Credit and Finance for MSMEs: Out of the 15 relief measures announced by the Finance Minister Nirmal Sitharaman on Wednesday under the mega Rs 20 lakh crore stimulus package for the Covid-battered economy, six aimed at bringing lockdown-hit India’s vast MSME sector back to life. MSMEs across sectors and industries have been clamouring for a financial package from the government ever since the lockdown came into force on March 25. Sitharaman sharing the details of the humongous Covid-19 financial package – roughly 10 per cent of the Indian GDP – announced measures to boost liquidity in MSMEs, help them take benefit of the government schemes, enable them to compete with foreign companies, and strengthen their network.
Rs 3 lakh crore collateral-free loans
Banks and NBFCs will offer up to 20 per cent of entire outstanding credit as on February 29, 2020, to MSMEs. Units with upto Rs 25 crore outstanding credit and Rs 100 crore turnover are eligible for taking these loans that will have four-year tenor with a moratorium of 12 months on principal payment. The scheme can be availed till October 31, 2020. The government will provide complete credit guarantee cover to lenders on principal and interest amount.
Rs 20,000 crore subordinate debt
MSMEs declared NPAs or those stressed will be eligible for equity support as the government will facilitate the provision of Rs 20,000 crore as subordinate debt. The government will also provide Rs 4,000 crore to CGTMSE that will offer partial credit guarantee support to banks for lending to MSMEs.
Rs 50,000 crore equity infusion
The government will infuse Rs 50,000 in equity in MSMEs through a Fund of Funds that will be operated through a Mother fund and a few daughter fund. The Fund of Funds will be set-up with a corpus of Rs 10,000 crore to give equity-based funding to MSMEs having growth potential and viability. It will also urge MSMEs to list on stock exchanges.
“The amount allocated for collateral-free automatic loans, subordinate Debt for MSMEs and equity infusion through MSME Fund of Funds amounts to 76 per cent of the credit disbursed to MSMEs during FY20,” said Arun Singh, Chief Economist at Dun and Bradstreet India. During FY20, Rs 450 billion were disbursed to MSMEs under collateral-free loans and units who are likely to face increased risk averseness would benefit hugely from the Rs 200 billion subordinate loans announced for them, he added.
Revised MSME definition
To address MSMEs fear of outgrowing in size to receive benefits given by the government to businesses categorized as per the current MSME definition, Nirmala Sitharaman on Wednesday revised the definition. Under the new definition, manufacturing and service MSMEs will be defined under a common metric that will be a mix of investment in plants and machinery or equipment and turnover.
“Almost 50 per cent of Indian exports come via MSME units. The growth in MSME numbers will likewise increase their contribution to India’s export basket. This will make export-oriented fiscal and policy offerings all the more important in the future,” Pushkar Mukewar, Co-CEO, Drip Capital told Financial Express Online.
Manufacturing enterprises investing less than Rs 25 lakh, less than Rs 5 crore, and less than Rs 10 crore in plant and machinery or equipment were till now defined as micro, small and medium enterprises respectively. For services businesses, the investment threshold limit stood at less than Rs 10 lakh, less than Rs 2 crore and less than Rs 5 crore as micro, small and medium enterprises respectively.
Now, with the revised definition, combining manufacturing and service MSMEs to enjoy same benefits, investment less than Rs 1 crore and turnover under Rs 5 crore will be defined as micro-units while small businesses will be categorized based on investment less than Rs 10 crore and turnover under Rs 50 crore. Medium enterprises will be defined on the basis of investment under Rs 20 crore and turnover less than Rs 100 crore.
“The proposed definitional change for MSME sector based on turnover is progressive and is perfectly synchronized with the GSTN framework. It is time that we now implement this legislation,” said Rajnish Kumar, Chairman, SBI in a statement.
Global tenders disallowed
Addressing MSMEs’ issue of unfair competition from foreign companies in government procurement tenders due to the size and strength differ, the government said it will not allow global tenders in such schemes upto Rs 200 crore. “Necessary amendments of General Financial Rules will be effected,” according to the government document detailing the 15 relief schemes. “Through the recently revised measures, the government has instilled a lot of faith in India’s backbone – the MSME ecosystem. Particularly the collateral-free loans, and the push towards the government procurement tendering will help businesses like us, further innovate and address the upcoming needs of our country,” said Gautam Chopra, CEO, BeatO.
Clearing MSME Dues
Nirmala Sitharaman said that the government and central public sector enterprises will release all pending MSME payments in 45 days. The minister also said that fintech enterprises will be used to boost transaction-based lending using the data by the e-marketplace. This e-market for developing linkages for MSMEs will be promoted to replace trade fairs and exhibitions.