Access to Credit will Boost MSME Growth

The Indian MSME sector has expanded substantially over the years and contributes significantly to India’s growth and employment. MSMEs contribute approximately 45% of India’s manufacturing output, 40% of the overall Indian exports and provide employment to around 117 million people. With a large presence of MSMEs in the Indian rural sector, these enterprises are key for the sustainable and inclusive development of the country.

In recognition of the growing importance of the MSME sector for the growth of the Indian economy, the Confederation of Indian Industry (CII) has come up with several recommendations for boosting the growth of the sector. These recommendations pertain to various factors that are crucial for MSME growth such as access to finance, the role of credit institutions, access to technology, ease of doing business, among others.

Easy availability of credit is crucial to the success of MSME, especially for new entrepreneurs. The Government has brought out the MUDRA scheme for providing loans for small ventures which has delivered significant results. Some other policies would further unlock the potential of small entrepreneurship.

Finance

Many enterprises are at the early stages of their operations and therefore collateral requirements for these enterprises must be relaxed. Loans should be sanctioned on the financial viability of the proposed business ventures and primary security.

The loan appraisal format for MSMEs must be standardized with uniform application forms, scoring models etc.

The disposal of loan applications should have a fixed time frame to ensure smooth flow of credit. Loans must be disbursed within 2 weeks for loans amounting to Rs 25 lakhs, within 3 weeks for loans between Rs 25 lakhs and Rs 1 crore and within 4 weeks for loans amounting to more than  Rs 1 crore.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), that facilitates flow of collateral free credit to MSMEs, should review the data towards the credit sanctioned by the banks to MSMEs.

It has also been recommended that the Processing fee by banks and NBFCs on loans upto Rs. 5 lakhs should not be levied.

Regular monitoring by banks, post loan disbursement for evaluating the progress of the projects is recommended. The banks should monitor progress by verifying with creditors and debtors, enquiring the business relations of the funds transferred to other company / firm or persons and the transactions, visits made and market report, credit facility extended etc.

Credit Institutions                                                                   

It is recommended that comprehensive data should be made available to financial institutions for greater transparency and smoother credit flow to Indian MSMEs.

Online templates should be developed for Indian MSMEs, which when filled up would provide instant ratings.

It is also recommended that MSMEs should obtain permission from banks before changing the business activity or diversifying into new business activity which constitutes or is projected to constitute more than 25 % of the turnover or fixed investment.

Non Banking Financial Institutions (NBFCs) should be reigned into the formal banking structure for credit expansion for MSMEs. The Central government should allow highly rated, large and credible NBFCs to frontend the subsidies and schemes such as CGTMSE, Credit Linked Capital Subsidy Scheme for Technology (CLCSS) etc. to improve penetration of these schemes to the MSMEs.

To ensure direct disbursement of loans and grants to MSMEs with extended timelines, important NBFCs should be allowed to act as business correspondents for Central Government Development Fund and Agency (s) like North Eastern Development Finance Corporation Ltd., MUDRA Banks etc.

Strict implementation of the penalty of 3 times bank charges on defaulters, as provided in the MSMED Act must be ensured along with stringent monitoring through MSME Facilitation Councils for time-bound resolution of delayed payments to MSMEs.

GST on imports including both CGST and SGST should be eliminated, with banks to allow funding of Input Tax Credits for Bill discounting, enhancing limit of 18% and increase the period from 90 to 120 days.

CII Activities

CII has been actively involved in the development of the Indian MSME sector for years and recognizes the importance of the sector in fostering the Indian growth story. For enhancing the competitiveness of the sector, the CII National MSME Council has initiated various programs and initiatives, including for access to finance.

Interactions with various Government Ministries, including the ministry of MSME on various policy areas, have helped to introduce changes such as redefinition of MSME, public procurement policy for MSME, addressing non-performing assets and so on.

The CII Finance Facilitation Centers bring together banks and financial institutions with MSME to enable them to obtain credit. The CII National Vendor Development Programme 2017 helps central public sector enterprises to connect with MSME for supplies.

The MSME sector has the potential to spur industrial and inclusive growth in the country and CII recommendations in this context on boosting the Indian MSME sector would ensure a holistic development of the sector.

 

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