Friday, 21 August 2015

How entrepreneurs control risk

Entrepreneurship is taking risk.

Banks look for capital investment from entrepreneurs. They give loan to sound industries for which the demand is stable. Banks invests in entrepreneurs and protect themselves from risks by taking mortgage or collateral security from entrepreneurs and that could be a fixed deposit, land etc. They also ask for a guarantor for the loan amount.

Sometimes the entrepreneurs also invests their own money in the ventures apart from taking bank loan partly. But there is no mechanism to protect the entrepreneurs from the risks of loosing their entire business because of non-repayment of bank loan.

When the entrepreneur starts a business they think that he/she has ensured everything but if the machinery is delivered and found defective and the entrepreneurs waits for the replacement or rectification, or if the entrepreneurs procures raw material at a higher cost for the production, or if the market condition has changed due to delay in production, and if the time for repayment of loan has begun and the moratorium period or the holiday period given by bank to the entrepreneurs before starting the recovery of bank loans is over, then the entrepreneurs are not able to meet the repayment of loan on time. There is piling of interests on loan amount. There is financial burden on entrepreneurs and a fear of loosing everything.

The government give subsidy as an incentive to entrepreneurs which is more for women entrepreneurs and less for male entrepreurs. The entrepreneurs need time to adjust and gain experience. Where there is no provision of government subsidy then there could be government incentives and if the government subsidy or incentive is disbursed directly to banks during the first year or so to meet the installments dues/non-repayment of bank loan then the entrepreneurs get time and can protect their business from risks and may be able to save their industries from becoming sick. This may be for help to entrepreneurs and especially for those entrepreneurs who due to no fault of theirs own come late into production. This may also become an incentive for many youth to become entrepreneurs.

UNDP and other UN organizations can work with the government to create financial incentives to make many new successful entrepreneurs.

According to a financial  institution, after completion of every work the bank releases a certain amount of the loan amount. Similarly, the government can also simultaneously schedule release the subsidy stage by stage in the same proportion as the bank to reduce the burden on entrepreneurs and burden on banks. Subsidy should be released within a time frame so that the industry does not become sick. It should be a time bound subsidy not only for women entrepreneurs but for all youth entrepreneurs. Reserve Bank of India can work together with the government to formulate the subsidy scheme.

According to another financial institution in this situation, malafide activities may occur. Subsidy should always be given towards the end.  The culture of an entrepreneurship business is always taking a risk and if that kind of subsidy is provided then non-genuine players will emerge. If there is no risk factor then what is the use of becoming an entrepreneur. An entrepreneur enters a business with confidence and risk taking ability.

#entrepreneursrisk Entrepreneurs and businesses can comment through the comment box.

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