Credit and finance for MSMEs: Enhancing access to affordable credit by small businesses remains the predominant ask from experts in the MSME ecosystem of the country in the upcoming union budget 2023-24. While the government post-Covid had implemented a number of policies including the emergency credit scheme ECLGS, subordinate debt scheme, revised MSME definition, SRI Fund and more, there is certainly room to enhance the scope of existing measures to fill the vast credit gap in the MSME sector, which was estimated to be Rs 20-25 lakh crore, according to a 2019 report by the UK Sinha Committee constituted by the Reserve Bank of India.
For instance, encouraging central and state public sector enterprises and corporations in the budget to participate on the trade financing platform TReDS. “Despite the government’s mandate, there is very little participation on the TReDS platform by CPSEs and PSUs. PSUs should begin transacting on the TReDS platform in order to clear their payments to MSMEs on time, which will help TReDS realize its full potential. At 12.47 per cent, the share of CPSEs in total transactions on RXIL is pitifully low,” said Ketan Gaikwad, MD and CEO of Receivable Exchange of India (RXIL). The company (a joint venture by SIDBI and NSE) is among the portals which operate TReDS.
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According to the government data on the MSME dashboard, out of 4,714 companies with over Rs 500 crore identified by the corporate affairs ministry for TReDS, only 1,673 companies were registered as of January 1, 2023.
With respect to the delayed payments issue impacting the competitiveness of the MSME sector, Gaikwad suggested building public conversations on the issue by leveraging platforms such as Prime Minister Narendra Modi’s radio programme Mann Ki Baat, which have proven to drive large-scale behavioural change campaigns, so that the process of breaking through the normalization of delayed payments can be started.
Moreover, the government can add delayed payments as an indicator within the ease of doing business 2.0 framework which is currently under development by the Department of Promotion of Industry and Internal Trade (DPIIT) and also mandate all miniratna, maharatna, and navratna companies to transact on TReDS, he added.
Another area is around increasing the credit limit under the government’s MUDRA loan scheme and streamlining its criteria. Currently, MUDRA refinance is available only up to Rs 10 lakh for micro and small business for income-generating activities in the manufacturing, trading, and services sector along with activities allied to agriculture. Rajesh Sharma, Managing Director at MSME and home loan-focused non-banking financial company Capri Global Capital said the government could look into increasing the credit limit and give broad contours for eligibility – age, ticket size, end-use, cost of funds to intermediating NBFC, etc.
Also read: Budget 2023: Fixing MSMEs’ delayed payments, credit, GST related issues must, say experts
“The policymakers could set guidelines for the intermediating NBFCs to define underwriting criteria such as classification norms for secured and unsecured loans, disbursement timeline, documentation requirement and loan amount. It will boost the fiscal growth of entrepreneurs in the micro category between Rs 1 million to Rs 5 million,” said Sharma.
The scheme had sanctioned over 16.67 crore loans involving Rs 9.98 lakh crore in the last three financial years (FY20-FY22), Finance Minister Nirmala Sitharaman had said in a written reply to a question in the Lok Sabha in December 2022. Out of the total loans sanctioned, 68 per cent or 11.08 crore loans were sanctioned to women borrowers while in terms of the sanctioned amount, 44 per cent or Rs. 4.42 lakh crore out of the total amount was extended to women entrepreneurs in three years.
Along with credit, boosting technology adoption is critical and hence the government should also focus on increased spending on technology infrastructure in the budget for the MSME sector so that it makes access to technology easier for MSMEs, said Sandip Chhettri, CEO of the B2B e-commerce platform Tradeindia.com.
“For MSMEs, digitalisation can act as a catalyst for generating new opportunities for growth. It can help with capturing and retaining a skilled workforce. If India wants to compete globally and become the world’s manufacturer, it needs to help its MSMEs expedite digitisation to unlock its true potential by leveraging technology in hiring,” added Chhettri.
Importantly, according to a recent report by consulting firm Bain & Company in collaboration with venture capital firm Accel, over 15 million MSMEs are projected to buy and sell online from the current 6 million and create 7 million jobs as well by 2027 from over 3 million so far on the back of growing digital penetration in the MSME sector. This would be accompanied by growing to 400 million to 450 million online shopper base from the current 200 million to 230 million as marketplaces are slated to collectively achieve over $350 billion in gross merchandise value (GMV) in five years.
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