Vol.

III : Issue 9

ISSN : 2250-1940 (Print), 2349 - 1647 (Online)

Available online @ www.selptrust.org
Research Explorer
ISSN : 2250-1940 (Print), 2349 - 1647 (Online)
Impact Factor : 0.389, Vol. III : Issue. 9
July - December 2014

PROBLEMS AND PROSPECTS OF MICRO ENTERPRISES:

AN EMPIRICAL ASSESSMENT
Dr. C. Natarajan
Assistant Professor of Commerce,
Directorate of Distance Education,
Annamalai University, Annamalai Nagar-608 002.

K. Dhavamani
Ph.D. Research Scholar,
Manonmaniam Sundaranar University, Tirunelveli.
ABSTRACT
All over the world, the micro enterprises are making an impact on national and regional economies. They
have been recognized as effective instruments for creating employment opportunities with limited capital.
Micro enterprises in particular largely comprise first generation entrepreneurs, who have had a limited structured
training on resource planning, capital management and labour management. In this context, an attempt has
been made to find answers for the following questions: What are all the factors that influence the entrepreneurs
to start up micro enterprises? What problems do entrepreneurs operating rural micro enterprises in Villupuram
district face? What is the impact of rural micro enterprises on the socio-economic conditions of business owners?
And what measures will mitigate in minimizing the problems they face?
Keywords: Micro enterprises, small scale units, rural industries, non-farm sector, etc.

Introduction

its aptness for labour surplus economy. Micro and small

enterprises not only help in providing employment
opportunities to millions of people across the country,
especially to the village artisans and rural people, but also
check the problem of economic concentration in the
hands of a few.

All over the world, the micro enterprises are

making an impact on national and regional economies.
They have been recognized as effective instruments for
creating employment opportunities with limited capital.
Interest in the promotion of micro enterprise as an engine
of growth and as poverty alleviation tool in the developing
world is gaining importance. In India too, the micro
enterprises play a momentous role in the overall economic
development of a country, where millions of people are
unemployed or underemployed. The aim of micro
enterprise is to make the poor self-sufficient. The micro
enterprise sector solves many problems viz. poverty and
unemployment through providing immediate large-scale
employment, with lower investments, and proves to be
a second largest manpower employer, after agriculture.
In this regard, Prime Minister Dr.Manmohan Singh
stated, The key to our success in employment lies in
the success of manufacturing in the small scale sector.
The employment generating potential of this sector reveals
Research Explorer

Concept of Micro Enterprise

It is difficult to define a boundary for micro
enterprise in proper words. Dictionary meaning of micro
enterprise is very small-scale business, especially owneroperated with few employees. The term micro
enterprise refers to a very small-scale, informally
organized business activity undertaken by poor people.
According to Schreiner and Woller, Micro enterprises
are tiny businesses; most have one employee, the owner.
Awasthi considers the units employing less than six
workers under the category of micro enterprise.
According to Schreiner and Leon, the definition of micro
enterprise should have three components i.e. type of
60

July - December 2014

Vol. III : Issue 9

ISSN : 2250-1940 (Print), 2349 - 1647 (Online)

activity, investment limits and number of employee. The

Micro, Small and Medium Enterprises Development Act
2006, defined micro, small and medium enterprises. In
this Act, instead of industry concept, the word
venture has been used. In the Micro, Small and Medium
Enterprises Development Act 2006, ventures have been
defined and notified as investment done in plant and
machinery (including land, house and excluding those
items notified by the micro ministerial). Where not more
than Rs.25 lakhs has been invested is known as micro
enterprise. More than Rs.25 lakhs and less than Rs.5
crores is known as a small enterprise and more than
Rs.5 crores but less than Rs.10 crores is known as a
medium enterprise by the MSMED Act 2006. Those units
working under the service category have been defined
by another set. According to that in service sector, those
units having investment less than Rs.10 lakhs are known
as micro enterprises and more than Rs.10 lakhs and less
than Rs.2 crores are known as small enterprises, and
more than Rs.2 crores but less than Rs.5 crores are
known are a medium enterprises. Micro enterprises
mostly operate in order-driven industries such as retail
trade, repair and maintenance, restaurants and textiles
among others.

