NSE EMERGE : MSME can tap public for funding

Do you know that Micro, Small and Medium Enterprises (MSME) can tap the public through stock market?

Yes, you are reading it right. MSME can get their shares listed through National Stock Exchange of India (NSE).

NSE has created a platform called EMERGE for the SMEs to enable them to list their shares in their trading platform. Once the MSME exhausted the initial promoter capital, borrowings from friends/relatives and loans from banks and poised to grow big, they need more capital. At this stage, it is advisable to tap the equity market.

There are 2 levels. SME board and main board

Who are all eligible?

(a) Paid up Capital

	SME Board	Main Board	Remarks
Issuer's post issue paid up capital	Less than Rs.10 crore	Rs.10 crore to Rs.25 crore	It is the face value of the Capital

(b) 3 years operational history

(c) 2 years of cash accruals (operational profits)

(d) Positive networth

(e) good credit standing of company and promoters

Framework

(a) For Initial Public Offering (IPO) on NSE EMERGE

• Minimum allottee : 50
• Public shareholding : Minimum 25% 
• Grading requirement : Nil
• Underwriting : 100% of the IPO
• Draft Red herring Prospectus (DRHP) : Regular IPO format. NSE clearance enough for SME Board with observations
• Market making : mandatory 3 years (see below)

(b) Post listing compliance

• Half yearly audited accounts (quarterly for main board)
• Corporate governance : same as main board

(c) Migration to main board from SME board

• Allowed subject to meeting the criteria

(d) Investors

• Minimum application amount : Rs. 1 lakh
• Minimum trading lot : Rs. 1 lakh
• PE funds, QIBs can support  underwriting and market making

What is the listing process

IPO open days : Minimum 3 days and Maximum 10 days

Listing time : It may take a minimum 6 working days

Benefits of listing

• Higher visibility of the company
• Easy access to raise further capital
• Ease of valuation
• Since there are governance control, credibility will increase
• ESOPs can be issued to employees to retain them

Market maker

Any  member  of  the  Exchange  would  be  eligible  to  act  as  Market  Maker  provided the criteria laid down by the exchange are met. 

The member brokers desirous of acting as Market Maker in this exchange shall apply to the concerned stock exchange for registration as Market Makers unless already registered as a Market Maker. 

The obligations and responsibilities of Market Makers

The  Market  Maker shall fulfill the following conditions to provide depth and continuity on this SME exchange:  

(a)   The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day. The same shall be monitored by the stock exchange. Further, the Market Maker shall inform the  exchange  in  advance  for each and every black out period when the quotes are not being offered by the Market Maker. 

(b) The minimum depth of the quote shall be Rs.1,00,000/-. However, the investors with holdings of value less than Rs 1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration  to  the  effect to the selling broker.  

(c) Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him.  

(d) There  would  not  be  more  than  five  Market  Makers  for  a  scrip.

Please share your questions in the comments, below.

  

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Borrowing for business : 1. Basics to understand

There are many entrepreneurs who have ideas and passion for pursuing their dreams. Many are successful, few struggle and few create history.

What are the challenges they face in their starting stage?

• Getting finance
• How to convert their ideas to a marketable product or service
• Marketing their product or service

I have worked all through my life starting as finance head, borrowing funds for my organization or for my company's clients. With that experience, I am lining out few tips to those who are looking to get finance from Banks, Financial Institutions or Non Banking Financial Companies (NBFC).

As a person, all we know is that we need money - in any form to start the business, run the business etc., That is the focus and that should be the focus.

At this juncture, the entrepreneur overlooks certain things and end up focusing on running after lenders and meeting regulatory compliance. I will cover the regulatory compliance separately.

Let us look at a situation. You are a successful entrepreneur and running a successful profitable business in consumer durable. I am a rank holder in my MBA from a decent business school and started my trading business in consumer durable.

I approach you and request you to give me your products, which I can sell in market and pay you after 30 days. I show all my educational credentials and prizes that I have won in marketing competitions. 

Would you:

1. Encourage me by giving your products to me on credit for 30 days; OR
2. Ask me to get a surety or cash down to take the products.

Friends, this is exactly the banks and others also do. We need to understand that they are not NGOs and they also run the business for profits. Each banks way of functioning will be slightly different, though they are governed by RBI and Banking Regulations Act.

That said, there are ways to get seed capital, personal loans that one can take to run the initial set up. If you do not have security to offer, you can look at some financial partner to start with, giving an exit option.

Some of the entrepreneurs experience on their firs 3 years of operations;

• Start with smaller operations with tight finance
• Borrow money by pledging idle assets like gold
• Work for few years to gain experience and save money - during this time do the groundwork for the dream project
• Crowd funding
• Financial partner with loan / equity option after 3 years
• Equipment financing
• Equipment leasing

There are many ways one can get funding, if you have a good viable business proposal. Remember, no one will ignore an opportunity where they can earn more.

