Credit and Finance for MSMEs: India’s distressed MSME sector got another push from the government today with the launch of a Credit Guarantee Scheme to help the country’s Micro, Small and Medium Enterprises. As Prime Minister Narendra Modi looks to make India self-reliant by bolstering manufacturing, Union Minister Nitin Gadkari on Wednesday rolled out a subordinate debt scheme to provide Rs 20,000 crore guarantee cover to two lakh micro, small and medium enterprises. This also entails a sub-debt facility to the promoters of those operational MSMEs that are distressed or have become non-performing assets (NPAs) as on 30 April 2020. It also guarantees cover to the promoters who can take debt from the banks to further invest in their stressed MSME units as equity.
“It was being felt that the biggest challenge for stressed MSMEs was in getting capital either in the form of debt or equity. Therefore, as part of Atmanirbhar Bharat package, on May 13, 2020, Finance Minister (Nirmala Sitharaman) had announced this scheme of sub-ordinate debt to the promoters of operational but stressed MSMEs,” a statement from the Ministry of Micro, Small & Medium Enterprises said. The scheme was launched in Nagpur after securing approvals from the Cabinet Committee on Economic Affairs and consultation with the finance ministry, SIDBI and the Reserve Bank of India (RBI).
Under the scheme, promoters of the MSMEs will be given credit equal to 15% of their stake (equity plus debt) or Rs 75 lakh, whichever is lower. In turn, promoters are liable to infuse this amount into the MSME unit as equity. This is expected to enhance the liquidity and maintain debt-equity ratio. In this sub-debt scheme, 90% of the cover will be given while the rest 10% falls on promoters concerned. The payment of the principal amount will be under moratorium for seven years. Maximum tenure for repayment will be 10 years. “It is expected that this scheme would provide much-required support to around two lakh MSMEs and will help in reviving the economic activity in and through this sector. It will also help in protecting the livelihoods and jobs of millions of people who depend on them,” the statement said. To avail this scheme, promoters can visit any scheduled commercial banks.