Loan issues, red tapeism at state level hits entrepreneurship

By Sirshendu Panth

Kolkata, Aug 19 (IANS) Reluctance of banks and financial institutions to provide loans to start-ups, bureaucratic red tapeism and sloth, lack of coordination and infrastructure at the level of state governments and absence of proper mentoring are among the major reasons that are killing the spirit of entrepreneurship in the country, say industry watchers and experts.

Kolkata-headquartered Federation Of Small & Medium Industries (FOSMI) president Biswanath Bhattacharya said getting finances is the major problem for the start-ups.

"That's because banks are reluctant. Though under the central government's Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). scheme, an entrepreneur can get loans up to two crore rupees without collateral, at branch level such schemes are not encouraged.

"The banks don't help start-ups with regard to other schemes also. The banks and financial institutions lay too much stress on market feasibility. They don't have confidence in start-ups," Bhattacharya told IANS.

Gautam Mazumdar, faculty of Ahmedabad-headquartered Entrepreneurship Development Institute of India - which has been selected as the National Resource Organization (NRO) for the central government's 4-year Start-up Village Entrepreneurship Programme (SVEP), echoed Bhattacharya.

"Banks have their own issue, guarantee issues, for giving loans under schemes like Mudra. These are the hiccups in the system. Banks have become very cautious, particularly because of the ongoing downturn," Mazumdar told IANS.

From his experience of working in two West Bengal blocks -- Dinhata in Cooch Behar district and Patharpratima in South 24 Parganas district -- as part of the programme, Mazumdar said "there is hardly any support from the bank in getting loans. We have the entrepreneurs, we have the data base of how entrepreneurs are performing, but the banks are still hesitating in providing loans."

Abhishek Bagaria, whose company Jucos Expo makes eco-friendly jute, cotton and canvas bags, recalled that despite approaching various government bodies he could not procure any loans after launching his venture three and a half years ago.

"They required lot of paperwork and asked me to fulfil many other obligations before they would even consider disbursing any amount.

"So I found getting loan is a big problem, because start-ups generally have poor financial statements over the first two-three years. For producing good financial results one requires some funds. But after seeing the poor results, the lenders don't offer handsome loans to an entrepreneur.

"I remember when I applied for loan, I was offered only Rs 1.5 lakh. That's not even a peanut," Bagaria told IANS.

Bagaria said he didn't get any benefit from government of India's start-up policy.

"Whatever I have done, it is on my own".

Mazumdar though felt the start-up policy has given a very good lead and "things have happened: over the past five years".

However, he conceded that "many things" remain to be incorporated at the state, district and block levels. "The kind of infrastructure or manpower support one gets from the central government is not there at the state level:.

He said there was virtually "no coordination" between the various departments in the states. 'So if the start-up receives some support in procuring the machinery or getting the subsidy, then arrangingT a working capital becomes a Herculean task for a particular entrepreneur".

Mazumdar also complained about inordinate delays in disbursal of loans.

"If I have a hunger for starting my business, and I have a business plan and everything, if I get the loan after one year, by that time all my enthusiasm and spirit is gone."

Mazumdar said in Bengal he saw more entrepreneurial skills among people in the rural areas than in the urban pockets. "But what is important here is that people should get the "right mentoring" to succeed.

Bhattacharya, on the other hand, laid some of the blame at the door of the entrepreneur.

"Often the start-ups lack proper domain knowledge and requisite contacts in the industry. They need to know how to handle government departments, customers, payments. Many of them enter the sector without doing proper survey.

"These MSMEs are very euphoric when they start, but once they get going they find the margin too low to sustain their business," he said.

Bhattacharya suggested collaboration between the start-ups who possess the domain knowledge and the existing SMEs who are well acquainted with the various compliances and other issues".

He said some of the start-ups don't have any clue about financial discipline as they are not in a position to employ qualified people, and have to run around on their own.

"At times I have found start-ups confusing between term loan and working capital. They often buy machinery with the working capital, and then find the working capital inadequate to run the business. The entire thing gets mismanaged, and they end up with an NPA."