Understand MSMEs
MSME (Micro, Small & Medium Enterprises) are classified in two ways:
- Manufacturing Enterprises engaged in the manufacture or production of goods pertaining to any industry or deploying plant and machinery in the process of value addition to the final product having a distinct name or character or use; and
- Service Enterprises engaged in providing or rendering of service
As per the revised Classification w.e.f. 1st July 2020, MSMEs are now defined on the basis of Composite Criteria of “Investment in Plant & Machinery / equipment and Annual Turnover”.
Let’s understand the MSME classification in a better way
| MSME Classification (Manufacturing Enterprises and Enterprises Rendering Services) | ||
| Investment in Plant & Machinery or Equipment | Annual Turnover | |
| Micro | Not more than Rs. 1 Crore | Not more than Rs. 5 Crore |
| Small | Not more than Rs. 10 Crore | Not more than Rs. 50 Crore |
| Medium | Not more than Rs. 50 Crore | Not more than Rs. 250 Crore |
Value of Plant and Machinery or EquipmentIn terms of RBI Circular dated August 21, 2020 , the value of Plant and Machinery or Equipment for all purpose of MSME classification and for all the enterprises shall mean the Written Down Value (WDV) as at the end of the Financial Year and not cost of acquisition or original price, which was applicable in the context of the earlier MSME classification criteria.
| CLASSIFICATION | MICRO | SMALL | MEDIUM |
|---|---|---|---|
| Manufacturing Enterprises and Enterprises rendering Services | Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover ; not more than Rs. 5 crore | Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 crore | Investment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore |
MSMEs face constraints in obtaining adequate finance, particularly in terms of their ability to convert their trade receivables into liquid funds. The problem of timely realization of receivables persists despite the fact that the MSMED Act, 2006 mandates payments to MSMEs be made within 45 days of acceptance of goods and services.
TReDS is an online electronic institutional mechanism for facilitating the financing of trade receivables of MSMEs through multiple financiers. The TReDS Platform will enable discounting of invoices/bills of exchange of MSME Sellers against large Corporates including Govt. Departments and PSUs, through an auction mechanism, to ensure prompt realization of trade receivables at competitive market rates.
Receivables Exchange of India Ltd (RXIL), is a joint venture promoted by Small Industries Development Bank of India (SIDBI) and National Stock Exchange of India Limited (NSE). RXIL operates the Trade Receivables Discounting System (TReDS) Platform.
MSMEs benefit due to timely payments in a transparent mechanism at very competitive pricing. Assured of timely cash flows ensures better quality of products and processes in the long run for MSME sector