failures affect the production of goods and services, and

inaccessible roads affect their distribution and increase
transportation costs. Inadequate provision of essential
services such as telecommunication and water supply
constitutes one of the greatest constraints to micro
enterprises development. Inadequate access to support
infrastructure discourages these units from adopting
newer technologies, where available. In spite of this, most
of the micro enterprises do not have any well-formulated
marketing strategy, market research programmes,
innovative advertisement techniques, etc. They also face
stiff competition from large firms.
A characteristic associated in micro enterprises
is that they tend to be independent minded, workaholic
and have a strong family orientation. This explains their
ability to take flexible decisions, affording them less
bureaucracy and taking timely action to respond to dayto-day arising situations. The flexibility and lack of
formality of micro enterprises is at the same time their
weakness in that these characteristics often lead firms
not to seek professional guidance. Micro enterprises in
particular largely comprise first generation entrepreneurs,
who have had a limited structured training on resource
planning, capital management and labour management.
With this view, the study broadly intends to find answers
for the following questions: What are all the factors that
influence the entrepreneurs to start up micro enterprises?
What problems do entrepreneurs operating rural micro
enterprises in Villupuram district face? What is the impact
of rural micro enterprises on the socio-economic
conditions of business owners? And what measures will
mitigate in minimizing the problems they face? In this
context, the researcher has made a modest attempt to
find out the answers for these questions.

Statement of the Problem

Starting and operating a micro enterprise
includes a possibility of success as well as failure. Because
of their very small size and the exposure to risks owing
to their location, a simple management mistake is likely
to lead to sure death of a micro enterprise; hence, no
opportunity to learn from its past mistakes. With the
liberalization and globalization of the Indian economy,
the micro enterprises have unprecedented opportunities
on the one hand, and face serious challenges, on the
other. Micro enterprises tend to lack capital to start or
even expand their business, and this has affected the level
of success of a lot of micro enterprises. Most of them
cannot meet the requirements of commercial loans, and
those who do find such loans expensive found that
additional capital is often not required and can be
overcome through creativity and initiative. Besides, the
micro enterprises find it difficult to recover their dues
from the large firms and even from government
departments due to complex payment procedure.

Objectives of the Study

The study has the following objectives:
1. To study the need and importance of rural micro
enterprises.
2. To find out the factors influencing the business
owners to start-up rural micro enterprises in
Villupuram district.
3. To examine the problems of the rural micro enterprises
in Villupuram district.

Lack of management know-how has always

been a cause of failure for a lot of micro enterprises.
The poor implementation of policies including
administration of incentives and measures aimed at
facilitating micro enterprises growth and development
have had unintended effects on the sub-sector. Poor
infrastructure directly affects micro enterprises. Power

Research Explorer

4. To study the impact of rural micro enterprises on the

socio-economic conditions of business owners in
Villupuram District.
5. To suggest suitable measures for the prospects of
rural micro enterprises in Villupuram district based
on the findings of the study.

61

July - December 2014

Vol. III : Issue 9

ISSN : 2250-1940 (Print), 2349 - 1647 (Online)

Hypotheses

Sampling Design

The study is based on the formulation of the

following null hypotheses:

A total number of 7100 micro enterprises were

found to be functioning in the Villupuram district as on
31.03.2012; these are spread unevenly across the 22
blocks. Among them, 3930 enterprises are engaged in
manufacturing operations and 3424 are engaged in service
operations. In the present study, the sampling involves
two stages. At the first stage, 5 blocks which outnumber
in number of rural micro enterprises were selected out
of the 22 blocks. In the second stage, by adopting simple
random sampling, 10 per cent of the population was
selected from each block selected. The sample size
consists of 388 rural micro enterprises i.e. 212 enterprises
engaged in manufacturing operations and 176 enterprises
engaged in service operations.

H01 : There is no significant relationship among the

acceptance levels of the business owners belonging to
different demographic profiles towards problems of the
rural micro enterprises in Villupuram district.
H02 : There is no significant relationship among the
acceptance levels of the rural micro enterprises belonging
to different enterprise characteristics towards problems
they face in Villupuram district.

Table 1 Sampling Distribution

Sl.No.
1.
2.
3.
4.
5.

Block
Gingee
Kallakurichi
Koliyanur
Marakkanam
Thiagadurgam
Total

Rural Micro Enterprises in Operation

Manufacturing
Service
366
233
282
230
439
938
835
162
201
200
2123
1763

Tools for Data Collection

Service
23
23
94
16
20
176

different genders, educational status groups, years

of experience and blocks towards problems of the
rural micro enterprises. There is a significant
relationship among the acceptance levels of the
respondents of different age groups towards problems
of the rural micro enterprises.

