Liquidity relief for MSMEs on anvil as government looks at enhancing credit guarantee limit

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Updated: Apr 14, 2020 8:51 PM

Credit and Finance for MSMEs: Under the Credit Guarantee Fund Scheme for MSMEs, the guarantee cover provided to MSMEs is up to 75 per cent of the maximum loan amount of Rs 50 lakh.

Nitin Gadkari assured MSMEs that issues raised will be discussed with relevant ministries and departments.

Credit and Finance for MSMEs: MSME Minister Nitin Gadkari on Tuesday said that he is looking into increasing the amount for credit guarantee to MSME sector even as he stressed on the significance of liquidity in the market. “The minister informed that he is striving to increase credit guarantee to MSMEs to Rs 5 lakh crore from the present level of about Rs 1 lakh crore wherein 75 per cent of the advances granted by financial institutions are guaranteed under the Credit Guarantee scheme of the government,” MSME Ministry cited Gadkari as saying in a webinar with industry representatives. Small businesses across the country are facing existential crisis given the fall in demand and liquidity crunch amid Covid-19 lockdown.

While MSMEs welcomed the effort by the government but also raised concern around the ground-level realities faced by them when seeking credit. “Bankers have their own way of looking at advances to borrowers. It is easier said than done. Funds aren’t available upfront. Banks don’t take the risk and hence such steps are not in line with the requirement of MSMEs. Hence there is a mismatch between the government thinking and bankers at the grass route level. The branch managers have to implement such decisions,” Manguirish Pai Raiker, Chairman — MSME, Assocham National Council told Financial Express Online.

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Under the Credit Guarantee Fund Scheme for MSMEs, the guarantee cover provided to MSMEs is up to 75 per cent of the maximum loan amount of Rs 50 lakh, 85 per cent for loans up to Rs 5 lakh to micro-enterprises, 80 per cent for micro and small enterprises owned by women and all loans to units in Northeast region. Recently in a meeting with the Commerce Minister Piyush Goyal, MSME body FISME had highlighted the three key issues faced by MSMEs currently with respect to liquidity. “The first problem we raised was around MSMEs’ inability to give salaries to their employees. They were somehow able to pay for March but since April is affected due to the lockdown, paying salaries to employees is a serious concern. The second problem we discussed was about the fixed electricity charges to be paid by businesses every month over and above the energy charges. MSMEs’ factories are shut under lockdown but they are forced to pay the amount. In some industries, the amount is crippling,” Anil Bhardwaj, Secretary-General, FISME had told Financial Express Online.

Raikar added that the government should provide credit support over and above the money required for regular business operations. The demand was raised for a “stabilization fund” for MSMEs to manage running expenses for the next six months since they don’t have cash reserves, unlike large industries. “Whatever money was there has been liquidated in the form of interest payments, salaries, statutory payments, GST etc. The stabilization fund is the only way MSMEs can stand on their feet. They are resilient and can bounce back faster than large enterprises.” The MSME minister Gadkari, however, assured MSMEs that issues raised will be discussed with relevant ministries and departments.

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