Understanding the Differences: Micro, Small and Medium Enterprises

Micro, Small and Medium Enterprises (MSMEs) are a crucial part of India’s business landscape, contributing almost 30% to its GDP. The unique characteristics of micro, small and medium enterprises, their size specifications, and economic significance distinguish them in the economic industry. 

This article will help you understand the exact differences between micro, small and medium enterprises, why they’re essential to India, and the role of the Ministry of MSMEs.

What Are Micro, Small and Medium Enterprises?

MSMEs are start-ups and other business initiatives that have a lesser budget and limited operations. In India, the distinction between micro, small and medium enterprises is based on their investment limit and turnover. 

1. Micro Enterprises

Micro Enterprises are the smallest units like street vendors and local bakery shops. If we look at the micro vs small business characteristics, micro-enterprises have much lesser investment and turnover

2. Small Enterprises

The distinction between micro and small enterprises is that small businesses are a step ahead in firm size and revenue. However, they are a step behind when we look at small vs medium enterprises. Small-scale manufacturing companies are an example of a small enterprise. 

3. Medium Enterprises

Medium enterprises have a larger scale of operations than small businesses but aren’t large corporations. This is where the difference between a small and medium business lies.  A regional supermarket is an example of a medium enterprise.

Difference Between Micro, Small and Medium Enterprises

MSME is a broad category of businesses that range from small neighbourhood outlets to big grocery chains. Each business venture requires a minimum capital requirement; which is how we can compare micro, small and medium enterprises. The main difference between micro vs small vs medium enterprises lies in their scale of operations, workforce size, and financial thresholds. The Ministry of MSMEs has laid down distinct criteria to classify MSMEs: 

1. Micro Enterprises

Businesses with investments in plant and machinery up to INR 1 crore and turnover of INR 5 crores are ‘Micro Enterprises’. This is what sets them apart in the micro vs small enterprises comparison. Micro businesses typically start with little capital and have less than 10 employees.

2. Small Enterprises

The difference between micro and small enterprises is in the investment and revenue numbers. Businesses with investments up to INR 10 crores and turnover of less than INR 50 crores are ‘Small Enterprises’. The workforce here is small and has a lower sales volume. Small enterprises are a step ahead of micro enterprises in firm size and revenue.

3. Medium Enterprises

Businesses with investments up to INR 50 crores and turnover of less than INR 250 crores are ‘Medium Enterprises’. This is the main difference between small and medium enterprises. 

Medium-size businesses typically employ 200-250 people on average. While comparing small vs medium enterprises, it is interesting to note that medium enterprises are generally small businesses that grew over time. As a small business grows in revenue, it invests in equipment, infrastructure and employee retention, turning into a medium business. 

Importance of Micro, Small and Medium Enterprises to India

MSMEs have contributed greatly to India’s business landscape over the last few decades. They play a substantial role in the country’s socioeconomic development. Here’s how:

1. Economic Contribution

MSMEs contribute to around 30% of India’s GDP, spanning across sectors from manufacturing to services. They add depth and diversity to our economic structure and encourage innovation and sustainability.

2. Employment Generation

After agriculture, the MSME sector has emerged as the second-largest employment provider in the nation. Jobs are created across sectors and regions reducing income disparities and promoting economic stability. 

3. Regional Development

MSMEs are often spread across rural and semi-urban areas, reducing the concentration of industries in urban centres. This promotes balanced regional development and reduces economic disparities between rural and urban areas.

4. Contribution to Exports

MSMEs manufacture a wide range of goods and services for international markets, significantly contributing to exports. The MSME export share has been consistently in the 40-50% range in recent years, making it a valuable asset to India. 

5. Innovation

With the diversity of workforce, sectors and regions, and flexibility of operations and size, MSMEs are great for innovation. The most creative business ventures often come from an MSME.

6. Inclusive Growth

Being more accessible to rural, semi-urban and marginalised sections of the society, MSMEs promote inclusive growth by giving them employment. These include women and lower-income groups. Thus, MSMEs contribute substantially to social empowerment and poverty reduction.

Due to all these reasons, MSMEs in India are favoured by various government initiatives for their growth and development. 

Role of the Micro, Small and Medium Enterprises Ministry

The Ministry of MSMEs envisions the “sustainable development of globally competitive Micro, Small and Medium Enterprises as an engine of growth for India’s economy”. The Ministry strives to achieve this via policies, assistance and other ways to promote MSMEs. Here’s how:

1. Policy Formulation and Implementation

The MSME Ministry develops policies to favour the growth of MSMEs in India through subsidies, tax benefits, incentives, etc. They ensure this is effectively communicated to all stakeholders.

2. Promotion of MSMEs

The Ministry of MSMEs oversees initiatives and programs to promote the sector. They conduct trade fairs, provide platforms for networking and collaborations, and offer opportunities in the global markets.

3. Financial Assistance

The Ministry provides financial assistance to MSMEs via loans, credit assistance and other initiatives. They collaborate with various financial institutions to put this into practice.

4. Infrastructure Development

The government under the MSME Ministry sets up shared facilities and industrial parks with utilities at affordable rates This helps MSMEs in infrastructure development.

5. Skill Development and Training

One of the functions of the Ministry is to provide “Skill development and entrepreneurship development training”. To achieve this, it organises various skill development programmes and vocational training workshops. 

6. Technology Upgradation

The Ministry implements schemes to support design improvement and wastage reduction and enable technology upgradation. This is done via support for research and development activities, and technology transfer from research institutes.

Other than these initiatives by the Ministry, MSMEs also receive financial support via SME/MSME loans.

SME/MSME Loan

A loan offered to an SME or a company registered as an SME is known as an SME Loan. On the other hand, a loan offered to an MSME-registered business is known as an MSME Loan. Such loans provide financial assistance to micro, small and medium-sized enterprises and promote their growth and development.

SME/MSME loans usually come with minimal interest rates and are collateral-free up to a specified amount. The funds can be used for various purposes, such as purchasing machinery, meeting working capital requirements, consolidating debts, and investing in marketing. With these features, SME/MSME loans play a crucial role in supporting the growth and development of small businesses in India.

Conclusion

MSMEs play a significant role in the Indian economy and are supported by the Ministry of MSMEs via various government initiatives.

If you are seeking financial support for your business operations or growth, SMFG India Credit provides tailored SME/MSME loans. These loans are collateral-free up to INR 75 lakhs* and have competitive interest rates. Apply online today or visit your nearest branch for more details.