The present study is empirical in character based

on survey method. To enhance the quality of data, the
researcher employed multiple data sources for the study:
primary and secondary data. The secondary data are
mainly congregated from published and unpublished
works on the related topics. As an essential part of the
study, the primary data were collected from 388 owners
of the rural micro enterprises with the help of well
designed interview schedule. Taking into consideration
the objectives of the study, a schedule was prepared after
a perusal of available literature and thorough consultation
with the experts of related fields. The data so collected
have been entered into a master table and tabulated to
arrive at useful conclusions.

2. Male respondents, respondents in the age group 3645 years, respondents belonging to H.Sc qualification,
respondents having experience above 15 years and
micro entrepreneurs of the Kallakurichi block have higher
acceptance level towards problems of the rural micro
enterprises.
3. There is consistency among the acceptance levels of
the male respondents, respondents in the age group
36-45 years, respondents who have degree qualification,
respondents who have 11-15 years of experience and
micro entrepreneurs belonging to Kallakurichi block
towards problems of the rural micro enterprises.

Framework of Analysis
In analyzing data, statistical tools such as student
t test, analysis of one-way variance, analysis of coefficient of variation, factor analysis, discriminant
function analysis, multiple regression analysis and
percentage analysis have been employed. Comprehensive,
descriptive and percentage analyses have also been employed
in this study.

4. There is no significant relationship among the

acceptance levels of the micro enterprises belonging
to varied years of existence, amount of investments
and annual sales groups towards problems of the rural
micro enterprises. A significant relationship is found
among the acceptance levels of the micro enterprises
belonging to different types and business groups
towards problems of the rural micro enterprises.

Findings
1. There is no significant relationship among the
acceptance levels of the respondents belonging to
Research Explorer

Samples
Manufacturing
37
28
44
83
20
212

62

July - December 2014

Vol. III : Issue 9

ISSN : 2250-1940 (Print), 2349 - 1647 (Online)

5. Micro enterprises having existence 3 and 4 years,

manufacturing enterprises, enterprises having
investment Rs.1000001-1500000, enterprises having
annual sales above Rs.400000 and enterprises engaged
in food processing business have higher acceptance level
towards problems of the rural micro enterprises.

Suggestions
1. Funding agencies should sanction additional loan as and
when the rural micro entrepreneurs require and pay off
their previous loans promptly. The government should
increase the size of special funds for the micro enterprises
while continuing to encourage banks to provide loans to
struggling micro businesses.

6. There exists consistency in the acceptance level of

the enterprises having existence 5 and 6 years,
manufacturing enterprises, enterprises having an
amount of investment Rs.1500001-2000000,
enterprises having annual sales Rs.300001-400000 and
enterprises engaged in general engineering operations
towards problems of the rural micro enterprises.

2. The state government should come forward to

constitute a federation for marketing the products of
micro enterprises through public distribution system.
Also, the government shall establish policies which
will ban the import of foreign goods which can be
produced locally by micro enterprises. At the same
time, where the ban will not be necessary, government
should impose high tariffs and import duties on the
imported commodities in order to raise its prices so
that people will demand locally produced goods.

7. Factor analysis technique is applied to find out the

underlying dimensions in the set of statements relating
to the acceptance level of the respondents towards
problems they faced in their business. 45 variables in
the data were reduced to 7 factor model namely
bureaucratic interruptions, incompetent management,
financial constraints, lack of technology upgradation,
logistics problems, resource constraints and costing
problems.

3. It is suggested that means may have to be found to

address non-commercial constraints to micro
enterprises growth. Therefore, the agencies
promoting the micro enterprises may provide the
aforesaid facilities to the rural micro entrepreneurs,
which are engaged in manufacturing activities.

8. Discriminant function analysis was employed to

examine what are all the factors which significantly
discriminate the manufacturing enterprises from
service enterprises in terms of their level of
acceptance relating to the problems faced in their
business. The results reveal that incompetent
management is the maximum discriminating factor
(R 2 %=86.68%) between the manufacturing
enterprises and service enterprises, followed by lack
of technology upgradation (63.52%), resource
constraints (42.77%) in that order. Logistic problems
contribute least (28.09%) in discriminating between
the manufacturing enterprises and service enterprises.

