MSME Meaning, Types, Registration Process & Challenges

What is the Meaning of MSME?

Micro, Small, and Medium Enterprise, abbreviated as MSME industry, is a branch of India, which formulates and administers the rules, regulations, and laws related to these firms.

MSMEs are small size entities that are defined based on their investment size. They contribute significantly to the output, employment, and export of any developing country like India.

The MSME industry plays a critical role in the economic growth of the country. According to the Ministry of MSME, 40% of the country's goods production comes from MSME.

There are various advantages of MSME to the Indian Economy that can be listed as follows:

Employing people from a rural background who can be skilled, semi-skilled, or unskilled
Manufacturing products of niche markets that can be exported
Increasing the manufacturing goods on small scales
Supporting big industries by manufacturing products like raw material or auxiliary parts or components, etc.

To be registered under the MSME, the firm must strictly fall under the guidelines set by the government of India.

MSMEs are primarily dependent on labourers since they cannot afford automated machinery. Hence, they play a significant role in employing illiterate and unskilled people. The skill sets vary from semi-skilled to skilled based on their work experience.

Examples of such entities are mineral water plants, small food processing units, beauty Parlours, bakery, photography, etc.

Some Features of MSMEs

They are owned by one person or can be a family-run business managed by individuals who are decision-makers and actively involved in day-to-day tasks.
The finance can be arranged from bank loans or financial institutions at some rate of interest. They also take financial support from relatives, local friends, and families.
MSME industry employs local people and operates in a restricted region only due to insufficient resources.
They utilise natural resources as they are abundantly available.

Types of MSMEs

MSME industry can be classified into two types based on the kind of work it does:

1. Manufacturing enterprises

Those enterprises involved in producing or manufacturing a product for other industries or end-use can come under this sector. Raw materials are purchased at low cost and converted into finished goods by a small set up of equipment.

2. Service enterprises

These enterprises provide various services like hair cutting salons or beauty parlours. They have specific skills which help them to have a small setup and start their own business. They may invest in small machinery.

What is MSME Registration?

The MSME registration of small businesses should be done on the Udyog Aadhar portal to avail the various schemes and subsidies offered by the government of India to facilitate the growth of this domain.

There are various benefits of MSME registration or Udyog Aadhaar registration done for these firms:

More than 50% of government subsidies can be availed on the purchase of machinery and other plant set up, and the patent fee is also reduced to more than 50%
They will be eligible for a collateral-free automatic loan announced by our Finance Minister last year after the pandemic.
They get access to Credit linked Capital subsidies to get 15% subsidies to upgrade their current technologies.
They benefit from 1% on the Overdraft loan, and MSMEs registered under GST can earn a 2% interest subvention.
They can get benefits under the Incubation scheme, which provides financial assistance up to 15 lakhs to create new innovative products.
They can get Tax rebates, and if the buyers delay payment, they have a right to collect interest on them.
Many government tenders are giving preference to registered firms.
Registered enterprise quickly gets work permits, licenses and certifications, if required.

MSME Registration Process

The registration is done at a government authorised portal, i.e., www.udyamregistration.gov.in, on a self-declaration basis. No documents have to be uploaded. Only PAN Card and Aadhaar card is mandatory.

The registration can be done under two categories:

For New Entrepreneurs who are not registered yet as MSME or those with EM-II
For those who are already having registration as UAM or as UAM through assisted filling

The registration process is free. The process consists of few steps as follows:

Fill in all the details required in the registration form online.
After submitting all details and uploading the required documents, the applicant will receive a registration number.
The authority will register the business within 1-2 working days. A certificate will be sent to the email address, and it can be downloaded from the UDYAM portal afterwards.

Challenges for MSMEs

MSMEs are facing some challenges. Let's see some major challenges with the possible remedies:

1. Problems in Accessing Finance

MSMEs face big problems in arranging funds for their Fixed assets as well as working capital. Banks prefer to lend money to large industries due to their clear accounts, goodwill, and low risk of failure.

This issue can be solved by diversifying the channels of financing, which could include methods like:

Credit Guarantee Scheme: many banks don't lend money because of high risk. It can be reduced by Developing a CGS. It makes the lending easier by taking a guarantee of the loan hence decreasing the risk factor. A full credit guarantee will absorb all risk of the loan, which would prevent the banks from keeping an eye on the borrower's financial health. It could result in nonperforming loans so that an optimum way could be a partial guarantee.
Specialised Private Bank for MSME financing: Another way could be developing specialised private banks for MSME financing. These are regional financial institutions designed to facilitate financial support.

2. Lack of R & D facilities

Research is an essential driver of innovation. The MSMEs rely on the skills which the owner has or can gain through his resources. They don't rely much on research and development. Due to lack of finances, they don't have an R & D laboratory in the first place since it demands expensive equipment, which is not affordable to them.

Tax Incentives: many Asian Countries contribute to business R & D through tax incentives. A tax credit of up to 45% is provided on R & D expenditure with any excess refundable to the SMEs.
Joint R & D established with Institutions: a joint research department can be established with a qualified R & D institution of designated Universities. Research credit can be initiated from the government for the firms and could be carried forward to next year if not used.

3. Utilise Information Technology

In recent years, Information technology has evolved a lot. Smartphones and tablets are now part of everyone's life. Accordingly, more sellers are now going towards e-commerce and online selling instead of over-the-counter selling and traditional brick and mortar stores.

However, SMEs have not utilised technology to a large extent. Most of the population in our country is uneducated, due to which sellers from rural areas cannot use smart devices.

Digital India Initiatives: Selling products online can be only done if they understand the basic mobile operations and steps of registering to various portals. Various big players allow SME sectors to sell their products with minimal commission. Special programs under digital India can be initiated to train these entrepreneurs on the basic know-how of the internet; only then the real benefit of MSME can be achieved.

The aims of these programs can be:

Providing advanced level business support
Authorised teams for providing 24x7 support on particular problems
Introduce some support organisations for this task

Conclusion

Thus, the MSME sector in India can be expanded by providing ample support by the government. Initially, they must get registered. After that, they can avail themselves of various benefits of MSME registration that could help them become a successful enterprise. Furthermore, the Indian government could also take several steps suggested above for lending a helping hand to them.

Also read:

1. Ten Benefits that MSME Can Avail
2. How to Avail MSME Certificate?
3. All You Need to Know About Interest Rates on MSME Loan
4. Labour laws applicable in MSME
5. OkCredit: All you need to know about OkCredit & how it works.

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FAQs

Q. Should all the MSMEs get registered on the Udyam Registration Portal?

Ans. All those under MSMEs should get registered to avail themselves of the government benefits and subsidies on their capital.

Q. If someone wants to apply online for registration, what is the fee for that?

Ans. The registration is free of cost. Various other websites ask for a fee, but one must register only under www.udyamregistration.gov.in and 8 other authorised portals only to save these charges.

Q. Do these benefits also cover local shops and vendors?

Ans. Yes, these small setups can be covered under the benefits provided to Microenterprises.

Q. I want to have a patent, but the fee is very high. Will, the government provide any support?

Ans. Yes, under the MSME development program, More than 50% of the patent fee can be reimbursed after submitting proper documents.