core of risk management strategy for msmes. given the heightened volatility in recent times, msmes are increasingly exposed to various other risks such as interest rate risk and currency risks. msmes need to manage these risks to remain viable. the msmes need to understand with appropriate support from the capacity building institutions in the form of seminars and workshops, the importance of corporate governance and its linkages with risk management. a small enterprise that infosys was way back, could grow into a leading international firm today, thanks partly to its sound governance framework. investors would often lower the cost of their lending when the governance structures are sound, leading to cost competitiveness of the msmes. therefore, to become globally competitive, going forward, it is imperative that our msmes develop their skills in risk management and governance so as to have a sound risk governance. competing for growth ( not survival ) management guru, late c. k. prahlad produced two seminal works, viz., competing for the future and fortune at the bottom of the pyramid. i would like to say that both are very bis central bankers ’ speeches relevant for msmes today. let me elaborate. inclusive growth strategies such as the mahatma gandhi national rural employment guarantee scheme ( mgnregs ) are going to enhance the capacity and willingness of the rural population to increase their consumption. this will increase the “ fortune at the bottom of the pyramid ” i. e., purchasing power of the lower strata of the society. msmes, being nimble footed and in proximity to the bottom of the pyramid are bound to benefit from this increased consumption. at the international level, msmes may have to face global competition, but the opportunities for growth are immense only if msmes are focused on quality and use appropriate technologies. as i mentioned earlier, innovative ways of financing the working capital needs of msmes is another important aspect to help them grow and compete. role of msme associations the chambers of commerce and msme associations in our country can play a pivotal role in facilitating finance for msmes through various pro - active measures. these institutions can also create greater awareness among their msme members about credit facilities from banks, nbfcs and financial institutions, benefits of credit rating, alternate finance options such as venture capital / angel funding, factoring, bills discounting, recently launched sme exchange / platform, etc. in addition to engaging with policymakers and organising training / capacity building programmes. concluding thoughts let me now conclude by stating

the industry, in the promoters ’ group, etc. which may show the direction in which a company ’ s operations will go and whether there is inherent resilience in the promoters and the project to face rough weather and come out unscathed. 25. while diligent appraisal is a major factor in eliminating dodgy borrowers, subsequent monitoring also plays a vital role in identifying potential frauds. in many cases we find that the discovery that stocks have been clandestinely sold, diversion to related parties and siphoning off of funds have taken place and documents provided had been fabricated, is made after the account shows stress and becomes an npa. any action taken at that stage is as useful as locking the proverbial stable doors after the horse has bolted. 26. it is obvious that if anyone wants to identify potential frauds before they happen, it is possible only by continuous monitoring. we have therefore prescribed stage wise actions in the life cycle of a loan account and also prescribed actions that a bank may take in each stage to safeguard its interest. a system of identifying red flagged accounts based on early warning signals has been put in place. a red flagged account is one where a suspicion of fraudulent activity is thrown up by the presence of one or more early warning signals. the presence of these signals should trigger a detailed investigation into the rfa. 27. as one of the major problems in fraud risk management was time delays in dealing with a fraud, we have prescribed time limits within which certain actions like investigating for fraud should be completed and a decision on whether an account is indeed a fraud or not is made. similarly the delays and divergent stands taken by banks in a consortium or multiple banking arrangements have also been tackled by spelling out time lines for actions like informing other banks of a red flagged account, commissioning a forensic audit and arriving at a consensus / majority decisions, etc. if frauds have to be minimised it is not enough to tighten the actions incumbent on banks alone. in preventing frauds a major part is played by the deterrent actions and punishments that are meted out to the fraudsters. towards this end henceforth the fraudster borrowers will not be able to avail bank finance for five years after full repayment of the dues. this is of course in addition to the criminal complaints to be filed with police or cbi. this is expected to build in a disincentive for any borrower to consider committing a fraud on