Interventions being examined included interest subvention for working capital, credit guarantees, refinance and some form of support towards equity, they said, adding that a special window for women entrepreneurs was also being considered.
A final decision will be taken closer to the budget, which is to be presented on July 23.
“Low-cost funding still remains an issue for MSMEs… The idea is to ease credit access to the sector,” said one of the people cited above. “This could bring significant sections… into the fold of the formal economy.” The idea is to provide additional support for collateral-free lending to help the sector grow.
According to a parliamentary standing committee report, the MSME sector contributes around 30% to India’s GDP, 45% to manufacturing output and 48% to exports. The committee further noted that the credit gap in the MSME sector is estimated at ₹20-25 lakh crore. In last year’s budget, an infusion of ₹9,000 crore into the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE) was announced. This is aimed at enabling additional collateral-free guaranteed credit of ₹2 lakh crore and reducing the cost of the credit by about 1%. Support for this fund could also be enhanced, said the people cited above.The house panel suggested creating a digital ecosystem for lending to MSMEs and adopting cash-flow-based lending. It pointed out that less than 40% of MSMEs avail of credit from formal financial systems, instead depending on costly and unreliable sources.
CGTMSE provides credit guarantees for loans up to ₹5 crore. However, banks insist on additional collateral, which means the scheme isn’t very popular, said industry officials, adding that awareness is also limited.
Content Source: economictimes.indiatimes.com