New Entrepreneur-cum-Enterprise Development Scheme launched by the Government of Tamil Nadu to encourage educated youth to become first generation entrepreneurs, providing training and financial institution linkages.

MSMEs and Self-Help Groups Exercise Solutions | KalviGavani

Q: What is a Self Help Group?

A small informal voluntary association created to enable members to reap economic benefit out of mutual help, solidarity, and joint responsibility, with 10-20 members following the motto 'saving first – credit later.'

MSMEs and Self-Help Groups: Exercise Solutions

I. Choose the Correct Answer (MCQ) — Text Book Back

Q1. MSMED Act was enacted in the year

(a) 2004
(b) 2007
(c) 2006 ✓
(d) 2008

Q2. MSMEs are important for the nation's economy because they significantly contribute to

(a) Industrial production
(b) Exports
(c) Employment
(d) All the above ✓

Answer(d) All the above — MSMEs contribute to industrial production, exports, and employment, making them vital for the economy.

Q3. Self-help groups convert the savings into a common fund known as

(a) Common fund
(b) Group corpus fund ✓
(c) Group fund
(d) None of the above

Answer(b) Group corpus fund — The savings of SHG members are pooled into a group corpus fund used for lending among members.

Q4. There are …… distinct modes of credit to Self Help Groups.

(a) 1
(b) 2
(c) 3 ✓
(d) 4

Answer(c) 3 — Banks fund SHGs through three distinct modes: direct lending, lending through NGOs, and lending with NGOs as facilitators.

Q5. Investment limit of a micro enterprise under manufacturing sector does not exceed …… lakhs

(a) 10
(b) 20
(c) 25 ✓
(d) 50

Answer(c) 25 — A micro enterprise in the manufacturing sector has an investment limit not exceeding Rs.25 lakhs in plant and machinery.

I. Choose the Correct Answer (MCQ) — Additional Important

Q1. Tamil Nadu Corporation for Development of Women Limited (TNCDW) was established in the year

(a) 1983 ✓
(b) 1984
(c) 1985
(d) 1995

Answer(a) 1983 — TNCDW was established in 1983 to promote women's development through self-help groups in Tamil Nadu.

Q2. The process of manufacturing enterprises is specified in the first schedule to the

(a) CA 2013
(b) MSMED 2006
(c) IDRA 1951 ✓
(d) PA 1932

Answer(c) IDRA 1951 — Manufacturing enterprises pertain to industries specified in the first schedule to the Industries (Development and Regulation) Act, 1951.

Q3. MSME supplies …… to large scale industries.

(a) Accessories
(b) Spare Parts
(c) Components
(d) All the above ✓

Answer(d) All the above — MSMEs supply accessories, spare parts, and components to large-scale industries, playing a supplementary role.

Q4. The registered number of units of MSMEs in Tamil Nadu as of 12.12.2017

(a) 13.24 lakhs
(b) 18.86 lakhs
(c) 19.24 lakhs
(d) 12.94 lakhs ✓

Answer(d) 12.94 lakhs — As of 12.12.2017, the registered number of MSME units in Tamil Nadu was 12.94 lakhs.

Q5. Which one of the following regional rural banks provides financial assistance to MSME start-ups?

(a) Pandian Rural Bank
(b) Pallavan Rural Bank
(c) Vallalar Rural Bank ✓
(d) All the above

Answer(c) Vallalar Rural Bank — Among the given options, Vallalar Rural Bank is the regional rural bank that provides financial assistance to MSME start-ups.

II. Very Short Answer Questions — Text Book Back

Q1. What do you understand by the manufacturing enterprises?

Manufacturing Enterprises are those engaged in manufacturing or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951. They are defined in terms of investment in plant and machinery.

Q2. Give some examples for micro-enterprises.

SIPCOT and TANSIDCO are the government micro-enterprises in Tamil Nadu.

Q3. What is the aim of NEEDS?

The Government of Tamil Nadu launched NEEDS (New Entrepreneur-cum-Enterprise Development Scheme) to encourage educated youth to become first generation entrepreneurs. It provides entrepreneurship development training, helps prepare business plans, and assists in tying up with financial institutions to set up new ventures.

Q4. What is a Self Help Group?

A Self Help Group is a small informal voluntary association created to enable members to reap economic benefit out of mutual help, solidarity, and joint responsibility.

Q5. State the investment limit for small enterprises in the manufacturing and service sectors.