4. The government should set up a high-level department

to provide micro enterprises with professional services
in credit guarantees, training, information sharing,
technical assistance and government procurement. The
government should exempt rural micro enterprises from
all taxes and cut most of the taxes imposed on micro
enterprises to give them have a chance to take a breath.
5. The micro entrepreneurs may join together and form
a purchase committee at block or taluk level to avail
the benefits of bulk purchase and to face the
competition posed by the medium and large scale
enterprises. The committee should assume the
responsibility of sourcing of materials, receipt of
tenders, quality check, placing purchase order, receipt
and distribution of materials to the micro
entrepreneurs and ensuring the continuous supply
from vendors.

9. Respondents ranging from 30.15 per cent to 45.36

per cent suggest that speedy sanction of loans, finding
suitable markets, transportation facility, adequate
government incentives and uninterrupted power
supply will make certain the rural micro enterprises
for effective functioning. Working capital finance,
prevention of political intervention, government
purchase, government and institutional support, and
access to credit are the suggestions of the respondents
ranging from 51.29% to 59.79% for the prospects
of the rural micro enterprises in Villupuram district.
Facility for common work shed and reservation of
products are the suggestions of the sample micro
entrepreneurs for the prospects of rural micro
enterprises in Villupuram district at 62.11 per cent
and 65.46 per cent respectively.

Research Explorer

6. Higher education institutions should provide both

technical and business trainings to rural micro
entrepreneurs by offering special courses so that the
micro entrepreneurs can withstand competitions,
develop entrepreneurial sprits, and improve managerial
skill in such a competitive world. Further, there is the
need for government and other key stakeholders to
team up for the provision of literacy training to enable
micro entrepreneurs keep simple business records and
also make simple calculation to help the growth of
their businesses as well as to calculate their profit.

63

July - December 2014

Vol. III : Issue 9

ISSN : 2250-1940 (Print), 2349 - 1647 (Online)

7. There is the need for the government to facilitate the

setting up of a special bank which will deal with only
micro enterprises issues. When this bank is set up, it
will help most of the micro entrepreneurs who want to
access credit to expand their business to access the
facilities. If this is done, the rural micro enterprises in
Villupuram district will improve to support the economy
to grow.

include the need for speedy sanction of loans, finding

suitable markets, transportation facility, adequate
government incentives, uninterrupted power supply,
working capital finance, prevention of political
intervention, government purchase, government and
institutional support, access to credit, facility for common
work shed and reservation of products for the prospects
of the rural micro enterprises. Effective implementation
of the suggestions could lead to the growth of the rural
micro enterprises in Villupuram district and eventually
result in creation of employment as well as poverty
reduction.

Conclusion
Micro enterprises contribute a colossal
percentage to gross domestic product in ensuring
economic growth, employment, income stability and
poverty reduction in most developing countries like India.
In spite of the above roles, most of these enterprises are
now collapsing as a result of not performing creditably
well. It is in line with this that this study identifies the
problems of these enterprises and come out with ways
and means, which will establish and sustain the vibrancy
for micro enterprises so that they can play the expected
vital roles as the engine of growth in the economic
development. This sector is rife with problems like
shortage of electricity and development of basic
infrastructure along with the problems related to market.
In regards to various problems, lack of technology
upgradation, costing problems, and bureaucratic
interruptions stand at the first, second and third places.
Incompetent management, financial constraints and
logistics problems are the other important problems of
the rural micro enterprises in the study area. In view of
these problems, major recommendations proposed

References
1. Awasthi, D (2004). Labour Process and Productivity in
Micro and Small Enterprises: The Indian Experience, The
Indian Journal of Labour Economics, Vol.47, No.4.
2. Boissevain, J (1991).Small Entrepreneurs and their
Cultural Context, Bank of Valletta Review, Vol.3, pp.116.
3. Ortiz, J (2001). Rethinking the Approach to the Micro
Enterprise Sector in Latin America: An Integrating
Framework, Journal of Microfinance, Vol.3, No.2, pp.87106.
4. Schreiner, M and Woller, G (2003). Micro Enterprise
Development Programs in the United States and in the
Developing World, World Development, Vol.31, No.9,
pp.1567-1580.
5. Websters New Millennium Dictionary of English,
Preview Edition, Lexico Publishing Group, LLC.

SEL P P UB LI CAT IO N
SELP Trust established the publication division in the name of SELP
Publication devoted to education and research with the ISBN and published
20 educational books and propose to publish 50 books in a calendar year
2015. So, if you have a proposal or manuscript (Including edited volume) in
your area of specialization, please contact or write to us. we are happy to
publish your books with ISBN.

Research Explorer

64

July - December 2014