FM keen on bailing out MSMEs

The Union Finance Minister Nirmala Sitharaman's first physical interaction with bank heads during the pandemic in Mumbai on August 25 is likely to remain focused on MSMEs. In spite of the fact that government has been claiming of having taken a host of measures in its bid to bail out the MSMEs, who are the worst hit due to the ongoing pandemic, the sector continues to be under financial stress.

Banking sector has not yet met its target lending to the MSME sector. "There are 6.33 crore MSMEs in the country. However, only 45 lakh MSMEs have been able to take advantage of the banking services. It simply means that 5.90 crore MSMEs in the country are still away from the banking services so far. As a result, there are 50 lakh MSMEs which have been either closed down or have turned sick. New entrepreneurs find it difficult to start their venture due to Covid-19," Chandrakant Salunkhe, Founder and president - SME Chamber of India told Bizz Buzz.

Therefore, we have urged the government to increase the limit of collateral-free loan for the sector to Rs 15 crore from the existing limit of Rs 02 crore, he added. Earlier, he had said that there are only a few takers of the Emergency Credit Line Guarantee Scheme (ECLG Scheme) from the MSME sector across the country so far.

Hence, the Federation of Indian SME Associations has demanded that the banks must be asked by the government to be liberal when it comes to finance MSMEs.

As on June 30, the government has already disbursed loans amounting to Rs 2.13 lakh crore out of Rs 3 lakh crore that are to be disbursed under the scheme. But, the problem was, merely 89 lakh MSMEs, out of a total of 6.5 crore MSMEs in the country we have in the country, could get benefit of the scheme. As many as Rs 1.75 lakh crore out of Rs 2.73 lakh crore which have been disbursed under the scheme so far, have gone to the MSMEs.

Again, keeping in view the large number of 6.5 crore MSMEs in the country at present, 89 lakh constitutes merely 15 per cent, which speaks volumes of the entire episode. The balance amount of loan has gone to other sectors like tourism, pharma, medical among others.

There lies another problem here. The scheme was meant for those beneficiaries only who have already taken some loan in the past and there are only 89 lakh MSMEs who have taken some sort of loan from the banks so there lies no scope to finance to any other MSME under the scheme, he had said after his meeting with Union Minister of MSMEs, Narayan Rane in New Delhi on July 13. Also, he had hoped that the government may ask the banks to do so immediately after the ongoing monsoon session of Parliament was over.

By being supportive, he means that banks can go for restructuring and rehabilitation should be done on priority basis by either reduction of rate of interest, waiver of penalty or even moratorium in case of MSMEs.

A report by IFC reveals that there lies an overall debt demand to the tune of Rs 69.3 trillion of which 84 per cent is financed by informal sources such as moneylenders, family, friends and chit funds. Formal sources such as commercial banks, NBFCs, and government institutions cater to a mere 16 per cent. Out of these Rs 10.9 trillion, Rs 8.8 trillion is supplied by commercial banks, while Rs 1.5 trillion by NBFCs.

The overall demand for both debt and equity finance by MSMEs is estimated to be Rs 87.7 trillion ($1.4 trillion) which comprises Rs 69.3 trillion, ($1.1 trillion) of debt demand and Rs 18.4 trillion ($283 billion) of equity demand. The viable and addressable debt demand is estimated to be Rs 36.7 trillion ($565 billion). This is 53 percent of the total debt demand.