Sector	Investment Limit
Manufacturing Sector	More than Rs.25 lakhs but not exceeding Rs.5 crores
Service Sector	More than Rs.10 lakhs but not exceeding Rs.2 crores

II. Very Short Answer Questions — Additional Important

Q1. What are all the activities engaged by Microenterprises?

Micro enterprises engage in low-scale activities such as clay pot making, fruits and vegetable vending, transport (three-wheeler tempos and autos), repair shops, cottage industries, small industries, handlooms, and handicraft works.

Q2. Give examples for Public Sector Banks.

State Bank of India, Indian Bank, Indian Overseas Bank, and Canara Bank are examples of public sector banks.

III. Short Answer Questions — Text Book Back

Q1. State the investment limit for medium enterprises engaged in the manufacturing and service sector.

Sector	Investment Limit
Manufacturing Sector	More than Rs.5 crores but not exceeding Rs.10 crores
Service Sector	More than Rs.2 crores but not exceeding Rs.5 crores

Q2. List out the products produced by MSME in Tamil Nadu.

In Tamil Nadu, MSMEs produce a wide variety of products including textile, electronic products, engineering products, auto ancillaries, leather products, chemicals, plastics, garments, and jewellery.

Q3. What is the role and significance of MSMEs in Indian Economy?

The MSME Sector contributes about 8% to GDP besides 45% to total manufacturing output and 40% to exports from the country on the production of more than 6000 products. This sector consists of 36 million units and provides employment to over 8 crore people.

Q4. Explain any three features of the Self Help Group.

1. The motto of every group member should be "saving first – credit later" 2. Self Help Group is homogeneous in terms of economic status 3. The ideal size of a Self Help Group ranges between 10 and 20 members

Q5. What are the different ways in which banks fund Self Help Groups?

There are three distinct modes of credit to Self Help Groups:

1. Banks lend directly to the SHGs 2. Banks provide loans to NGOs for onward lending to SHGs and ultimately to micro-entrepreneurs 3. Banks extend credit to SHGs with NGOs serving as facilitators

III. Short Answer Questions — Additional Important

Q1. Define Self Help Group.

NABARD has defined Self Help Group as "a homogenous group of rural poor voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute to a common fund of the group to be lent to the members for meeting their productive and emergent credit needs."

Q2. Write a short note on MUDRA bank.

The Government of India launched MUDRA Bank with a capital of Rs.20,000 crores and a credit guarantee corpus of Rs.3,000 crores to help MSMEs and startups resolve financing problems. MUDRA Bank refinances micro-Finance Institutions through Pradhan Mantri Mudra Yojana (PMMY).

Q3. Write a note on the activities of Self Help Groups in India.

In December 2017 there were 45,67,090 SHGs in India with total membership of 5,02,65,933 at the all-India level. The five-year plans of the Government of India have given due recognition to the SHG concept to implement developmental schemes at the grassroots level.

IV. Long Answer Questions — Text Book Back

Q1. What is the definition of MSME?

Under the MSMED Act 2006, MSMEs are classified into two classes:

A. Manufacturing Enterprises: Enterprises engaged in manufacturing or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951. They are defined in terms of investment in plant and machinery.

The classification by investment in plant and machinery is:

Category	Investment in Plant and Machinery
Micro	Does not exceed Rs.25 lakhs
Small	More than Rs.25 lakhs but does not exceed Rs.5 crores
Medium	More than Rs.5 crores but does not exceed Rs.10 crores

B. Service Enterprises: Enterprises engaged in providing or rendering services.

The classification by investment in equipment is:

Category	Investment in Equipment
Micro	Does not exceed Rs.10 lakhs
Small	More than Rs.10 lakhs but does not exceed Rs.2 crores
Medium	More than Rs.2 crores but does not exceed Rs.5 crores

Q2. Explain the advantages of MSMEs.

The nine advantages of MSMEs are:

1. Employment Potential: MSMEs use labour-intensive techniques of production, providing enormous employment opportunities at a lower cost compared to large-scale industries.

2. Low Production Cost: MSMEs have lower overhead costs, lower cost of supervision, and lower cost of management per unit of output, resulting in low cost of production.

3. Low Investment: MSMEs require less capital and can be started with limited resources, making it easier for entrepreneurs to set up such units.

4. Quick Decision Making: Due to the small size of the organisation, decision making is quick and timely, enabling MSMEs to respond to changing market conditions rapidly.

5. Supplementary Role: MSMEs supply accessories, spare parts, and components to large-scale industries, playing a supplementary and complementary role in the industrial economy.

