Sunday, July 11, 2021

Demands of MSMEs -Will the Government pay heed to it?

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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