Capital Structure Of Smes In Mauritius Economics Essay

This survey examines the ways Small and Medium Enterprises finance their operations in Mauritius since there has been really few surveies carried out. The purpose of this paper is to happen out the ratio of debt to equity of SMEs in the Mauritanian economic system. Emphasis is besides made on what influence directors in taking a peculiar manner of funding.

Small and Medium Enterprises are more and more playing a major function in the planetary economic system, in developed every bit good as developing states. Even economic human dynamos like the USA, China, India and European states such as Great Britain, France and Germany are trusting much on the potency of SMEs for occupation creative activity and exports. In a universe where there exists fiscal convulsion ensuing in economic downswings and the failure of traditional banking systems characterized by the debt crisis, the function of SMEs has been garnering impulse and is now a major subscriber in hiking up economic systems.

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USA & A ; acirc ; ˆ™s illustrations

Harmonizing to official figures available at the degree of the Commerce Department, 286,661 SMEs in the US exported the merchandises in 2010, which accounts for more than 97 % of all exporters in the largest economic system of the universe. During the same period the export gross rose to $ 383.4 billion in 2010, which represents a 24.1 % rise compared to 2009. SMEs in the USA are companies that employ up to 500 employees.

Europe

SMEs represent more than 99 % of all concerns in Europe. At least one individual on three working in the private sector belong to the SME sector. The creative activity of wealth and economic growing depends mostly on SMEs, and nine out of 10 SMEs in Europe are micro endeavors holding less than 10 employees. 85 % of new occupations created in Europe come from SMEs.

Conscious of the importance of Small and Medium sized companies in planetary economic system, Europe and the USA have adopted a policy of close cooperation to increase trade between spouses through a new model known as the Transatlantic Economic Council. Representatives met in Rome in July 2012.

Access to finance for SMEs has been a major issue in treatments associating to the recovery of economic systems in Europe and America. Besides, a practical usher has been published by the European Commission in relation to public finance that could be good to SMEs in the 27 Member States, to the melody of 50 billion Euros. Harmonizing to experts 45 % of all Europeans would prefer being freelance. Besides, the EEN ( Enterprise Europe Network ) has been instrumental in assisting little concerns to hold entree to the market place in Europe, through 600 concern organisations engaged in this procedure.

An of import fiscal determination facing houses is the pick between debt and equity capital ( Glen and Pinto, 1994 ) . Firms have to take between the manners of funding which comprises of debt every bit good as equity. The work of Modigliani and Miller ( 1958 ) is considered as a milepost on the issue of capital construction. Their statement is based on the fact that the nature of funding of any house is irrelevant to its value.

SMEs in Mauritius

Official information shows that about 100, 000 SMEs are operational in Mauritius and Rodrigues with 250, 000 individuals working in that sector. Businesss have been so far financed mostly through the Development Bank of Mauritius, which offers loans to endeavors with an involvement rate of 7.9 % . SMEs are enterprises holding an one-year turnover non transcending Rs50 million. Since 2011, as announced in the current Budget, a new strategy, the SME Financing Scheme offers chances every bit good to endeavors, by manner of new loans and bank overdrafts granted by commercial Bankss, over and above traditional strategies bing at the DBM. The involvement rate has been fixed at 7.9 % .

The most common strategies providing for SMEs are those put in topographic point at the Development Bank of Mauritius. The Micro Credit Financing Scheme, a constituent of the Trust Fund for Social Integration of Vulnerable groups provides loan to entrepreneur and vulnerable people. Beneficiaries can hold entree to loan installations up to Rs50, 000, with an involvement rate of 5 % per annum. The repayment period goes up to 4 old ages, and those profiting from the strategy are besides households whose monthly income does non transcend Rs6, 000.

SME Financing Scheme

One of the latest steps has been the strategy announced in the Budget address 2012. It gives possibility to concern people to profit from overdrafts and bank loans and besides to regenerate bing 1s:

The Equity Fund provides warrant up to 35 %

Interest rate at 7.9 % ( repo rate + 300 footing points )

Possibility for SMEs to use straight to banking establishments.

SMEs have besides at their disposal other installations and strategies to maintain their concern running, for illustration, for the acquisition and the modernization of production equipment. The RWG recognition funding scheme trades with service associating to enterprises engagement in concern to concern. This strategy, in joint operation with CIM Finance Ltd, concerns endeavors whose turnover does non transcend Rs50 million.

The capital construction of economic operators covers a broad scope of activities. The agricultural sector occupies an of import topographic point in such activities, therefore the being of particular strategies. The Planters Harvest Scheme assists plantation owners through finance leasing, for the purchase of equipments for crop. This strategy was supposed to be into operation until August 2012.

The above strategies are all run under the auspices of National Resilience Fund.

At the degree of the DBM, another strategy is the Quasi-Equity Financing Scheme which deals with SMEs runing in sectors like fabrication, touristry, agri-business, trade and other service sectors, on the status that the companies using for installations are registered with the Registrar of Businesses.