Credit and financing for MSMEs: Despite the government’s announcement of numerous programmes for MSMEs in the wake of Covid, including the emergency credit programme ECLGS, the subordinate debt programme, the updated MSME definition, the SRI Fund, and others, there is undoubtedly room to expand the reach of current programmes in the upcoming budget.
Credit and financing for MSMEs: The key request from specialists in the nation’s MSME ecosystem for the upcoming union budget 2023–24 is to increase small firms’ access to affordable credit. According to a 2019 report by the UK Sinha Committee, which was established by the Reserve Bank of India, the government post-Covid had implemented a number of policies, including the emergency credit scheme ECLGS, subordinate debt scheme, revised MSME definition, SRI Fund, and more. However, there is undoubtedly room to expand the scope of existing measures to fill the vast credit gap in the MSME sector, which was estimated to be worth Rs 20–25 lakh crore.
For instance, the budget might encourage central and state public sector businesses and corporations to use the TReDS trade financing platform. “Despite the government’s mandate, CPSEs and PSUs barely participate in the TReDS platform. To ensure that payments to MSMEs are promptly cleared, PSUs should start conducting business on the TReDS platform. This will aid in the full potential of TReDS. CPSEs account for a pitifully small 12.47 percent of all transactions on RXIL, according to Ketan Gaikwad, MD and CEO of Receivable Exchange of India (RXIL). The business (a partnership between SIDBI and NSE) is one of the portals that runs TReDS.
Out of the 4,714 enterprises worth over Rs 500 crore recognised by the corporate affairs ministry for TReDS, only 1,673 entities were registered as of January 1, 2023, according to government data on the MSME dashboard.
In order to begin the process of overcoming the normalization of delayed payments, Gaikwad recommended leveraging platforms like Prime Minister Narendra Modi’s radio programme Mann Ki Baat, which has demonstrated to drive significant behavioral change campaigns, to start public conversations about the issue of how delayed payments affect the competitiveness of the MSME sector.
Additionally, the government can require all miniratna, maharatna, and navratna companies to conduct business on TReDS and add delayed payments as an indicator within the ease of doing business 2.0 framework being developed by the Department of Promotion of Industry and Internal Trade (DPIIT), he continued.
Another issue concerns raising the credit cap and reducing the requirements for the government’s MUDRA lending programme. For micro and small businesses engaging in income-generating activities in the manufacturing, trading, and services sectors, as well as activities related to agriculture, MUDRA refinancing is now only available up to Rs 10 lakh. According to Rajesh Sharma, Managing Director of the non-banking financial institution Capri Global Capital, which specializes in MSME and housing loans, the government should consider raising the credit limit and laying out general guidelines for eligibility, such as age, ticket size, end-use, and cost of money to the intermediary NBFC.
“Policymakers should establish standards for the intermediary NBFCs to specify underwriting standards like classification requirements for secured and unsecured loans, payout schedule, documentation required, and loan size. According to Sharma, it will increase the financial growth of microbusiness owners with annual sales between Rs 1 million and Rs 5 million.
In a written response to a question in the Lok Sabha in December 2022, Finance Minister Nirmala Sitharaman stated that the plan has approved over 16.67 crore loans totaling Rs 9.98 lakh crore over the previous three fiscal years (FY20-FY22). Out of the total loans approved, 68 percent, or 11.08 crore loans, were given to women borrowers. Of the total amount approved, 44 percent, or Rs. 4.42 lakh crore, was given to women entrepreneurs over a three-year period.
According to Sandip Chhettri, CEO of the B2B e-commerce platform Tradeindia.com, increasing technology adoption is just as important as increasing credit, so the government should also concentrate on increased spending on technology infrastructure in the budget for the MSME sector. This will make it simpler for MSMEs to access technology.
Importantly, a recent report from consulting firm Bain & Company in partnership with venture capital firm Accel predicts that by 2027, over 15 million MSMEs will buy and sell online, up from the current 6 million, and will create 7 million jobs, up from the current 3 million, thanks to the MSME sector’s growing adoption of digital technology. As marketplaces are expected to together reach more than $350 billion in gross merchandise value (GMV) in five years, this would be accompanied by a growth in the number of online shoppers from the present 200 million to 230 million to 400 million to 450 million.