatha is considering automation and storage facility, this scheme provides financial assistance for development of mechanized infra and agro-processing infrastructure.

iii)     Rashtriya Krishi Vikas Yojana (RKVY): For the promotion of agriculture and allied services, the scheme provides financial assistance to farmers and cooperatives

iv)     National Bank for Agriculture and Rural Development (NABARD): Came into existence in 1982, by transferring Agri-credit functions of RBI. NABARD offers several schemes and programs like:

·         Credit linked Capital Subsidy Schemes: aims at facilitating technology upgradation of SSI units.

·         Capital Investment Subsidy Scheme: to promote organic farming in the country and increase agricultural productivity while maintaining soil health. The scheme provides subsidy of 25% of bio-pesticides up to a cap of 40 Lakhs.

·         Interest Subvention Scheme: To ensure that the farmers receive short-term credit at 7% p.a. with a cap of Rs.3,00,000/-. Incentives are available for prompt repayments and relief for farmers affected by natural calamities.

·         National Livestock Mission: Developed with the objective of sustainable development for livestock sector.

3.     Gold Loans: A swift financing option that has taken the high street banks by storm. Traditionally Indians have always seen the yellow metal as a safe investment. Wide availability with the households coupled with the recent bull run has led to substantial increase in gold financing. Jagannath having accumulated gold with him, may find it a very convenient option for financing his agricultural operations, he can avail this facility from banks and NBFCs at rate of interest ranging from 7% - 10%, with an LTV of 75%.

4.     Regional Rural Banks (RRBs): Special incentives are given to agriculturists by the RRBs like Odisha Gramya Bank, Baroda Grameen Bank. These RRBs may give access to micro capital at rates as low as 4% - 6%.

IV.               Ms. Veena, the pharmacist, looking forward to renovate old family building has several financing options to explore:

1.       Bank Loans: Veena can apply for a loan secured against the property which is proposed for renovation. Alternatively, she can approach for an unsecured loan, which shall depend on her credit score and income. Collateral loans are offered at a much lower rate of interest as compared to an unsecured one.

For the reason of volatility in the property prices, problem with a collateral loan is the low LTV ratio.

2.       Crowdfunding: A funding option recently gaining popularity in India. Since her investment avenues include building a school or a hospital, Veena can approach the locals around the area. Funding from the locals would not only create a sense of community, would also augment her goodwill. Alternatively, Veena can also explore certain crowdfunding options online like GoFundMe, Ketto, Crowdfunder, Milaap etc.

3.       Partnerships: Veena can enter into partnerships with individuals and organizations who share her vision of education and healthcare. These partnerships can assist her in financial and other resources needed for the project.

4.       Non-Banking Finance Companies (NBFCs): The advantage of seamless and quick funding, albeit with comparatively higher interest rates, NBFCs provide attractive financing options with lesser hassle and processing time.

Examples discussed above are to throw some light on the broad spectrum of individuals which make up the 99% of MSME sector. Financing options would depend on requirements and priorities of each case. Overall, with building up and growth of MSME sector in the economy, there will always be growth of newer financing options.

For each case studies discussed earlier, there are several financing options to explore, they can choose the ones that best suit their needs and circumstances. It is imperative for each to assess the pros and cons before arriving at a decision.

It should be noted here that the real deal starts after the funding stage. Managing those finances is the moment of truth and is crucial for any business, big or small, to succeed.