Micro, Small and Medium

enterprises (MSME)
Contents

1. Meaning of MSME
2. Classification of MSME
3. Types of MSME
4. Features
5. Role of MSME in India
6. Government MSME schemes
and policies
7. MSME and SDG’s
8. Startup
9. Startup India
10.Access to finance
Meaning of micro, small and medium enterprises

• MSME full form is Micro, Small, and Medium Enterprises. The Government of
India introduced the MSME under the Micro, Small, and Medium Enterprises
Development (MSMED) Act of 2006. MSMEs are managed under the Ministry
of MSMEs.
• MSMEs are businesses with specific turnovers. The objective of MSMEs is to
primarily engage in manufacturing, processing, production, and
preservation of goods and commodities. These business enterprises play an
important role in the socioeconomic development of the country.
Classification of MSME
Net investment in plant, Net turnover
machinery, and equipment
Micro Less than ₹1 Crore Less than ₹5 Crore
Small Less than ₹10 Crore Less than ₹50 Crore
Medium Less than ₹50 Crore Less than ₹250 Crore
 Types of MSME
According to the Micro, Small and Medium
Enterprises Development (MSMED) Act
2006, MSMEs are of 2 types:

• Manufacturing Enterprises: Business

enterprises that are involved in the
manufacturing of goods, as stated under
Schedule I of the IDRA 1951, are
categorised as MSMEs. Additionally, all
business enterprises that contribute
value to the finished products by making
use of plants and machinery also come
under MSMEs.

• Service Enterprises: Business enterprises

that provide services and come under the
category of ‘enterprises’ as stated in the
MSMED Act are service enterprises and
come under MSMEs. Note that individual
service providers do not qualify as
service enterprises.
 Features
MSMEs contribute significantly towards improving the lives of their
1. employees and artisans. They help these workers have a better quality of
life by providing them with an income source, medical benefits, loan
facilities, and more.

MSMEs constantly strive to bring innovation, modernisation, and

2. expansion in technology and infrastructure in the sector they operate

in. These enterprises are equipped to provide banking institutions
with credit limits and financing assistance.

MSMEs set up specialised manpower training centres to upgrade the

3. skills of individuals and create a motivating and feasible environment
for future entrepreneurs.

MSMEs are technologically driven and have quality certifications and

4. advanced testing facilities to ensure top-notch quality of goods and
commodities.
 Features

5. MSMEs follow the latest global trends and bring innovation in product
manufacturing and packaging to the domestic markets.

6. MSMEs create ample job opportunities in both rural and urban areas.

7. MSMEs produce thousands of products, which are usually

expensive than similar products from international brands.
less

MSMEs promote growth in the khadi and village industries by collaborating

8. with the concerned ministries and artisans in these areas. Such sectors
require low investments and have flexible operations, opening
opportunities for enhanced employment and higher domestic production.
 Role of MSME in India

Export Entrepreneurship

• MSMEs’ contribution to the • MSMEs promote inclusiveness in

exports from India was recorded the country by facilitating the
at 42.67% by August 2022. Such entry of aspiring entrepreneurs
high volumes of exports facilitate in various sectors. They promote
international trade and healthy competitiveness among
contribute to industrial growth entrepreneurs, which fuels
within the country. industrial growth.
 Innovation Employment

• MSMEs bring innovation to • As stated before, MSMEs create

various processes in the employment in rural and urban
manufacturing of goods and areas of the country. These
commodities. They provide the business enterprises are the
necessary skills, tools, and second largest employment
technology for automation and sector in India after agriculture.
advancement in their sectors. It By setting up units in rural and
contributes to the overall underdeveloped areas, MSMEs
technological upgradation of the contribute to the better living
country and promotes research standards of people from lower
and development. socioeconomic and rural areas as
 MSME Innovation Scheme:
ent government schemes and policies for MSME
FIRST:
Forum for Internet
The Indian government
launched the MSME
Retailers, Sellers, and
innovation scheme in
Traders. The program
March 2022 to foster CGTMSE:
aligns with the
innovation in the sector.
government’s Digital India The Credit Guarantee Trust
Under this scheme, MSMEs
movement and educates Fund for Micro and Small
can enjoy reimbursement
and informs MSMEs about Enterprises scheme
of the cost of Intellectual
opportunities to become provides financial
Property Rights
self-reliant and digitally assistance of up to ₹2
applications for new ideas
capable. Crore to new businesses.
and designs. The
More than 17,200 retail
programme provides
entrepreneurs have
financial and other
already registered with
resources to MSMEs to
the program.
CLCSS: encourage innovation. ASPIRE:
The Credit Linked Capital ASPIRE, or A Scheme for
Subsidy Scheme provides Promotion of Innovation,
capital subsidies to MSMEs Rural Industries, and
operating in the khadi, Entrepreneurship, fosters
village, and coir sectors. innovation and
The subsidy allows these entrepreneurship in rural
businesses to acquire and agricultural sectors by
technological innovation establishing advanced
and upgradation. technology networks.
 MSME and SDG’s
• Micro-, small and medium-sized enterprises
(MSMEs) contribute to achieving the 2030
Agenda for Sustainable Development and the
Sustainable Development Goals (SDGs).
• MSMEs help reduce levels of poverty through
job creation and economic growth, they are key
drivers of employment, decent jobs and
entrepreneurship for women, youth and groups
in vulnerable situations.
• They are the majority of the world’s food
producers and play critical roles in closing the
gender gap as they ensure women’s full and
effective participation in the economy and in
society. It relates to

