Context: As covid-19 threatens operations of small businesses in India, banks have requested the Union government to fully guarantee their incremental loans to micro, small and medium enterprises (MSMEs).
More in news:
- Banks have requested guarantees of at least ₹50,000 crore on their incremental loans.
- The request was made through the Indian Banks’ Association (IBA) and is currently being examined by the government.
- As per RBI data , Banks have lent a total of ₹4.78 trillion to small businesses for the fortnight ended 28 February.
- Demand of banks:
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme guarantees between 50-85% of loans up to ₹2 crore.
- However, risk-averse lenders now want an assurance for the entire loan, and not limited to ₹2 crore.
Significance of extending guarantee:
- The MSME sector employs millions of people and business is widely affected due to countrywide lockdown that has led to closure of factories and businesses as the government intensifies steps to contain the covid-19 pandemic.
- The guarantee on ₹50,000 crore of loans would serve the dual purpose of easing the credit crunch of small businesses and allow banks to have some security in terms of loss absorption.
- Best workable model in current scenario: The risk capital comes from the government, liquidity comes from the Reserve Bank of India, and the intermediation is done by the public sector banks. So, that is a workable model because the risk appetite of banks is limited.
- The credit guarantee fund scheme would be effective for fresh MSME loans from the date of the notification.
- Loans could be processed on a web portal like psbloansin59minutes.com using the goods and services tax (GST) data of businesses.
Schemes for MSMEs
- psbloansin59minutes.com is an online marketplace to cater to various financial aspirations of individuals and businesses in a simple, quick and hassle-free way.
- The Platform has set a new benchmark in loan processing by reducing turnaround time for In-principle approval from days to less than 59 minutes.
- The portal was launched to provide credit of up to Rs 1 crore to micro, small and medium enterprises (MSMEs) in just 59 minutes.
- The system simplifies the decision making process for a loan officer as the final output provides a summary of credit, valuation and verification on a user-friendly dashboard in real time.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
- The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector.
- Both the existing and the new enterprises are eligible to be covered under the scheme.
- The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises.
- Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit facilities up to Rs 200 lakh per eligible borrower are covered under the guarantee scheme .
- The extent of guarantee cover is 80%
(i) Micro and Small Enterprises operated and/or owned by women; and
(ii) all credits/loans in the North East Region (NER) for credit facilities upto Rs 50 lakh.
- In case of default, Trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities upto Rs 200 lakh.
Udyog Aadhaar Memorandum (UAM)
- It is a simple one-page registration form to promote ease of doing business for MSMEs in India.
Micro, Small and Medium Enterprises (MSME) Support and Outreach Programme:
- The programme includes 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.
- There are five key aspects for facilitating the MSME sector, viz. access to credit, access to market, technology upgradation, ease of doing business, and a sense of security for employees. The 12 initiatives will address each of these five categories.
Access to Credit
- A 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.
- Increase in interest rebate from 3% to 5% for exporters who receive loans in the pre-shipment and post-shipment period.
- All companies with a turnover more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS).
- Trade Receivables Discounting System (TReDS) is the institutional mechanism for facilitating the financing of trade receivables of MSMEs from corporate and other buyers, including Government Departments and Public Sector Undertakings (PSUs), through multiple financiers. It has been set up under the regulatory framework set up by RBI under Payment and Settlement Systems Act 2007.
Access to markets
- Public procurement: Public sector companies have been asked to compulsorily procure 25 percent, instead of 20 percent of their total purchases, from MSMEs.
- For women entrepreneurs: out of the 25 percent procurement mandated from MSMEs, 3 percent must now be reserved for women entrepreneurs.
- All public sector undertakings of the Union Government must now compulsorily be a part of Government e-Marketplace (GeM).
- GeM is an Online Market platform to facilitate procurement of goods and services by the government ministries, departments, public sector undertakings (PSU) etc.
Image Source: Livemint