ECLGS: 57% MSMEs found it difficult to avail Modi govt’s credit guarantee scheme, says report

Credit and Finance for MSMEs: 39 per cent loans under ECLGS 1 and 2 were distributed among traders while 35.8 per cent were deployed among services businesses including transport operators, professional services, hospitality, and others.

65 per cent respondents said ECLGS credit helped them ease their financial problems. (Image: Pixabay)

Credit and Finance for MSMEs: One of the largest post-Covid credit schemes by the government for MSMEs to recover from the pandemic impact – Emergency Credit Line Guarantee Scheme (ECLGS) wasn’t actually quite easy to be availed for a significant share of eligible borrowers. Based on sample data of loans amounting to Rs 1.45 lakh crore disbursed out of Rs 1.7 lakh crore in overall disbursement under ECLGS 1.0 and ECLGS 2.0 till March 2021, 57 per cent of borrowers said it wasn’t easy to avail the credit facility. In fact, bigger entities found it easier to avail ECLGS vis-a-vis very small businesses, according to the data analysed in a report by TransUnion Cibil.

For instance, 61 per cent of very small borrowers with exposure less than Rs 10 lakh said it wasn’t easy for them to avail credit under ECLGS in comparison to 52 per cent borrowers with credit exposure between Rs 10 lakh to Rs 1 crore who said it wasn’t easy to avail the scheme. Those with exposure between Rs 1 crore and Rs 10 crore, 49 per cent of them found it difficult to raise credit under ECLGS, the report said analysing a total of 756 responses.

Moreover, respondents who had non-banking financial companies (NBFCs) as their lenders under ECLGS reported the highest negative response rate of 66 per cent in terms of ease of availing credit against 58 per cent respondents who raised credit via private banks and 53 per cent who secured funds through public sector banks.

“The survey didn’t include the question on reasons why it wasn’t easy for 57 per cent of borrowers to avail the scheme,” a TransUnion Cibil spokesperson told Financial Express Online.

“The fact was that banks didn’t show much promptness and willingness to support even their own MSME customers. Even after the scheme was launched, it took months for many banks’ branches to start disbursement. I had also experienced a similar challenge in raising credit. Bank branches keep waiting for their board approval to disburse amounts under different credit schemes. They must do some introspection internally as to why they couldn’t provide prompt support on a war footing in situations like Covid when the government had already been taking guarantees for the loans,” Rajiv Chawla, Chairman, JaiRaj Group, and Chairman also at the MSME association — IamSMEofIndia told Financial Express Online.

Nonetheless, 65 per cent respondents did say that ECLGS credit helped them ease their financial problems. In terms of usage, 41 per cent deployed the funds to restart their business operations while 40 per cent used it for clearing existing dues of vendors. 12 per cent respondents used funds to pay salaries. Importantly, in terms of future outlook, 68 per cent respondents were confident of their business ahead while only 6 per cent respondents had a negative outlook and 24 per cent weren’t sure of how the future would pan out.

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“ECLGS support has significantly helped in revitalizing the MSME sector which forms the backbone of India’s economic engine. Public sector banks led from the front on the implementation of ECLGS. They efficiently channelled credit infusion to deserving MSMEs in a timely manner by astutely utilizing credit information analytics and digital drivers. Credit infusion through the ECLGS has set the MSME sector on a long-term and sustainable growth trajectory which bodes well for the resurgence of India’s economy,” said Rajesh Kumar, MD and CEO, TransUnion Cibil in a statement.

In terms of distribution, 39 per cent loans under ECLGS 1 and 2 were distributed among traders, of which 90 per cent was to retail traders and 10 per cent to wholesale traders. 35.8 per cent loans were deployed among services businesses including transport operators, professional services, hospitality, commercial real estate, computer software, and shipping. The remaining 4.9 per cent was raised by units into food processing, followed by textiles (3.3 per cent), vehicle parts and transport equipment (1.7 per cent), construction (1.2 per cent), engineering (1 per cent), and wood/wood products (0.6 per cent).

In terms of non-performing assets (NPAs), based on 15 lakh ECLGS accounts whose performance details were available with TransUnion Cibil as of March 2021, close to 2 per cent were NPAs. On the other hand, at the borrower level (including all open loan accounts), 6.1 per cent ECLGS borrowers had at least one loan account which was NPA as of March 2021. According to the study, the performance was better for these borrowers than those who were eligible but hadn’t availed the credit facility. However, the percentage of special mention account (SMA) was higher at 15.95 per cent for borrowers who availed of the facility, thereby indicating risk build-up in comparison to 9.98 per cent SMA for those who hadn’t raised credit under ECLGS. SMAs signal incipient stress in the business that leads to defaults in debt servicing.

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