Banks, the chief source of funding for family-run business in India

Nine out of 10 respondents upbeat about bank financing, reveals KPMG report

Salil Panchal
Published: Sep 11, 2014 05:44:35 PM IST
Updated: Sep 11, 2014 07:38:17 PM IST

Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.

Banks, the chief source of funding for family-run business in India
Image: {Shutterstock}

While getting bank loans globally has become difficult amid the economic slowdown, in India, family-run businesses still see banks as the chief source of funding, a latest report from consultancy firm KPMG revealed.

The report “Family Matters–Financing Family Business growth through individual investors” looks at the synergies between high-net-worth individuals and family businesses for finance. It says that at a global level, 58 percent of those surveyed are currently still seeking external financing to fund their business development plans.

In India, banks remained the favoured route for finance by family businesses with nine out of 10 respondents upbeat about bank financing, the study showed.

Family businesses have existed for decades in India due to the traditional joint family system. In several of these mid-sized to large family business groups, issues like unity, succession and strategies for growth have become the more critical priorities for the family compared to other companies.

As seen across businesses, particularly family-run outfits, the access to capital after the 2008 financial crisis has not been easy.

“A key differentiator between family businesses and other companies is the fact that the majority of family businesses view maintaining control over their company as a key success factor, which can make financing options even more limited,” the KPMG report showed.

In recent years, angel, venture capital funds, private equity players and high net-worth individuals have been looked at for capital needs of family businesses.

Only one-fifth of the respondents have obtained finance from high net-worth individuals (HNWIs), the study showed. But the future for business families and HNWIs appears to be bright, KPMG assesses, with eight out of 10 HNWIs saying they were interested in investing directly in family businesses.

It is estimated that there are up to 14 million HNWIs globally with wealth of around $53 trillion.

“With more than five million family businesses, the country offers a significant opportunity for investors,” says Sanjay Aggarwal, partner, (head of family business), KPMG India.

Mergermarket, in association with KPMG International, surveyed 125 family businesses about the types of investment they require and another 125 HNWIs regarding their investment strategy.

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  • Vinay

    Its not rocket science. Debt is cheaper than equity. Equity Investors look for a stake. But what they take out after 5 years is double of what they invested earlier. Banks give out loans relatively cheaper and dont interfere with business, if interest payments are regular.

    on Sep 11, 2014
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