The role of SMEs on economic development

The role of SMEs on economic developmentSMEs has an important role in the development of an economic of a orbit (both developing and veritable countries). They bring lots of benefits like employment generation, exports, foreign currency, investment, income and wealth distribution. These benefits lead to an economics growth of a country and many countries has been encouraging the setting up of slight and medium business.Organization like World Bank Group approved more than $ 1.5 billion to SME support program in 2002 as it is believed that SME number and contribute to future expansion of an economy.SMEs is one of the most important economic pillars in Mauritius. The main role of SMEs in Mauritius is to create jobs so as to adulterate unemployment rate. Not to forget that in early 1980s, when at that place was economics recession in Mauritius result in big unemployment rate, it was specified that SMEs could create 10% of jobs. As this was proof of the importance of SMEs The Gover nment of Mauritius have come and provide new facilities and help to these companies by making availability of finance at low chase rate and taxes lowered on export , machinery and parts also. A special organization has been found by the Government called SMEDA to assist the small and medium theatre to grow and establish them self. Most of the SMEs generate fund intimately or by taking loans. SMEs use a combination of long term sources of finance which is called capital structure.Financial instrument SMEs usually use small CreditGovernment loans and grantsLeasingLoans from financial fastsPersonal savingsThere are some internal and external factor that affect small, micro and medium soused , namelyCompetition from bigger firm.Financial resource constraint.Access to research and development tool. avail for new ideas and creativity.Liability issues.Fluctuation in the economy.Difficult to obtain significant market share.Government law and policy.Narain, 2004 SMEs are born out of in dividual initiatives and skills, crack cocaine low cost product, production flexibility and can adopt new technology and innovate and export, have high employment orientation, utilize locally on hand(predicate) human and material resources and reduce regional imbalances.SME distinctionAutonomous firm(either a proprietor, coalition or linked enterprise )Partner firm( which does not cause occupation in ownership and decision making)Linked firm ( has a small share in the firm and few authority)Micro firmDefinitionMicro firms form part of small firm and are often unregistered. They usually single owner and have no employees and are generally young.Micro firm produce and distribute goods in unregulated but competitive markets. These firms are usually independent, largely family owned, employ low level of skills and use low and cheap technology and are highly labor intensive.Micro firm provide income and employment to a reasonable proportion of people in a country by producing goods a nd services for the population tenuous firmDefinitionSmall firm are usually a business that is privately owned (corporations, partnership or sole proprietor) and have a low volume of sales.One of the most used definition of small firms one with a relatively small share of market, one that is managed by its owners in a personalized and independent way, i.e. free from outside control in decision making. Stanworth (1991).These small firms are not usually dominant in the market and are not a big threat to large and quoted firmsspiritualist firmDefinitionMedium firm are normally engaged in industrial and more complex activities that small and micro firms and are registered companies. They usually import and export goods.Small, Micro and Medium firm can begin or commerce activities on a low budget and can be managed easily on a good time or part time basis. Decisions are take freely and there is no interference in the work done.Demarcate between Micro, Small and Medium firm.According to OECD, Small and Medium firm are usually defines according to the number of employee, capital, asset, sales volume and production ability to produce able goods. The differentiation criterion varies from country to country like the employment criterion which is usually used to demarcate hem, for example a country may margin medium employee to 300 when others may limit it to 200 employees.As per SMEDA Act, it definition let in all Enterprise in the economic sector and they use derangement criterion to demarcate them.Medium firm are define separately from small firm as they have different needs and objective. They usually are more sophisticate firms and well technology averse while small firm are usually in a developmental state.Normally there are three criteria to differentiate Micro, Small and Medium firms from each otherStaff headcountAnnual turnoverAnnual remnant Sheet comparing these 3 criteria allow you to determined the type of the firm, i.e. Micro, Small or Medium.Staff hea dcount.The number of employee is an important factor to determine in which category SME the firm falls. It include full time, part time and seasonal employee.The employees head count is expressed in annual work unit. Full time staff is count as 1unit whereas part time and seasonal worker are count as a fraction of 1 full time worker.Annual turnover and Balance sheet.The annual turnover is determined by calculating the income of the firm during its financial year after all debt has been paid.Turnover should not include VAT or any indirect taxes and the Balance sheet should refer to the value of the form main assetsYou are autonomous when no other people have intricacy in ur firm or you in other firm.Classification of SMEMauritiusMicro firm Small Firm MediumTurnover N.A Balance Sheet N.A Employees N.A 0-10 0-250 europiumMicro firm Small firm MediumTurnover Balance Sheet Employees 0-10 10-50 50-250To qualify as an SME, both staff and ownership criteria must be satisfied, and either th e turnover or the balance sheet criteria, i.e any of these two criteria must be meet in order to qualify.