Make MSMEs to Bloom

The Micro, Small, and Medium Enterprises (MSME) contribute significantly to the economic and social development of the Indian economy through fostering entrepreneurship and generating large employment opportunities at comparatively lower capital costs, next only to agriculture. MSMEs undoubtedly are complementary to large industries as ancillary units. MSME sector thus contributes significantly to the inclusive industrial development of the country. In the true sense, MSMEs are amongst the strongest drivers of economic development, innovation, and employment.
The MSMEs have come under a great challenge under the COVID pandemic. To overcome this challenging situation, there have been some encouraging steps by the Government in the recent past aimed at reviving and sustaining the growth of the MSMEs. Let me first talk about these initiatives.

Upward revision in definition ceilings for MSMEs
The much-awaited decision on the revision of the definition Micro, Small and Medium Enterprises (MSME), which came into effect with the FM announcement in 2020, has been a welcome decision. The old definition of MSMEs as per MSMED Act, 2006 since got revised in 2020 as below:
(i) a micro-enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.
 (ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees
(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
The objective behind the move to shift from a definition based on investment in plant & machinery to the composite criteria of both investment and annual turnover was to incentivize entities to modernize without worrying about losing their MSME status.
Liquidity Support to MSME via Emergency Credit Line Guarantee Scheme (ECLGS)
Government operationalized Rs. 3,00,000 crore collateral-free loan scheme, with an intent to benefit 45 lakh MSMEs. Of which Rs 20,000 crore was made available as subordinate debt for stressed MSMEs. The scheme is a specific response to the unprecedented situation arising out of COVID-19.
•      Under ECLGS 1.0, an emergency credit line was offered to MSMEs and other businesses from banks and NBFCs up to 20% of their entire credit outstanding as of February 29, 2020. MSMEs with up to Rs 25 crore outstanding and Rs 100 crore turnover were eligible. However, the turnover cap was removed post amendment in November 2020. Repayment of principal and interest under ECLGS 1.0 was in 36 months.
•      ECLGS 2.0 was amended on November 26, 2020. The amended version focused on entities in 26 stressed sectors identified by the Kamath Committee along with the healthcare sector with credit outstanding of more than Rs 50 crore and up to Rs 500 crore as of February 29, 2020. The scheme also mandated borrower accounts to be less than or equal to 30 days past due as of February 29, 2020, that is, they should not have been classified as SMA 1, SMA 2, or NPA by any of the lenders as of February 29, 2020
•      Under ECLGS 3.0 announced in March 2021, the government intended to cover enterprises in hospitality, travel & tourism, leisure & sporting sectors as well and had extended the overall emergency credit scheme including the previous two versions by three months from March 31, 2021, till June 30, 2021, or until guarantees for the entire Rs 3 lakh crore amount are issued.
•      Also, Finance Ministry extended its scope to cover stressed businesses that have loan dues for up to 60 days (SMA-1 accounts), vis-a-vis 30 days earlier (SMA-0).
•      Government also removed the limit of Rs 500 crore loan outstanding for eligibility under ECLGS 3.0 subject to maximum additional ECLGS assistance to each borrower is limited to 40 % or Rs 200 crore, whichever is lower. Finance Ministry also extended the scope of ECLGS 3.0 to cover the Civil Aviation sector.
•      Under ECLGS 4.0, availing for a tenor of five years for ECLGS loan was made, that is, repayment of interest only for the first 24 months with repayment of principal and interest in 36 months thereafter.
•      100 % guarantee cover to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants with the interest rate capped at 7.5 %.
•      Finance Minister announced on 28 June 2021 an additional ₹ 1.5 lakh crore for emergency credit line guarantee scheme (ECLGS), which will facilitate loans through microfinance institutions to 25 lakh persons. Overall cap of admissible guarantee raised from Rs 3 lakh crore to Rs 4.5 lakh crore.
•      Any queries/suggestions related to ECLGS can be raised to
ECLGS has helped a lot to businesses. Even if MSMEs were able to reduce their cost by 5 % then also it is a huge relief. The scheme has certainly helped in the viability of the unit as the entire financials of a business became stronger. Moreover, they have also been able to attract labor back. A lot of this money was used for repayment of an existing debt by MSMEs as the interest rate charged under ECLGS by banks was capped at 9.25 % instead of the usual 14-15 % in a regular bank loan, in a situation they were not receiving their payments from buyers and were not able to pay their debts. But how much of that money went for growth capital and how much for servicing old debt is not known.
With now 100 % guarantee cover to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants with the interest rate capped at 7.5 %, is another cost-effective relief.
Rs 20,000 crores Subordinate Debt for Stressed MSM
Two lakh MSMEs were likely to benefit, including functioning MSMEs that are NPA or are stressed were made eligible under this scheme. The government announced providing support of Rs 4,000 Cr. to CGTMSE, which in turn provides partial Credit Guarantee support to Banks.
Promoters of the MSME will be given debt by banks, which will then be infused by the promoter as equity in the Unit.
Global tenders to be disallowed up to Rs 200 crores
Indian MSMEs and other companies have often faced unfair competition from foreign companies.
Therefore, the decision of the Indian Government to disallow Global tenders in Government procurement tenders up to Rs 200 crores is an appreciable decision.
This will be a step towards Self-Reliant India and support Make in India. This will also help MSMEs to increase their business.
MSME loan growth vis-à-vis Total Advances portfolio growth (prior COVID period)
The pace of growth for MSMEs loans by and large by the banks has been lower barring few exceptions, when compared with total advances growth, as evident from the historical data.

