The role of SMEs on financial development

SME's has an important role in the introduction of an economic of your country (both developing and developed countries). They bring plenty of benefits like occupation generation, exports, foreign currency, investment, income and riches distribution. These benefits lead to an economics growth of a country and many countries has been pushing the establishing of small and medium business.

Organization like World Bank Group approved more than $ 1. 5 billion to SME support program in 2002 as it is thought that SME play and contribute to future expansion of an economy.

SME"s is one of the main financial pillars in Mauritius. The main role of SME's in Mauritius is to set-up jobs so as to reduce unemployment rate. Never to forget that in early on 1980's, when there was economics recession in Mauritius result in big unemployment rate, it was specified that SME's could create 10% of careers. As this is proof of the value of SME's THE FEDERAL GOVERNMENT of Mauritius have come and offer new facilities and help these companies by making availability of money at low interest rate and taxes reduced on export, equipment and parts also. A special corporation has been found by the Government called SMEDA to assist the tiny and medium organization to expand and create them self. A lot of the SME's generate account internally or by taking lending options. SME's use a blend of long term sources of financing to create capital structure.

Financial tool SME's usually use;

Micro Credit

Government loans and grants

Leasing

Loans from financial firms

Personal savings

There are some interior and external factor that affect small, micro and medium organization, namely

Competition from bigger company.

Financial learning resource constraint.

Access to research and development tool.

Assistance for new ideas and ingenuity.

Liability issues.

Fluctuation throughout the market.

Difficult to acquire significant market show.

Government legislation and policy.

"Narain, 2004": SME's are delivered out of individual initiatives and skills, offer low cost product, production flexibility and can adopt new technology and innovate and export, have high career orientation, utilize locally available individuals and material resources and reduce regional imbalances.

SME difference

Autonomous firm(either a proprietor, collaboration or linked organization )

Partner company( which will not cause problem in ownership and decision making)

Linked firm ( has a little talk about in the organization and few authority)

Micro firm

Definition

Micro businesses form part of small company and tend to be unregistered. They usually single owner and have no employees and tend to be young.

Micro strong produce and send out goods in unregulated but competitive market segments. These organizations are usually unbiased, largely family held, employ low level of skills and use low and affordable technology and are highly labor rigorous.

Micro firm provide income and employment to an acceptable proportion of folks in a country by producing goods and services for the population

Small firm

Definition

Small firm are usually a business that is privately held (corporations, relationship or sole proprietor) and have a low level of sales.

One of the most used description of small firms: "one with a relatively small talk about of market, the one that is monitored by its owners in a personal and independent way, i. e. free from outdoor control in decision making. [ Stanworth (1991)].

These small businesses aren't usually dominant in the market and are not a big danger to large and quoted firms

Medium firm

Definition

Medium firm are normally engaged in professional and more technical activities that small and micro organizations and are documented companies. They usually import and export goods.

Small, Micro and Medium organization can get started or commerce activities on a low budget and can be managed easily on a full time or part time basis. Decisions are take freely and there is no interference in the work done.

Demarcate between Micro, Small and Medium company.

According to OECD, Small and Medium firm are usually defines according to the number of worker, capital, asset, sales quantity and production capability to produce satisfactory goods. The differentiation criterion differs from country to country like the work criterion which is usually used to demarcate hem, for example a country may limit medium employee to 300 when others may limit it to 200 employees.

As per SMEDA Work, it classification include all Business in the monetary sector plus they use turnover criterion to demarcate them.

Medium organization are define independently from small company as they have different needs and purpose. They are more sophisticate firms and well technology averse while small organization are usually in a developmental talk about.

Normally there are three standards to differentiate Micro, Small and Medium organizations from one another:

Staff headcount

Annual turnover

Annual Balance Sheet

Comparing these 3 requirements enable you to determined the type of the firm, i. e. Micro, Small or Medium.

Staff headcount.

The variety of employee can be an important factor to determine in which category SME the firm comes. It include full time, part time and seasonal employee.

The employees head count is expressed in gross annual work unit. Regular staff is count as 1unit whereas in your free time and seasonal staff member are count up as a portion of just one 1 regular worker.

Annual turnover and Balance sheet.

The total annual turnover is determined by determining the income of the firm during its financial time after all arrears has been paid.

Turnover shouldn't include VAT or any indirect taxes and the total amount sheet should refer to the value of the proper execution main assets

You are autonomous when no other folks have contribution in ur company or you in other firm.

Classification of SME:

Mauritius

Micro company Small Firm Medium

Turnover N. A

Balance Sheet N. A < Rs 10 million < Rs 50 million

Employees N. A 0-10 0-250

Europe

Micro company Small company Medium

Turnover < 2 million <10 million <50 million

Balance Sheet <2 million <43 million <50million

Employees 0-10 10-50 50-250

To meet the requirements as an SME, both staff and ownership standards must be satisfied, and either the turnover or the balance sheet standards, i. e any of these two criteria must be meet to be able to specify.

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