6. Establishment of Socialistic Pattern of Society: MSMEs help in reducing concentration of economic power and wealth in a few hands, thus promoting a socialistic pattern of society.

7. Balanced Regional Development: MSMEs can be set up in any backward area or small town, promoting balanced regional development and preventing migration to cities.

8. Promotion of Self Employment and Self Reliance Spirit: MSMEs foster the spirit of self-employment and self-reliance among people, reducing dependence on wage employment.

9. Higher Contribution to Manufacturing and Export: The MSME sector contributes about 45% to total manufacturing output and 40% to exports, playing a significant role in the nation's economy.

Q3. What are the objectives of SHGs?

The twelve objectives of Self Help Groups are:

1. To inculcate the habit of savings and banking among the rural poor 2. To build up trust and mutual confidence among the members 3. To provide a forum for discussing social issues and solving them collectively 4. To develop the habit of financial management and bookkeeping 5. To avail credit from banks and financial institutions easily 6. To empower women socially, economically, and politically 7. To create self-employment opportunities for members 8. To act as a medium for the delivery of various government schemes and programmes 9. To improve the living conditions of the rural poor 10. To develop leadership qualities among members 11. To reduce the dependence on money lenders and local financiers 12. To promote collective decision-making and democratic functioning

IV. Long Answer Questions — Additional Important

Q1. Briefly explain the limit of investment by MSME in the Manufacturing sector and Service sector.

The MSMED Act 2006 classifies MSMEs based on investment limits as follows:

Category	Manufacturing Sector (Investment in Plant and Machinery)	Service Sector (Investment in Equipment)
Micro	Does not exceed Rs.25 lakhs	Does not exceed Rs.10 lakhs
Small	More than Rs.25 lakhs but does not exceed Rs.5 crores	More than Rs.10 lakhs but does not exceed Rs.2 crores
Medium	More than Rs.5 crores but does not exceed Rs.10 crores	More than Rs.2 crores but does not exceed Rs.5 crores

It is important to note that the investment limits differ between the manufacturing and service sectors. The manufacturing sector limits are based on investment in plant and machinery, while the service sector limits are based on investment in equipment.

Q2. Write a note on NEEDS.

NEEDS — New Entrepreneur-cum-Enterprise Development Scheme

The Government of Tamil Nadu launched NEEDS to encourage educated youth to become first generation entrepreneurs. The scheme aims to transform job seekers into job creators by providing comprehensive support for starting new business ventures.

Key Features of NEEDS:

Provides entrepreneurship development training to eligible youth
Assists in preparing viable business plans
Helps in tying up with financial institutions to secure loans
Offers subsidy and margin money assistance
Focuses on educated unemployed youth of Tamil Nadu
Encourages self-employment and reduces dependency on wage employment

NEEDS is a state-level scheme (not a central government scheme) specifically designed for Tamil Nadu's educated youth who aspire to become entrepreneurs for the first time.

Q3. Explain the institutional sources of finance for MSMEs.

The institutional sources of finance for MSMEs are:

A. Commercial Banks: Commercial banks such as State Bank of India, Indian Bank, Indian Overseas Bank, and Canara Bank provide term loans, working capital loans, and other financial assistance to MSMEs. They offer credit under priority sector lending norms.

B. Regional Rural Banks: Regional rural banks like Vallalar Rural Bank provide financial assistance to MSME start-ups, particularly in rural and semi-urban areas.

C. Cooperative Banks: Cooperative banks operate at the state, district, and primary levels, offering credit facilities to MSMEs, especially in cooperative-dominated regions.

D. Micro Finance Institutions (MUDRA Bank): The Government of India launched MUDRA Bank with a capital of Rs.20,000 crores and a credit guarantee corpus of Rs.3,000 crores. MUDRA Bank refinances micro-Finance Institutions through Pradhan Mantri Mudra Yojana (PMMY) to help MSMEs and startups resolve financing problems.

E. Non-Banking Finance Institutions: Institutions like NSIC (National Small Industries Corporation) and SIDBI (Small Industries Development Bank of India) provide financial assistance, factoring, and credit guarantee services to MSMEs.

Q4. Explain the features of Self Help Groups.

The ten features of Self Help Groups are:

1. Voluntary Association: SHGs are formed voluntarily by like-minded individuals who come together for mutual benefit.

2. Homogeneous Membership: Members of an SHG belong to the same socio-economic strata, ensuring common interests and mutual understanding.

3. Small Size: The ideal size of an SHG ranges between 10 and 20 members, enabling effective participation and management.

