Even as the central government has decided to raise the small and medium enterprises (SMEs) credit corpus by around 60 per cent, SMEs in Kanpur continue to face a hard time searching for reliable and reasonable credit sources. There are more than 5,000 SMEs operating in the city, manufacturing export quality products like saddlery, soaps etc.
These units were already having a tough time facing competition from China and administrative laxity, while the repeated hike in the credit lending rate has come as another blow for them. Most of these units are either family-run businesses or run by first-generation entrepreneurs, who may not have the backing of collateral or family assets.
The paucity of easy credit has directed them into the vicious mesh of moneylenders. Satya Prakash, who runs a soap manufacturing unit in Fazalganj, told Business Standard that there were more than 50 moneylenders spread across the city who charged exorbitant interest rates from them.
“These lenders charge interest at high rates and add the due amount to the principal, so that the payable due keeps on mounting and the person remains indebted forever,” he said. “They do not hesitate to resort to arm-twisting tactics and muscle power if there is delayed payment or incompliance.”
“I had borrowed Rs 50,000 at the rate of 10 per cent and agreed to pay Rs 5,000 per month as interest. But in one of the months when I could not pay the interest, they added it to the principal amount making it to Rs 55,000. Now, the payable interest stood at Rs 5,500,” he added.
These lenders get the agreement signed on a stamp paper and demand the submission of original copies of the documents regarding immovable and movable property as security deposit prior to lending.
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“They also get us and our successors photographed and even the educational degree and certificates of our children are deposited as security,” said Roshani Devi, who runs a small-scale saddlery business in the Jajmau area of the city.
Ramesh Yadav, who works as a gangman at central railway station told that his passbook and ATM card had also been deposited as the security guarantee.
The worst victims of this skewed practice are around 1,000 small-scale leather weaving women spread across the city, who hardly earn Rs 10-15 everyday, while the products manufactured by them are supplied for thousands of rupees to European countries.
When asked about the cause of neglected credit market for SMEs, a bank official on condition of anonymity said that prudent risk management while lending to SMEs is very troublesome due a host of unreliable factors like lack of financial data, intrinsic weakness of the financial structures, and slender resources of the promoters in terms of money or knowledge of markets.
The city has about 5,457 mixed type of SSIs, which grew as ancillary to major units, with the predominance of metal products (830), leather products (819), food products (443), rubber and plastics (416), machinery parts (396), hosiery & garments (387), chemical (337), paper products (318) and cotton textile (246).
The most of these industries are in Government Industrial Estate (Kalpi Road & Fazalganj), Industrial Estate, Co-operative Industrial Estate (Dada Nagar), Panki Industrial Area and Jajmau Industrial Area.
These SMEs, although, contribute a lot to the foreign exports but a majority of them are still in the unorganised sector and have to face internal and external challenges like cost of capital, infrastructural facilities, competitive procurement, technology transfer from developed countries and talent attraction.