In this series, next I will be writing on what type of lenders and what type of financing available, the tips to get loans - what the bankers look for.

Happy weekend.

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MSME Series: 1. ATMANITBHAR BHARAT ABHIYAAN - ECLGS

Prime Minister Shri Narendra Modi on 13-May-2020 announced various measures under the umbrella Atmanirbhar Bharat Abhiyaan. That means a self reliant India movement.There are lot of presentations on this Rs. 20 Lakh crore package. I am going to write in my MSME series, each schemes in a nutshell.
The Atmanirbhar Bharat Abhiyaan has 5 pillars  
  (1) Economy : That can take a quantum leap
  (2) Infrastructure : World class one with Indian identity
  (3) System ; More technology driven arrangements
  (4) Vibrant Demography : The energy source for a self-reliant India 
  (5) Demand :  Utilizing fully the strength of our demand and supply chain
I was looking for an acronym for the 5 pillars. Finally, managed to get VIBRANT DESI (Demand, Economy, System and Infrastructure). Happy to get interesting acronym in the comments.

Emergency Credit Line Guarantee Scheme.
In the first of this MSME series, I am going to give a snapshot of the Rs.3 lakh crores Emergency Credit Line Guarantee Scheme.

Objective 
Additional funding without any collateral to MSMEs who is trying to mitigate the economic distress due to the pandemic situaion.
Amount available under the scheme
Rs.3 lakh crores by way of Guarantee from the governement
Period this Scheme is available
Can be availed till 31-Oct-220 OR till the Rs.3 lakh crore santioned, whichever is earlier
Who can avail this benefit? Please see the FAQ
All MSME borrowers with combined outstanding loans of up to Rs 25 crore as on February 29, 2020, and annual turnover of up to Rs 100 crore in FY 2019-20. Pradhan Mantri Mudra Yojana (PMMY) borrowers are eligible. 
What is the tenor for this additional loan
4 years with a moratorium of 12 months on principal repayment.
What is the additional security, collateral or guarantee required?
No additional security, collateral or guarantee required for this additional loan
What is the interest rate?
For Banks and Financial Institution, RBI prescribed external benchmark linked rates +1%, subject to a maximum of 9.25% pa.
For NBFCs, the interest rate shall not exceed 14% pa
What is the form of this additional loan?
Banks or FIs : Working Capital Loan 
NBFCs          : Term Loan 

Frequently asked questions on ECLGS

(1) Who are all eligible?
All MSME borrowers with

1. combined outstanding loans across all lending institutions of upto Rs 25 crore as on 29-Feb-2020
2. annual turnover for 2019-20 was up to Rs 100 crore
3. GST registration or not required to register under GST 
4. constitution as 
• MSME which are constituted as Proprietorships, Partnerships, Registered Companies, Trusts and Limited Liability Partnerships (LLPs), 
• Loans provided in individual capacity will not be covered under the Scheme
• loans under PMMY extended on or before February 29, 2020, and reported on the MUDRA portal shall be covered under the Scheme

(2) What are the other conditions to be met?

• The borrower should be an existing customers and who have availed the credit facility as on 29-Feb-2020
• Borrower accounts should be classified as regular, SMA-0 or SMA-1 as on February 29, 2020. Accounts classified as NPA or SMA-2 as on February 29, 2020 will not be eligible under the Scheme
• The MSME borrower must be GST registered in all cases where such registration is mandatory. This condition will not apply to MSMEs that are not required to obtain GST registration

(3) What are SMA-0, SMA-1, SMA2 & NPA
These are the categories that RBI created to have an early warning signals of a stressed account with Banks, Financial Institutions and NBFCs. 
SMA stands for Special Mention Accounts.

SMA Sub-categories	Basis for classification – Principal or interest payment or any other amount wholly or partly overdue between
SMA-0	1-30 days
SMA-1	31-60 days
SMA-2	61-90 days

NPA : a loan account which has remain overdue for 90 days or more is classified as a NPA or Non-Performance Assets.

(4) The accounts are not audited yet. What to do?
In case accounts for FY 2019-20 are yet to be audited/finalized, the lender may rely upon the borrower’s declaration of turnover.

It is better to get an audited financial done to avoid any rejection.

(5) Will MSME get 20% of the outstanding as of 29-Feb-2020 as loan?
The scheme says upto 20%. So, if the bank decides, basis your track record, can give less than 20% also.
The banks were asked to exercise diligence in extending the loan. So, it is not the automatic 20% extended. 

