The MSME sector contributed about 30% to the Indian GDP in 2018-19. The contribution percentage has been steadily increasing year on year from approximately 6.5 crore MSMEs present today.
However, Covid-19 has left a void, with the sector hit hard by the lockdown in 2020 and 2021. Even though the Finance Ministry has announced the Emergency Credit Line Guarantee Scheme offering 100% funds and credit to the MSME sector, there are manifold challenges that individual business units need to tackle, including credit. Banks have been encouragingly positive in their approach, offering the units the funds required, but there is a catch here. Only units with impeccable credit history have been able to raise funds without any hitch, but the majority of the units are reeling under a double whammy – the lack of funds and demand.
Demands of MSMEs
1.
Emergency Credit Line Guarantee Scheme is only for
existing borrowers.
Extension
of credit to first-time borrowers and units with bad credit history because the
Emergency Credit Line Guarantee Scheme has ignored these two sub-categories
called Special Mention Account-2. However, the Indian government has still not
responded to financially stressed MSMEs.
2.
Interest rates are at par with market rates.
Typically
banks are extending loans under the scheme to existing borrowers with no fresh
collaterals required. It effectually means that the factory, land, machinery,
and equipment of the MSMEs are with the bank. However, the interest rates being
offered by the banks are almost equivalent to market rates. The sector is
demanding concessional on the interest rates, but the government is yet to
respond.
Not
just that, while state-owned banks have a lending cap of 9.25%, the Non-Banking
Financial Companies can lend up to 14%. Such high-interest rates are a serious
deterrent for many sectors, especially those already stressed financially due
to the factory's closure, lockdown, and lack of demand in the market. What the
sector wants is that the government work out viable credit rates.
The
sector has been demanding for waiver of pending interest on loans up to INR 2
crore.
3.
Tackling costs
That is one grey area that the MSME sector would certainly need help
from the government. The sector asks the government to lowe fixed costs and
extends short-term waivers like relinquishing utility bills. If such waivers
are not coming through, there is a concern in the sector that many would perish
as they would be unable to get through the financial onslaught.
4.
Paperwork in
getting loans from banks
Another issue that the MSME sector is consistently asking the government
to reconsider is reducing the paperwork required to get credit from banks. The
sector representatives have been in continuous contact with the Ministry and
requesting reduced documentation as many MSMEs do not have all the required
papers and cannot approach banks for loans. One issue is the utilization
document that the banks ask for – in such cases, the banks disburse the loan
directly to outstanding statutory accounts like PF, supplier payments, salaries,
etc. As a result, the final amount that reaches the unit is considerably low.
Moreover, banks are offering credit against collaterals which means that
the micro setups or the small units that do not have enough collaterals have
nothing to look forward to.
5.
Help with
marketing
Different schemes like the Marketing Assistance Scheme and Marketing
Assistance & Technological Upgradation are different schemes launched by
the government to help in marketing products from the MSME sector through
exhibitions, trade fairs, etc. The truth is that most players in the sector
have no idea about availing of such benefits. Also, the sector wants more
involvement from the government.
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