Credit and Finance for MSMEs: The Emergency Credit Line Guarantee Scheme (ECLGS) saved the livelihood of 6 crore families of workers employed in MSMEs as nearly 13.5 lakh MSME loan accounts were saved with credit support, said a State Bank of India report authored by Group Chief Economic Adviser Soumya Kanti Ghosh on Thursday. 93.7 per cent of such accounts were of micro and small enterprises. In absolute terms, accounts worth Rs 1.8 lakh crore were saved from slipping into NPA during the Covid period. This was equivalent to 14 per cent of the outstanding MSME credit being saved from becoming NPA, the report added.
“If these units had turned nonperforming, then 1.5 crore workers would have become unemployed. In effect, the ECLG scheme saved the livelihood for 6 crore families (assuming four family members per worker including herself),” Ghosh wrote. Traders including small kirana store owners benefitted the most through the scheme. MSMEs in food processing, textiles, and commercial real estate were other top sectors that benefitted. In terms of top states, Gujarat was the biggest beneficiary followed by Maharashtra, Tamil Nadu, and Uttar Pradesh.
Launched in May 2020, Rs 2.28 lakh crore ECLGS loans were disbursed as of November 12, out of Rs 2.82 lakh crore loans sanctioned, as per data from the National Credit Guarantee Trustee Company (NCGTC) cited by the Reserve Bank of India (RBI) in its Financial Stability Report. 66 per cent of the ECLGS guarantees were issued to MSMEs wherein 1.02 crore micro units received guarantees worth Rs 65,771 crore followed by 4.98 lakh small enterprises that were given Rs 66,345 crore worth guarantee. Only 2.60 lakh medium enterprises were able to get guarantees worth Rs 42,041 crore.
Ghosh also noted the need for replicating best practices from ECLGS to reorient the current credit guarantee fund trust for micro and small enterprises (CGTMSE), which provides credit guarantee to financial institutions to provide collateral-free loans to small businesses, to enhance its adoption. “Interestingly, CGTMSE portfolio have a 55 per cent-plus recovery rate, low portfolio delinquency, low capital requirement but still an unpopular product. Conversely, the non CGTMSE portfolio / collateralised has a 25 per cent recovery rate, high portfolio delinquency implying much higher loan loss provisions with the high capital requirement but still a popular portfolio,” said Ghosh.
To make it work, Ghosh suggested enhancing the scope and role of the current CGTMSE portfolio by setting up an institution that will exclusively administer the CGTMSE along the lines of the US Small Business Administration. Moreover, since more than 90 per cent of the units are in the micro sector, CGTMSE coverage may be made mandatory for all enterprises up to Rs 2 crores.
As of January 6 in the current financial year, 5.14 lakh CGTMSE applications involving Rs 37,566 crore were received, of which only 18,502 involving Rs 397 crore were settled. In FY21, 6.19 lakh applications amounting to Rs 31,349 crore were received and only 26,427 involving Rs 565 crore were settled – lowest since FY15 due to Covid, data from MSME Dashboard showed.