By Ritesh Jain
Credit and Finance for MSMEs: As the Indian government prepares for the upcoming Union Budget, it is essential to address the challenges facing the micro, small, and medium enterprises (MSME) sector.
Consider the story of Ravi, a small business owner in a small town in India. Ravi has always been an entrepreneur at heart, and after years of saving and planning, he finally opened his own business – a small electronics repair shop that serves the local community. However, Ravi quickly realized that running a small business can be challenging. He struggled to navigate the complex regulations and paperwork required by the government and found it difficult to access credit and financing to help grow his business. Despite his best efforts, he struggled to keep up with the competition and eventually had to close his doors.
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Ravi’s story is not uncommon.
Many small business owners, like Ravi, need help to succeed, including difficulties in dealing with the government and accessing credit. These challenges can limit the growth and potential of the MSME sector, which plays a vital role in the economy.
The government can support the MSME sector by increasing lending to these businesses. This can be achieved through various means, such as creating dedicated lending programmes, providing guarantees or subsidies on loans, or expanding the availability of government-backed financing. In particular, the government could consider the following policy changes:
- Enhancing the scope of the guarantee programme for MSME loans: This programme could provide government guarantees on a portion of MSME loans, reducing the risk for lenders and making it easier for these businesses to access credit. Coverage of current schemes as a per cent of overall MSME lending is minimal. Steps to be taken to extend the existing government schemes to NBFCs by removing interest rate and credit rating restrictions in CGTSME and Mudra loans.
- Creating a fund to provide subsidies on MSME loans: The government could set up a fund to subsidize the interest rates on MSME loans, making it more affordable for these businesses to borrow.
- Expanding the availability of government-backed financing: The government could increase the availability of financing options such as the Small Industries Development Bank of India’s (SIDBI) lending programmes, which provide loans and guarantees to small businesses.
- Simplifying Regulation: Ease out the documentation for MSME Loans by classifying all loans given in current accounts as MSME loans for government schemes
- Expanding the scope of government schemes: Extending all government schemes to service providers as well. Historically, schemes have been directed toward manufacturers or people dealing in goods.
Also Read: CIMSME writes to MSME Ministry asking for changes in MSME classification
In addition to increasing lending, the government can also take steps to improve the overall business environment for MSMEs. This could include reducing red tape and regulatory burdens, providing tax incentives or breaks, and investing in infrastructure and other resources to help these businesses grow and thrive. For example, the government could do the following:
- Creating new/enhancing existing Fund of Funds for startup financing: Startups have come up as small businesses in a big way. This Fund can fund investors funding startups.
- Simplify the process for obtaining business licenses and permits: This could involve streamlining the application process and reducing the required documents, making it easier for MSMEs to start and operate their businesses.
- Provide tax breaks for MSMEs: The government could consider providing tax breaks or incentives, such as reducing the corporate tax rate for small businesses or offering deductions for business expenses.
- Invest in technology for MSMEs: Technology is a great leveler between MSMEs and large corporates. Government can subsidize and provide access to SAS-based services to MSME, which can improve their efficiency of operations.
- Support Franchisee business by providing initial franchisee capital via anchor corporates.
Overall, supporting the MSME sector is crucial for the health and vitality of the economy in India. By implementing policy changes that promote lending and support the growth of these businesses, the government can help ensure that the MSME sector remains a crucial driver of economic prosperity.
Ritesh Jain is the co-founder of Flexiloans.com