Urgent need to revamp Credit Guarantee Scheme for MSME sector: SBI report


Budget 2023: One of the major expectations of this sector includes increasing MSMEs’ access to finance and restructuring the existing credit schemes for the sector.

The State Bank of India (SBI) in its recent report on MSMEs stated that several Micro, Small and Medium Enterprises (MSMEs) have grown to become mid-size corporate and there has been a credit growth of nearly 20 per cent between 2021 and 2022. However, there is an urgent need to restructure the credit guarantee scheme to push the next level of growth of the enterprises, it added.

The report identifies that a key challenge for MSMEs is complicated paperwork to raise credit, hence a lot of them remained out of the MSME ambit. Alongside, the information related to credit schemes is also not easily available which further makes the process confusing for many MSME owners.

“We wanted to apply for a loan.  But neither the bank employees had a clear idea about Udyam nor some concrete information was available easily online. So, we failed to apply for the loan,” said Najooka Javier, co-founder of Tohfa, a small-scale business that manufactures sustainably-made accessories and home décor.

Why revamp is needed?  

The study proposed to increase the maximum loan amount for coverage under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) from Rs 2 crore to Rs 5 crore for all activities under the manufacturing, services, and trade sector.

As per the regulations of the Ministry of MSME, a business set-up can only be considered an MSME if they meet the specific criteria of investment and turnover. A business comes under MSME if the investment amount ranges between Rs 1 crore to Rs 50 crore, and the turnover is between Rs 5 crore to Rs 250 crore.

Various MSME business owners said that there is immense scope for MSME business growth and penetration, but for that preliminary investment needs to be higher.

Vijaya Kumar TR, director of Rare Planet Handicrafts Pvt Ltd, a medium enterprise, said, “The coverage which is given to an MSME is only Rs 2 crore without collateral. However, the MSME of the country has grown so big that the credit requirement is high and the amount of Rs 2 crore is too low. The limit needs to be at least Rs 5 crore without collateral.”

MSME business owners said that arranging collateral is also difficult at the early stage of the business.   

The Rare Planet founder stated that their company is also struggling with this. “Our limit is at Rs 1.75 crore and if we have to go ahead with this, we need to provide collateral. When we reached out to a private bank, they told us that they can’t issue the loan of Rs 5 crore that we demanded only because of the CGTMSE limit,” he added.  

Headwinds for the sector

Various business owners said that there has been an immense push for the MSME sector after the pandemic. Be it in the section of travel or retail, the MSME sector witnessed huge growth, primarily driven by domestic consumption.  While employee layoffs and job cuts have become rampant in big corporate houses like Infosys, Wipro, and Google after the pandemic, the MSME sector has become a major hub for job creation too.

In an exclusive interaction with Zee Business, Minister of State, Dr. Bhagwat Kishanrao Karad stated that in the recent past, the MSME sector has created six crore jobs. The government is also focusing on MSMEs for more job creation in the coming quarters.

Dinesh Agarwal, founder of Indiamart, an online B2B marketplace also agreed that after the economy started recovering post-pandemic, a large section of the salaried people shifted to small and medium-scale businesses.

Budget 2023: What does the industry expect? 

With Budget 2023 around the corner, several industry leaders have also suggested the same for the sector. One of the major expectations of this sector includes increasing MSMEs’ access to finance and restructuring the existing credit schemes for the sector.

“The government overlooked a crucial aspect of the OCEN process that prevents 60 million SMEs from using this programme for loan purposes. While account details are available to individuals, they are not available for small and medium companies,” added Arvind TCA, ex-senior banker of Deutsche Bank India, and co-Founder of Artfine, a supply chain finance company.

The government introduced the Open Credit Enablement Network (OCEN) two years ago. It is a retail credit programme that uses online marketplaces to connect borrowers and lenders and expand access to microcredit for the hitherto underserved MSME sector.

MSME players also expect a relaxation of an interest rate cap of 18 per cent on the Credit Guarantee Fund Scheme.

“Certain measures, such as offering a GST subsidy on PoS (Point-of-Sale devices), refinancing options for MSMEs on the lines of the National Housing Board’s refinancing scheme and the relaxation of an interest rate cap of 18 per cent on the Credit Guarantee Fund Scheme (CGS) will facilitate more accessible credit besides laying down the framework for the growth of MSME sector, which accounts for 30% GDP of the country,” said Shweta Gupta, Co-Founder, MUDS Management, a management consulting firm.