 Goal 1: No poverty
 Goal 2: Zero hunger
 Goal 5: Life on land
 Goal 8: Decent work and economic growth
 Goal 9: Industry, innovation and infrastructure
 Goal 10: Reduced inequalities
 Startups
• Startup means an entity, incorporated or
registered in India not before five years,
with annual turnover not exceeding INR 25
crore in any preceding financial
year, “working towards innovation,
development, deployment or
commercialization of new products,
processes or services driven by
technology or intellectual property.”
Provided That:
• Such an entity is not formed by splitting
up or reconstructing a business already in
existence.
• An entity shall cease to be a Startup if its
turnover for the previous financial years
• Has exceeded INR 25 crore or completed 5
years from the date of incorporation/
registration.
• A Startup shall be eligible for tax benefits
 Startup India
• Launched on 16th January, 2016, the Startup
India Initiative has rolled out several programs
to support entrepreneurs, build a robust
startup ecosystem and transform India into a
country of job creators instead of job seekers.
• These programs are managed by a dedicated
Startup India Team, which reports to
The Department for Promotion of Industry and
Internal Trade (DPIIT)
• Startup India is a flagship initiative of the
Government of India, intended to build a
strong eco-system for nurturing innovation and
Startups in the country that will drive
sustainable economic growth and generate
large-scale employment opportunities.
• The Government through this initiative aims to
empower Startups to grow through innovation
and design. To meet the objectives of the
initiative, the Government of India is
announcing this Action Plan that addresses all
aspects of the Startup ecosystem.
 Startup India
With this Action Plan, the Government hopes
to accelerate the spreading of the Startup
movement:
• From the digital/ technology sector to a
wide array of sectors including
agriculture, manufacturing, social sector,
healthcare, education, etc.;
• From existing tier 1 cities to tier 2 and tier
3 cities including semi-urban and rural
areas. The Action Plan is divided into the
following areas:
 Simplification and Handholding: Easier
compliances, regulatory and patent
support, market access and funding
support, and a web portal for Startups to
network and access tools to succeed.
 Funding Support and Incentives: Funding
and tax exemption
 Industry-Academia Partnership and
 Access to finance
Personal financing or personal investment

• Personal investment is usually the first

source of funds when starting a business.
Using your own money means you won’t
have to apply for a loan or seek
investments from people outside the
company, which can take a long time.
• It also allows you to maintain control of
your business and keep all the profits
from your business activities.
• If you decide to take out a loan to start
your business, your financial institution
will expect you to invest some of your
money in the project or provide collateral.
 Access to finance
Friends and family

• Your spouse, parents, other family

members or friends can lend you money.
Bankers call this patient capital because
repayment is flexible and unpredictable.
• Since there is no specific contract, the
loan is often repaid based on the
company’s profits. Patient capital can be
either debt or equity and often displays
one or more of the following features:
 There is no contract spelling out payments
of interest, principal or dividends
 The lender does not get any ownership of
the company
 No collateral is used as security
 The debt could be forgiven
 Access to finance

Angel or seed investors

• These lenders are also known as private

investors and can offer your startup the capital
it needs to get off the ground, but it comes
with a catch. Angel investing works by offering
you money in exchange for a stake in your
company. This improves your chances of being
successful, but you'll lose some control over
your company. This is because angel investors
will want to help make business decisions.
They'll also receive a portion of the profits if
you sell your company. They are often leaders
in their field. Your business will benefit from
their:
 experience
 network of contacts
 technical knowledge
 management expertise
To reduce the risk of losing their investment, they
may reserve the right to:
 supervise the company's management
 Access to finance
Venture capitalist:

• People or companies that invest in venture

capital are looking to invest in companies
with high-growth potential. Technology-
driven sectors such as information technology,
communications and biotechnology are
particularly interesting to them. This type of
financing is for promising but more risky
projects. It also allows the business to grow
quickly without using its cash to pay off debts.

