Credit and Finance for MSMEs: Finance Minister Nirmala Sitharaman in her budget speech this year had announced the rollout of the Raising and Accelerating MSME Performance (RAMP) programme in the coming five years. RAMP has been one of the initiatives by the government to revitalize micro, small and medium enterprises in the post-Covid world. However, it is perhaps one of the largest mid-to-long-term initiatives in size and scope in recent years dedicated to MSMEs.
What is RAMP
RAMP is a central government scheme in partnership with the World Bank for five years – FY22 to FY26 to boost productivity and financing for Covid-hit MSMEs. It was announced last year with a total project cost of Rs 6,062.45 crore, of which World Bank’s contribution was earmarked at Rs 3,750 crore under the Credit Linked Capital Subsidy and Technology Upgradation Scheme.
The programme was launched on the basis of the recommendations from the UK Sinha Committee report in June 2019. The report had suggested multiple regulatory, financial, and implementation reforms for targeted interventions among MSMEs to solve their recognized challenges, the most prominent being lack of access to affordable credit and capacity building.
Importantly, RAMP is the second programme by the World Bank for MSMEs that was approved in June last year. The first programme Emergency Response Program for Micro, Small, and Medium Enterprises of $750 million (around Rs 5,600 crore) was signed in June 2020 with the Indian government.
The programme had targeted to address the immediate liquidity needs of around 1.5 million MSMEs. The credit was routed through targeted guarantees to incentivize non-banking financial companies (NBFCs) and banks to lend to viable MSMEs. While the latest data on the MSMEs supported under the first programme was not disclosed, 50 lakh firms had accessed finance from the first programme as of June 4, 2021, as per the World Bank.
How it will help MSMEs
The World Bank had last year targeted to support 5.55 lakh MSMEs through the RAMP programme. The initiative will broadly focus on first, strengthening institutional capacity and coordination for MSMEs, and second, supporting MSMEs’ capabilities and access to markets and finance.
“At the national level, MSME policies and programmes are implemented across ministries and departments, including key players such as the Reserve Bank of India (RBI) and the Small Industries and Development Bank of India (SIDBI). There are also myriad state-level initiatives with limited coordination amongst them. There is a need for “convergence” of policies, programs, and schemes at all levels,” World Bank had said in a statement.
To bring that convergence, the programme will help set up a high-level MSME Council to enable better coordination between national and state-level programmes. Moreover, state-level Strategic Investment Plans (SIPs), according to the World Bank, will provide a roadmap and measurable metrics; enhance the capacity of the MSME ministry to design, implement and assess policies and programmes through digital platforms and data systems.
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Further, it would provide better access to finance and working capital for MSMEs and scale-up online dispute resolution mechanisms to address the problem of delayed payments. The World Bank said such efforts are expected to improve the cost-effectiveness, quality, accessibility, impact, and outreach of such schemes.
“The RAMP programme will intensify efforts to support firms to return to pre-crisis production and employment levels while laying the foundations for longer-term productivity-driven growth and generation of much-needed jobs in the MSME sector,” Junaid Ahmad, World Bank Country Director in India had said in the statement last year.
Out of around 58 million MSMEs in India, more than 40 per cent lack access to formal sources of finance, according to The World Bank. As per the MSME Ministry, the sector has created 11 crore jobs in India. Importantly, India’s unemployment rate had recorded a sharp drop to 6.57 per cent in January — lowest since March last year on the back of gradual economic recovery with relaxation in Covid restrictions along with a decline in Omicron cases, as per the Centre for Monitoring Indian Economy (CMIE).
“To boost employment, particularly in the MSME sector and also to improve their productivity and financial viability, skill enhancement is needed more than skill development. What you make is important but how you make is more critical and also how efficiently you can make. MSMEs must clearly define their product markets, study them, and then look at launching products to cater to the right demand,” Debdulal Saha, Assistant Professor — Humanities and Social Sciences, Indian Institute of Science Education and Research, Mohali told Financial Express Online.
According to India Ratings & Research, the RAMP programme will help the MSME sector in scaling up by providing formal sources of finance, acting as a platform where MSMEs and suppliers can come together. Also, “the large-scale, cost-effective integration to be implemented under the RAMP scheme will enable the Ministry of MSME and states to improve its monitoring and evaluation capacity which will bridge the information gap and improve the efficiency of the system,” the rating agency had said on Tuesday.
What’s the current status
The detailed guidelines around eligibility criteria, application and disbursement process, repayment, and more are yet to be rolled out. Moreover, state-wise investments and approvals for the programme have not been made since Cabinet approval for RAMP is awaited, MSME Ministry had said in a statement in December last year.
RAMP will focus on five first mover’ states – Gujarat, Maharashtra, Punjab, Rajasthan, and Tamil Nadu that are home to reportedly 54 per cent of all registered MSMEs in the country. The 3,750-crore loan from World Bank’s lending arm — International Bank for Reconstruction and Development (IBRD) has a maturity of 18.5 years including a 5.5-year grace period.
“Beyond the credit support through such large programmes, if there is one area that needs more attention, it is MSME clusters. They play a big role in the success of MSMEs due to the ecosystem or network effect they create. China has championed cluster development for their businesses. The current pace of cluster development in India is not enough to enable the large scale growth of MSMEs. There is a larger ecosystem needed with the presence of bigger firms from respective sectors to strengthen the supplier-buyer relationship,” Dr Rajdeep Singha, Assistant Professor, Centre for Labour Studies & Social Protection at Tata Institute of Social Sciences (TISS), Guwahati told Financial Express Online.