Sustainability standards: Finmin urges banks to incentivise MSMEs | The Financial Express

Sustainability standards: Finmin urges banks to incentivise MSMEs

According to the latest data, outstanding credit to MSMEs jumped 24% as of August from a year before to Rs 18.16 trillion, partly aided by the Rs 5-trillion government’s Emergency Credit Line Guarantee Scheme (ECLGS).

Sustainability standards: Finmin urges banks to incentivise MSMEs
The lenders have also been asked to ensure complete integration of the ZED portal with their online portal where MSMEs can apply for loans.

The finance ministry has advised banks to support those micro, small and medium enterprises (MSME) that have adopted certain sustainability standards for manufacturing with a raft of incentives, including cheaper credit, at a time when interest rates are on the rise, official and banking sources told FE.

The move is part of the government’s broader efforts to encourage MSMEs to become “responsible manufacturers” and improve credit flow to these units that account for a bulk of the country’s job creation. This policy also assumes significance in light of India’s current negotiations with key economies like the UK and the EU for modern free trade agreements (FTAs) that tend to link market access with sustainable manufacturing practices.

Also Read: MSME credit appetite likely to be robust with ECLGS extension till March 2023: Finance Ministry

MSMEs account for about 40% of the country’s exports, 6% of the manufacturing GDP and almost 25% of the services GDP.

In a letter to financial institutions, the department of financial services (DFS) has asked them to put in place policies, approved by their boards, for extending incentives to ZED-certified MSMEs. The ZED (zero defect, zero effect) certification is granted by the MSME ministry to those eligible units that comply with certain sustainability standards to not harm environment. The incentives that lenders are being advised to extend include concessional credit, lower loan processing fees and any other benefit that they deem appropriate.

The lenders have also been asked to ensure complete integration of the ZED portal with their online portal where MSMEs can apply for loans.

“The MSME ministry had requested the DFS to advise financial institutions to help promote ZED-certified businesses. So, the DFS has advised lenders to put in place board-approved policies in this regard,” one of the sources said.

So far, only 531 MSMEs have obtained ZED certification, according to the data available on the MSME ministry website, and the government intends to encourage a wider pool of small businesses to adopt such standards.

According to the latest data, outstanding credit to MSMEs jumped 24% as of August from a year before to Rs 18.16 trillion, partly aided by the Rs 5-trillion government’s Emergency Credit Line Guarantee Scheme (ECLGS).

In recent years, MSMEs have been hit hard by a combination of factors, such as demonetisation, the roll-out of the goods and services tax regime and, more recently, the pandemic. The Covid outbreak, particularly, caused a large number of MSMEs to sink, according to several analysts.

To soften the blow, the government came out with the ECLGS to facilitate guaranteed loans in the aftermath of the pandemic. In April, it approved a $808-million (Rs 6,062 crore) support to revitalise Covid-hit MSMEs through a programme backed by the World Bank.

The government also announced the revamp of the extant Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) to facilitate an additional credit of as much as Rs 2 trillion. More recently, finance minister Nirmala Sitharaman asked private companies to clear dues to MSME suppliers within 45 days to improve the cash flow of these small businesses.

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First published on: 31-10-2022 at 02:30 IST