(6) MSME have multiple lenders, who will provide loan?
If the combined borrowing is less than Rs.25 crores, each lender can provide proportionately.
If the combined  borrowing is more than Rs.25 crores, you are not eligible.
If the other lenders give no objection certificate (NOC), one lender can give the additional 20% (but the quantum cannot exceed 20% of the combined loan balance as of 29-Feb-2020 with all lenders)

(7) Can MSME get more than 20% of outstanding as of 29-Feb-2020?
YES & NO
Yes, if you have multiple lenders and other banks give NOC to one lender, the lender will give more than 20% of his loan balance.
No, as in any case it cannot exceed your combined loan outstanding as of 29-Feb-2020

(8) Is MSME registration / Udyog Aadhar required?
Nowhere it talked about this condition. So, MSME registration or Udyog aadhar is not a must to avail this additional loan.

(9) Are there any processing fee
Since this is an extension of existing loan, no processing fee shall be charged.

(10) Is all loans and facilities covered?
No. Only fund based loans are covered. Non fund based, off-balance sheet facilities are not covered.

(11) What are the repayment terms?
After the 12 months moratorium for principal amount, the amount can be repaid in 36 equal monthly instalments

(12) Can I repay the amount earlier in part or full?
Yes, you can. There will not be any pre-payment penalty charges for this.

These are my understanding on reading the scheme. Please check with your banker, consultant for your eligibility.


Please rush, if you need the credit, as it is first come first served. Though the scheme is open till 31-Oct-2020, if the Rs.3 lakh crores sanctioned earlier, you may miss the bus.

Good luck !

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NIFTY reclaims 10K !

I was waiting to see the NIFTY scaling up back to 10K level. Today morning, it easily reached that level.

What is so special about 10K, it is another number, correct? 

I started my blogging a week ago and wanting to write on stock market. I was waiting for the 10K level to start blogging on stock market. For the last 5 consecutive sessions, the market gained - a first time to my knowledge In 2020.

Does this rally indicate that our economy is on track? Hold on!!!!

Stock Market index are indicators and may not reflect on economy growth.

What to expect from Stock Market from now?

• Will it be a BULL market?
• Will it be a BEAR market?
• Will it be range bount?

Ha ha ha...these are the options, unfortunately.

I will start my stock market coverage from this weekend. How to create a portfolio? How to pick stocks? What is in store for us in the stock market? The topic depends on the current trends.

Keep watching this space.

Safe and happy investing.

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CHAMPIONS - A portal for MSME by the Ministry

Today, 1-Jun-2020, Shri Narendra Modi, our Prime Minister launched an ICT (Information Communication Technology) based platform called CHAMPIONS which stands for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.

The Prime Minister in a tweet said “Launched the portal http://Champions.gov.in. This is a one-stop place for Micro, Small and Medium Enterprise (MSME) sector. The focus areas are support and hand-holding, grievance redressal, harnessing entrepreneurial talent and discovering new business opportunities,” 

What are the objectives of CHAMPIONS?

1. Grievance Redressal: To resolve the problems of MSMEs including those of finance, raw materials, labor, regulatory permissions etc particularly in the Covid created difficult situation;
2. To help them capture new opportunities: including manufacturing of medical equipments and accessories like PPEs, masks, etc and supply them in National and International markets;
3. To identify and encourage the sparks: i.e. the potential MSMEs who are able to withstand the current situation and can become national and international champions

How does this CHAMPIONS function?

It is an ICT based system is set up to help the MSMEs in the present difficult situation and also to handhold them to become national and international champions. 

It is a technology packed control room-cum-management information system. 

Apart from the  ICT tools including telephone, internet and video conference, the system is enabled by Artificial Intelligence, Data Analytics and Machine Learning. 

It is also fully integrated on real time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web based mechanisms.

The entire ICT architecture is created in house with the help of NIC in no cost. 

Similarly, the physical infrastructure is created in one of ministry’s dumping rooms in a record time.

This CHAMPIONS is created with a HUB and SPOKE model.

The Hub is situated in New Delhi in the Secretary MSME’s office. 

The spokes are in the States in various offices and institutions of MSME Ministry. 

As of now, 66 state level control rooms are created and made functional. They are connected through video conference also in addition to the portal of Champions. 

Source : PIB

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Revised NEW definition of MSME

On 13-May-2020 when the Finance Minister announced stimulus package to the MSME, revised the definition of MSME based on investment and turnover. Following table reflect the new criteria, which was revised after almost after a decade. This is effective 1-Jul-2020.

After representation from various groups, today on 1-Jun-2020 the Composite criteria for Medium enterprise revised to 

• Investment < 50 crores
• Turnover    < 250 crores

Accordingly, the NEW revised composite criteria for the MSME is as follows:

Note: For the purpose of computing TURNOVER, the export turnover will not be counted to assess the limit. That means, more headroom for exporting MSMEs

This will bring in more units under the MSME definition and benefit them.

If the banks and financial institutions support the MSMEs at the right time, am sure the MSME sector will boom, create more employment and make the "vocal for local" a success.

An ICT based system will monitor and help the MSME to fulfill their dreams through a portal named CHAMPIONS, under the Ministry of MSME.

CHAMPIONS stand for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.

To visit, click on CHAMPIONS

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