MSME Samadhaan Portal - The credit growth to the MSME sector, particular industries, is negative. Further, the problem of fund availability is not just about accessing institutional credit but also about working capital availability.
- The Mudra Bank and Start-up India initiatives are illustrative of its keenness to promote a million new enterprises.
- Trade receivables discounting platforms (TReDS):
- The objective was to enable multiple lenders to bid for invoices accepted by the buyer and thereby provide financing to the MSME seller on a non-recourse basis—transfer the risk from the MSME seller to the financier against the strength of a validated trade invoice.
- These platforms play a vital coordination role between the buyer (often large corporate or PSU), the seller (often an MSME), and the financier (banks and non-banking financial companies or NBFCs), and also enable the upload, acceptance, discounting and trading of invoices.
- Government e-Marketplace (GeM) meant to facilitate transparent government procurement of goods and services across departments. Its back-end infrastructure is quite sophisticated.
- Significant delays in receiving payments from buyers, particularly public sector undertakings (PSUs): It is happening despite laws mandating a 45-day window, resulting in an often unsustainable working capital cycle.
- It is a key reason for many of them turning into non-performing assets (NPAs), affecting their sustainability.
- Lacunae in grievance redressal: The current grievance redressal system to deal with cases of delayed payment to Micro and Small Enterprises (MSEs) does not recognize the power asymmetry between the buyer and the seller.
- While it is theoretically possible for an MSME to take a defaulting buyer to arbitration, or use the government’s Samaadhaan facilitation route, most MSMEs are worried about losing business relationships if they take this step.
- Low activity in TReDS: As of mid-2019, 3,708 MSME sellers, 604 buyers, 71 banks and five NBFCs engaged in factoring were registered on these platforms, and invoices worth ₹66.69 billion had been financed according to the MSME Committee’s report.
- Buyers lack an incentive to use these platforms, despite the government’s diktat for PSUs to mandatorily enlist.
- Delay in generating invoices and about multiple-financing of one invoice across different platforms.
The Reserve Bank of India’s expert panel, the MSME Committee chaired by UK Sinha, has proposed the following interesting solutions.
- Better grievance redressal: All MSMEs mandatorily upload their invoices above say, ₹1.0 crore, to an Information Utility (IU).
- A designated authority of the MSME ministry can then review this invoice data from the IU periodically and initiate a series of actions, starting with issuing a notice to the buyer and “naming and shaming" the defaulting buyer.
- Facilitating prompt payments: An amendment to the MSME Development Act for facilitating prompt payments is needed. It would need invoice data to be uploaded and the designated authority to be notified under the Insolvency and Bankruptcy Board of India’s IU Regulation.
- It can unlock credit and help expand business activity.
- Reforming TReDS: The MSME Committee recommended opening a “second window" for financing on these platforms, wherein the information on invoices would still be available for underwriting.
- Better integration between the GeM and the TReDS platforms, so that invoices on the GeM that have buyer acceptance can be smoothly listed on the TReDS.
- Recourse options for MSMEs, particularly in cases of low-rated buyers.
- Encouraging opening up these platforms to all NBFCs so that there would be more liquidity. This may need an amendment to the Factoring Act.
- Improving existing credit guarantee funds such as the Credit Guarantee Fund Trust for Micro and Small Enterprises should back transactions for all lenders.
- A process to ensure a quick generation of invoices that are seamlessly registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest will be important. It will have a multiplier effect on an MSME revival.
About MSMED Act 2006
- Micro, Small and Medium Enterprise Development (MSMED) Act, 2006 contains provisions to deal with cases of delayed payment to Micro and Small Enterprises (MSEs).
- As per the provisions, the buyer is liable to pay compound interest with monthly rests to the supplier on the amount at three times the bank rate notified by the Reserve Bank in case he does not make payment to the supplier for the supplies of goods or services within 45 days of the day of acceptance of the goods/service or the deemed day of acceptance.
- State Governments are to establish Micro and Small Enterprise Facilitation Council (MSEFC) for settlement of disputes on getting references/filing on Delayed payments.
About MSME Samadhaan Portal
About Credit Guarantee Fund Trust for Micro and Small Enterprises: The government of India launched the Credit Guarantee Scheme (CGS) so as to strengthen the credit delivery system and facilitate the flow of credit to the MSE sector. To operationalize the scheme, the government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
- Ministry of MSME has taken an initiative for filing online applications by the supplier MSE unit against the buyer of goods/services before the concerned MSEFC of his/her State/UT.
Also read: Redefining MSME Sector In India