4. Saving First – Credit Later: The motto of every group member is "saving first – credit later." Regular savings build the group corpus fund before lending begins.

5. Group Corpus Fund: Savings are converted into a common fund known as the group corpus fund, which is used for lending to members.

6. Democratic Functioning: All decisions are taken collectively through democratic processes, ensuring every member has a voice.

7. Mutual Trust and Confidence: SHGs build trust and mutual confidence among members through regular interaction and collective action.

8. Self-Help Principle: Members rely on self-help and mutual aid rather than external dependency, promoting self-reliance.

9. No External Interference: SHGs function independently without interference from external agencies, though they may receive facilitation support.

10. Linkage with Banks: SHGs develop linkages with banks and financial institutions for accessing formal credit, promoting financial inclusion.

Q5. Explain the functions of Self Help Groups.

The seven functions of Self Help Groups are:

1. Savings and Thrift: SHGs inculcate the habit of regular savings among members. Each member saves a fixed amount regularly, which is pooled into the group corpus fund.

2. Internal Lending: The group corpus fund is used to provide loans to members for meeting their productive and emergent credit needs at interest rates decided by the group.

3. Financial Inclusion: SHGs act as intermediaries between banks and the rural poor, enabling members to access formal financial services and reducing dependence on money lenders.

4. Social Empowerment: SHGs provide a forum for discussing social issues such as health, education, and gender equality, enabling collective problem-solving and social transformation.

5. Capacity Building: Through regular meetings, bookkeeping, and group management, SHGs develop leadership qualities, financial management skills, and decision-making abilities among members.

6. Implementation of Government Schemes: SHGs serve as effective channels for the delivery of various government schemes and programmes at the grassroots level, ensuring benefits reach the intended beneficiaries.

7. Promotion of Self-Employment: SHGs encourage members to take up self-employment ventures by providing access to credit, training, and market linkages, thereby reducing dependency on wage employment.

Q6. Write a note on SHGs in Tamil Nadu.

Self Help Groups in Tamil Nadu

Tamil Nadu has been a pioneer in the promotion and development of Self Help Groups in India.

Tamil Nadu Corporation for Development of Women Limited (TNCDW): TNCDW was established in 1983 to promote women's development through self-help groups. It serves as the nodal agency for implementing SHG-based programmes in Tamil Nadu.

IFAD Project: The International Fund for Agricultural Development (IFAD) project was implemented in Dharmapuri district in 1989, which was one of the early initiatives to promote SHGs in Tamil Nadu.

Mahalir Thittam: Launched in 1997-98, Mahalir Thittam is a statewide programme implemented by TNCDW for the economic and social empowerment of women through SHGs. It has been instrumental in organizing women into SHGs and linking them with banks for credit access.

Tamil Nadu has consistently been one of the leading states in terms of the number of SHGs formed and bank linkages established, making significant contributions to poverty alleviation and women's empowerment.

Common Mistakes to Avoid

1. Micro manufacturing limit is Rs.25 lakhs, NOT Rs.10 lakhs. The Rs.10 lakhs limit applies to the micro service sector. Mixing these up is a very common error.

2. SHG size is 10–20 members, not any arbitrary number. Do not write vague ranges — the ideal size is specifically between 10 and 20 members.

3. NEEDS is a Tamil Nadu state scheme, not a central government scheme. It was launched by the Government of Tamil Nadu, not by the Union Government.

4. MSMED Act was enacted in 2006, not 2007 or 2008. The year of enactment is 2006 — a frequently tested MCQ fact.

5. TNCDW was established in 1983, not 1984 or 1985. This is a common trap in additional MCQ questions.

6. MUDRA Bank refinances micro-Finance Institutions, it does not directly lend to MSMEs. MUDRA Bank operates through Pradhan Mantri Mudra Yojana (PMMY) by refinancing MFIs — it is not a direct lender.

Exam Checklist

[ ] Can state MSMED Act year (2006) and its purpose
[ ] Know investment limits for Micro, Small, Medium in both Manufacturing and Service sectors
[ ] Can list 9 advantages of MSMEs
[ ] Can list 12 objectives of SHGs
[ ] Know NEEDS full form and purpose
[ ] Know MUDRA Bank capital (Rs.20,000 crore) and function
[ ] Can list institutional sources of finance for MSMEs (5 sources)
[ ] Can list 10 features of SHGs

Frequently Asked Questions

The Micro, Small and Medium Enterprises Development Act 2006 classifies MSMEs into Manufacturing Enterprises and Service Enterprises based on investment in plant and machinery/equipment.