The recent article ?Know your client? by Amitabh Verma, head, SME, DBS Bank, made for a good reading. The tools to know the SME clients have been elaborated well by the author. I, however, found a missing link. Verma has rightly observed that typically SMEs are promoter-driven. I have been associated with SME finance for about two decades and have seen the same all across the board. It happens due to two reasons: One is the scale of operation, which most often is low. So, the contribution SMEs can generate to cover fixed expenses is low. To overcome this, either a one-person-multiple-responsibilities norm is applied and non-specialised services are hired. Or, the promoter?s family members and friends are roped in to get the essential services. As a result, either the accounting practices and projections are faulty or the figures and facts do not match. Many times a short-cut of suppressing revenues to save taxes is taken since the accounting time required for such an account is not much. Thus, the basic data for taking up financing of the units is far from the actual needs. Then, there is one more class of SME promoters who simply refuse to grow. A few of them thought that the promotional benefits of SSIs is a perennial phenomenon and are here to stay. Some others were reluctant to accept the challenges of graduating into larger SMEs. Overall, the biggest challenge for the SMEs themselves is changing their mental makeup. If that happens, a lot can change, particularly since the Indian financial market is dominated by the public sector.
GN Deshpande
State Bank of India, Hyderabad