The fact is that out of 63 million MSMEs in the country (as per the latest data of the National Sample Survey available), 99 % in numbers are micro-enterprises. Also, not more than 10% of MSMEs are on the formal financing platform. This indicates a tremendous scope for financial intermediation by the formal sector including banks, financial institutions, and NBFCs.
The following two schemes, I would like to talk, needs to be given significant encouragement by the banks for MSMEs.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Availability of bank credit without the hassles of collaterals / third party guarantees is a major source of support to the first-generation entrepreneurs to realize their dream of setting up a unit of their own Micro and Small Enterprise (MSE).
 CGTMSE introduced a new “Hybrid Security” product allowing guarantee cover for the portion of credit facility not covered by collateral security. In the partial collateral security model, the Member Lending Institutions (MLIs) are permitted to obtain collateral security for a part of the credit facility, whereas the remaining part of the credit facility, up to a maximum of 200 lakh, can be covered under Credit Guarantee Scheme of CGTMSE. CGTMSE will, however, have a pari-passu charge on the primary security as well as on the collateral security provided by the borrower for the credit facility.
 The main objective of CGTMSE is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loans and working capital facilities from a single agency.
 In the event of an MSE unit, which availed collateral-free credit facilities, fails to discharge its liabilities to the lender, the CGTMSE would make good the loss incurred by the lender at 75% of the credit exposure above Rs. 50 lakh and up to Rs. 200 lakh (85% for loans up to Rs. 5 lakh provided to micro-enterprises, 80% for MSEs owned/ operated by women, and all loans to North Eastern Region).
Credit Linked Capital Subsidy Scheme (CLCSS)
The benefit to MSEs under CLCSS is not going because of unawareness by and large with them. There is a much-needed requirement for disseminating awareness and the benefits of this scheme.
The objective of CLCSS is to facilitate technology to MSEs through institutional finance for induction well established and proven technologies in the specific sub-sectors/products approved under the scheme. There is an upfront subsidy of 15% on institutional credit up to Rs. 1.0 crore (i.e., a subsidy cap of Rs. 15.00 lakh) for identified sectors/ subsectors/ technologies.
All Scheduled Commercial Banks are acting as Primary Lending Institutions (PLI) through 11 Nodal Banks/Agency (SIDBI, NABARD, SBI, Andhra Bank, PNB, BoB, Canara Bank, Corporation Bank, Indian Bank, Bank of India & TIICL). The subsidy has also been made admissible for investment in acquisition/replacement of plant & machinery/equipment & technology up-gradation and the detailed operational guidelines are available on the official website of this office i.e., under icon TECH-UP.

MSMEs contribute substantially to our country’s manufacturing output, exports as well as GDP while creating employment for about 111 million people, which in terms of volume stands next to the agricultural sector. MSMEs are the backbone of our economy and thus need to be supported strongly, for an enhanced multiplier impact on our economy.

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