• Venture capitalists are private investors that

offer financing for startups or other small
businesses. Typically, these lenders are
partners in limited partnerships (LPs) and
invest in one venture capital fund. A
commission will then manage and make
investment decisions for the funds.
• If the group decides to back a startup, they'll
give them money in exchange for a stake in the
company's equity. These committee members
 Access to finance
Crowdfunding:

• Crowdfunding is a form of fundraising where a

business asks many people to make small
contributions. Generally, the company offers
an equity interest in exchange for financing.
However, these investors will have a harder
time selling their shares than those who invest
in public companies.
• There are various forms of crowdfunding:
 Equity Crowdfunding: In exchange for their
money, investors receive shares in a company
or the right to a portion of the revenue or
profits from a specific product.
 Debt Crowdfunding: Investors lend their money
to a company at relatively high interest rates.
By lending small amounts of money to several
businesses, these people reduce their risk. For
its part, the company receives a large amount
of money, but in small increments.
 Crowdfunding through donations or rewards: A
company sets a fundraising target and asks for
 Access to finance
Grants:

• Many grants are only open to specific

industries or demographics, though. This
means some may only be for startups in
science, technology or health fields. Others
may be programs for women-owned startups.
Some grants also act as minority incentives for
starting a business or focus on enterprise
zones, which are areas where the government
is encouraging development. The government
wants to offer incentives for new businesses to
increase economic growth.

Loans:

• Bank financing through business loans is one of

the main sources of financing for small
and medium-sized businesses. Not all loans are
equal. Lending institutions offer different
advantages, such as personalized service,
flexible repayment terms and varying interest
 Access to finance
Business incubators:

• Business incubators can support start-

ups at various stages of development.
They generally focus on the high-
tech sector. Incubator companies operate
in cutting-edge sectors such as
biotechnology, information technology,
multimedia, or industrial technology.
There are also local economic
development incubators that support a
wider variety of businesses since their
focus is on job creation and regional
revitalization.
• Incubators share space and
administrative, logistical and technical
resources. For example, an incubator can
make its labs available to a new business.
This will enable the company to develop
and test its products at a lower cost
 Financial resources:
Challenges in a startup
Availability of finance is
critical for startups and is Team members:
Revenue generation:
always a problem to get Startups normally start
Several startups fail due
sufficient amounts. with a team consisting of
to poor revenue
Several finance are trusted members with
generation as the business
available. The requirement complementary skill sets.
grows. As the operations
starts increasing as the Usually, each member is
increase, expenses grow
business progresses. specialized in a specific
with reduced revenues
Scaling of business area of operations.
forcing startups to
requires timely infusion of Assembling a good team is
concentrate on the
capital. A recent report the first major
funding aspect, thus,
paints a gloomy picture requirement, failure to
diluting the focus on the
with 85% of new have one sometimes could
fundamentals of business.
Creating awareness in the startup.
company’s reportedly
Supporting infrastructure: break
underfunded indicating markets:
There are several support
potential failure. Startups fail due to a lack
mechanisms that play a
of attention to limitations
significant role in the
in the markets. The
lifecycle of startups which
environment for a startup
include incubators,
is usually more difficult
science and technology
than for an established
parks, business
firm due to the uniqueness
development centres etc.
of the product. The
Lack of access to such
situation is more difficult
support mechanisms
for a new product as the
increases the risk of
startup has to build
failure.
 Exceed customer
expectations:
The next most important
Challenges in a startup Regulations:
challenge is gauging the Tenacity of founders: Starting a business
market need for the The journey of starting a requires several
product, existing trends, venture is fraught with permissions from
etc. Innovation plays an delays, setbacks, and government agencies.
important role, since, that problems without Although there is a
the startup has to fine- adequate solutions. The perceptible change, it is
tune the product offerings entrepreneur needs to be still a challenge to register
to suit the market persistent, and a company. Regulations
demands. Also, the persuasive, and should about labor laws,
entrepreneur should have never give up till he/she intellectual property
thorough domain achieves desired results. rights, dispute resolution
knowledge to counter etc. are rigorous in India.
Lack of mentorship:
competition with
appropriate strategies.
Lack of proper guidance
and mentorship is one of Lack of a good branding
the biggest problems that strategy:
exist in the Indian startup The absence of an
ecosystem. Most of effective branding
startups have brilliant strategy is another issue
ideas and/or products, but that prevents startups
have little or no industry, from flourishing at a faster
business and market pace.
experience to get the
products to the market.