Credit and Finance for MSMEs: In 15 relief measures announced by the Finance Minister Nirmal Sitharaman of Rs 20 lakh crore package, six aimed at bringing lockdown-hit India’s vast MSME sector back to track
Credit and Finance for MSMEs: In 15 relief measures announced by the Finance Minister Nirmal Sitharaman of Rs 20 lakh crore package, six aimed at bringing lockdown-hit India’s vast MSME sector back to track MSMEs across areas and industries have been demanding for a financial package from the government always since the lockdown came into drive on March 22. Nirmala Sitharaman giving the details of the Covid-19 financial package – approximately 10 % of the Indian GDP – declared measures to increase liquidity in MSMEs, support them take advantage of the government schemes, allow them to compete with foreign organizations, and grow their network.
Rs 3 lakh crore collateral-free loans
Banks and NBFCs will contribute up to 20% of the entire outstanding credit as of February 29, 2020, to MSMEs. Business up to Rs 25 crore outstanding dues and Rs 100 crore turnover is qualified for taking these loans this will have 4-year tenure with a moratorium of 12 months on principal payment. The scheme can be benefited until October 31, 2020. The government will give a complete credit guarantee cover to banks on the principal and interest amounts.
These are collateral free automated loans, borrower will not have the compulsion of given any security or collateral to avail of this facility accordingly no guarantee fee will be taken by banks.
Rs 20,000 crore subordinate debt
MSMEs announced NPAs or those stressed will be suitable for investment support as the government will help the provision of Rs 20,000 crore as subordinate debt. The government will also give Rs 4,000 crore to CGTMSE that will grant partial credit guarantee support to banks for lending to MSMEs.
Rs 50,000 crore equity introduction
The government will introduce Rs 50,000 in equity in MSMEs via Fund of Funds that will be run through a Mother fund and a few daughter fund. The Fund of Funds will be set-up with an amount of Rs 10,000 crore to provide equity-based funding to MSMEs having growth potential. It will also support MSMEs to list on stock exchanges.
The amount allotted for collateral-free automatic loans, subordinate Debt for SMEs, and equity infusion through MSME Fund of Funds amounts to 76 % of the credit disbursed to MSMEs during FY20. During FY20, Rs 440 billion were paid to MSMEs under collateral-free loans, and units who are likely to face increased risk averseness would profit hugely from the Rs 200 billion subordinate loans declared for them.
Revised MSME definition
To address Msme’s worry of outgrowing in size to take benefits provided by the government to businesses categorized as per the current MSME definition, Nirmala Sitharaman on Wednesday changed the definition. Under the new definition, manufacturing and service MSMEs will be defined under a standard metric that will be a mix of investment in plants and machinery and turnover.
About 50% of Indian exports come through MSME units. The growth in MSME numbers will furthermore enhance their contribution to India’s export unit.
Manufacturing businesses investing less than Rs 25 lakh, less than Rs 5 crore, and less than Rs 10 crore in plant and machinery or equipment were till now described as micro, small and medium enterprises. For services businesses, the investment threshold limit reached less than Rs 10 lakh, less than Rs 2 crore and less than Rs 5 crore as micro, small and medium enterprises.
Now, with the updated definition, blending manufacturing and service MSMEs to enjoy the equal benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be described as micro-units while small businesses will be classified based on investment less than Rs 10 crore and turnover under Rs 50 crore. Medium enterprises will be described on the base of investment under Rs 20 crore and turnover less than Rs 100 crore.
The recommended definitional change for the MSME sector based on turnover is openminded and is perfectly sync with the GSTN structure.
Global tenders not allowed
Addressing MSMEs’ problem of unethical competition from foreign companies in government acquisition tenders due to the size and power differ, the government stated, global tenders are disallowed in such schemes up to Rs 200 crore. “Necessary measures of General Financial Rules will be affected,” according to the government document describing the 15 relief schemes. “Through the newly revised measures, the government has inspired a lot of faith in India’s backbone – the MSME ecosystem. Especially the collateral-free loans, and the drive towards the government acquisition tendering will help enterprises like us, further innovate and address the forthcoming needs of our country
Clearing MSME Dues
Nirmala Sitharaman stated that the government and central public sector businesses will clear all pending MSME payments in 45 days. The minister also said that fintech companies will be used to expand transaction-based lending using the data by the e-marketplace.