While there are a number of factors affecting adequate cash flow into MSMEs, there remain a few sources of almost assured funds for small and micro players. One such source is private equity (PE) funding, which has been benefiting companies of all sizes, but mostly MSMEs. A recent report jointly released by global auditing firm KPMG and the Confederation of Indian Industry (CII) also seconds this, stating that most investee companies find PE funding to be an excellent source of capital.

Significantly, the profile of investee companies is typically MSMEs, which require guidance for developing an organisation structure, creating a line of management that is distinct from ownership, improving corporate governance and scaling further heights. “These requirements and more importantly the need for funds among MSMEs have made PE funding almost imperative for small players today,” said Faisal Khan, an independent financial analyst in Bengaluru.

Boost for economy

Industry experts are also of the opinion that PE finding will play a vital role in the growth of MSMEs and consequently of the economy. According to Alex Matthews, head of research at Geojit BNP Paribas Financial Services, a leading retail financial services firm based in Kochi, “PE funds will continue to be a preferred choice for capital growth for MSMEs. With an increasing number of PE firms joining the bandwagon, small and micro players would certainly continue to get funds from this source.”

The KPMG-CII report, too, indicates that MSMEs would continue to be a significant target for venture capital (VC) or PE investments. With about 70% of such investments in 2008 being made in MSMEs that have a turnover of less than Rs 500 crore, a step-up in VC/PE investments in small and micro firms in the coming days is certainly on cards. Therefore, with at least one source of assured cash flow, MSMEs in India can function smoothly.

Prasenjit Das