Headline : MSME loans: Delay in disbursal of loans to MSMEs
- The union finance minister held a meeting with MSME representatives to devise plans for this critical sector.
- The MSMEs representatives highlighted problems faced by the sector, and made certain demands for the revival of the sector.
- She also asked industry representatives to send their response to the U K Sinha committee over the next three-four days,indicating that the recommendations would be implemented quickly.
Problems afflicting the MSME sector:
- Limited loan disbursal by banks even after sanctioning under 59 minutes scheme: As against loans sanctioned in just 59 minutes by PSBs through an online lending marketplace called psbloanin59minutes, only 10 per cent is being disbursed by banks.
- Long delays in settlement of dues by the government departments and PSUs
- Access to credit: Despite 70 per cent guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the firms have not been able to secure loans from banks in many cases.
- The issue of VAT refunds not being transferred to GST regime by states.
- It has undermined the MSMEs’ ability to sustain their business cycles, liquidity-starved micro, small and medium enterprises (MSMEs).
Key Demands of the MSMEs representatives:
- Revise the turnover/investment-related definition of MSMEs upwards. The definitions, where a firm with Rs 5 crore investment is classified as ‘small’ while investment over Rs 5 crore are ‘medium’, were brought in 2006 and have since become dated due to inflation.
- Exemption from capital gains tax for the sector if gains are reinvested in business.
- Rationalization of penalty for late filing on Ministry of Corporate Affairs as it is same for large and small companies.
Significance of the MSME sector:
- MSMEs are the backbone of the Indian economy, contributing nearly 45% in the manufacturing sector, 30 per cent of the GDP and 49 per cent of country’s exports. They are key engines of job creation and economic growth in developing countries.
- MSME sector is also the second largest employer, next only to agriculture. Over 6 crore MSME units provided employment to about 11 crore people (NSSO, 2016).
12 Historic decisions by government for the MSME sector
About: PSBLoansIn59Minutes Scheme
- Under the scheme, MSMEs registered under the Goods and Services Tax are eligible for loan up to Rs 1 crore in just 59 minutes from public sector banks (PSBs) through an online lending marketplace called ‘psbloanin59minutes’.
- This objective of the scheme is to reduce the time and effort required to secure credit from PSBs, thus easing the life of an entrepreneur.
Need for the Scheme:
- The difficulties in getting a loan from PSBs stem from unwillingness of the ground-level staff to even accept the loan application.
- Even after a loan is approved, the high turnaround around time for the disbursal remains a challenge.
Scheme saw huge response:
- The demand for such a portal is validated by both the large number of applications (around 1.31 lakh) received within two months of its launch.
- As against loan sanctioned in 59 minutes scheme, only 10 per cent loans have disbursed by banks.
Way Forward for the 59 minutes scheme:
- There is a need of deeper integration of the portal with banks’ processes.
- The credit approval process should capture the existing liabilities of the borrower so that there are no disputes on quantum of credit to be sanctioned.
- The availability of other resources such as land/technology with the borrower should also be assessed before sanctioning term loan for a new asset.
- On the policy front, the norms for takeover of loans among lenders should be relaxed.
About: UK Sinha committee
- RBI constituted the expert committee on MSMEs to study the problems faced by MSMEs, identify the causes, and propose long-term solutions for the economic and financial sustainability of the MSME sector.
- This includes the review the current institutional framework in place to support the MSME sector, studying the global best practices with respect to MSMEs.
- The creation of a distressed asset fund to assist MSMEs units in clusters.
- The creation of a government-sponsored Fund of Funds of Rs. 10,000 crore to support venture capital and private equity firms investing in MSMEs.
- Amendments to the Act to address the sector’s bottlenecks like access to credit and risk capital, prioritizing market facilitation and ease of doing business.
- SIDBI should deepen credit markets for MSMEs in underserved districts and regions.
- It suggested to fix a timeline of 7-10 days for disposal of applications..
- It had suggested for greater adoption of technology-facilitated solutions to many of the problems encountered by the MSME sector.