The Hindu Business Line : Kerala small industries' body moots risk insurance

THE Kerala State Small Industries Association has suggested implementation of risk insurance scheme (RIS) to protect entrepreneurs and lenders, including banks, from genuine loss.

The nature of loss, whether genuine or created, is easily identifiable in the advanced accounting system of business. Hence, an RIS is not difficult to be implemented and this will provide entrepreneurship development significantly in the State, Mr Xavier Thomas Kondody, State President of the Kerala State Small Industries Association said.

Unlike the corporate sector, the capital invested by the small-scale entrepreneur is raised from his/her fund including collateral securities. These uncertainities discourage the youth to venture to self-employment, he added.

Mr Kondody, in a memorandum submitted to the Government on the subject of enhancing credit delivery to the SSI sector by banks, pointed out that premium of the RIS should be contributed by both the entrepreneurs and the lenders. This would motivate the youth to go for self-employment and pave the way for bankers and lenders to come forward with financial package, he added.

The State President demanded formation of a standing committee with representations from recognised SSI National Level Apex bodies and major regional level associations under the chairmanship of the Finance Minister to finance the SSI sectors. He also called upon the Government to encourage foreign investors and large enterprises to establish linkages with SME's.

The Nayak Committee findings had revealed that the SSI sector, as a whole, received a level of working capital, which was only about 8.1 per cent of its output. Even after 10 years, the working capital flow to the modern SSI sector is hovering around 8 per cent against the norm of 20 per cent of the actual turnover recommended by the committee.

The percentage availability has, in fact, declined to 2.1 per cent in 2001-02 and the gap between the availability and requirement of working capital is estimated at Rs88,361 crore in the year 2001-02.

The effects of inadequate credit flow to SSI sector has led to slow increase in production, under utilisation of built in capacity thereby hampering modernisation and technological development. Referring to the low credit flow, he said that SSI's have to pay 12 to 13.50 per cent interest rates whereas big companies are getting fiancé at the rate of 6 per cent or below.

The present NPA norms, he said were not practically adapatable to SSI sector financing as at an average 8 to 10 per cent of the total turnover is available under cash credit only. Credit sales cannot be avoided and many times, credit sales are not covered under any insurance. Therefore risk involved is high.

Another sectoral discrimination, he said is that major percentage of actual sick units are not being considered as viable for revival. Two different agencies are evaluating the viability of sick units and normally never reach on a consensus.

More Stories on : SSI | General Insurance | Kerala

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page