How to manage your risk? (An MSME approach)
Small and medium enterprises account for a significant proportion of manufacturing, services, exports and employment, and hence are major contributors to GDP. Considering the growth of SME sector in India, the Indian government implemented a lot of policies and also advised to public sector banks to achieve a minimum 20% growth yearly in financing SME units. Due to various risks faced by the entrepreneurs, they fall sick and become NPA in the accounts of banks.
MSMEs are operating in a highly uncertain environment. Some of the risks faced by the entrepreneurs were an erratic supply-demand fluctuation, capabilities of entrepreneurs and their partners, political uncertainties, work floor accidents, use of outdated technologies.
Some ways to reduce this risk exposure is by
- Creating a reserve fund to deal with an emergency situation
- Doing sufficient market research to predict their demand, supply fluctuations
- Horizontal and vertical integration of channels
- Insuring the company based on their nature of operations
- Understanding the market leader, doing a gap analysis and meeting the expectation
- Getting the help of consultants
- Accounts keeping and having an external audit
- Knowledge of government policies.
“Sense and deal with problems in their smallest state, before they grow bigger and become fatal” – Pearl Zhu.
Thus understanding the uncertainties and coming with the contingency plan is the efficient way to manage risk.