Accelerating the growth engines of the economy

The micro, small and medium enterprises (MSME) sector in India is often referred to as the ‘engine of growth’. This increasingly growing sector contributes 31 per cent to the country’s GDP and 45 per cent to exports. To a greater extent, the MSME sector generates approximately 1.3 million jobs per annum which employs over 124 million people. The groundbreaking growth and development they aide are not justrestricted to urban India, but almost 59 per cent of them are centered in rural areas.

Therefore, without a doubt, the MSME sector is valuable to the Indian economy. Yet, in spite of being such key contributors to economic development, MSMEs often undergo difficulties in managing their working capital and finances.

The Indian government, opportunely, recognizing these problems faced by the sector, has introduced numerous loan schemes and facilities to pave way for the MSMEs for easy access to capital. From aiding credit guarantees to offering direct loans to entrepreneurs, these government loan schemes exist to help small businesses with finances that can help them grow.

Mentioned below are few well-known government loan schemes to help MSMEs get the working capital they need, and how they can be availed:

SIDBI Make in India Loan for Enterprises (SMILE):

A trader has to get trade license. There are 3 kinds of businesses and trades for which license is necessary

  • The scheme has been aimed to foster innovation, expedite investment, safeguard intellectual property, augment skill development, and build the best infrastructure for MSMEs.
  • Under the scheme, loans are offered in the forms of soft loan and term loan.
  • New enterprises in the services and manufacturing sector are given importance along with a stress on smaller enterprises within the MSME. Know more: https://sidbi.in/en/products
Credit Guarantee Scheme for Micro and Small Enterprises (CGSMSE):
  • The scheme was launched with the intent to provide collateral-free credit to the micro and small enterprise sector.
  • The scheme covers both working capital facility and term loans. Under the scheme, guarantee cover can be availed up to 75% of the authorized amount of the credit facility.
  • For micro enterprises seeking a loan of up to INR 5 lakh, MSEs owned and operated by women, and loans in the North-Eastern region, guarantee cover of up to 80% is provided.
    Know more: https://www.cgtmse.in/
Pradhan Mantri Mudra Yojana (PMMY):
  • The scheme extends loans to undertakings that generate employment and create income in the areas of services, manufacturing, retail, and agriculture.
  • No collateral or security is needed to avail the Mudra loan.
  • The loans under the Mudra Yojana are extended by public sector banks, private sector banks, cooperative banks, foreign banks, Regional Rural Banks (RRBs), Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs).
    Know more: https://www.mudra.org.in/offerings
MSME Loan in 59 minutes:
  • As the name suggests, a loan of up to INR1 crore can be availed where the sum will be deposited to the MSME account in less than 60 minutes.
  • If a company is registered with GST, a rebate of 2% on loan equal toINR1 crore is offered.
  • The documents requirement is minimum. Only the scanned versions of the required documents need to be uploaded online.
    Know more: https://www.psbloansin59minutes.com/home
Bank Credit Facilitation Scheme:
  • Under this scheme, loans are enabled by the National Small Industries Corporation (NSIC) which has signed aMoU with banks to offer loans to meet the credit needs of SME units.
  • The facilitation is carried out by offering MSME units the preference to choose between private and public sector banks.
  • The loans are obtainableas working capital and term loans.
  • Through this scheme, the NSIC also aids SME units to get loans at reasonable rates, help with the documentation process, and other essential services related to the loan.
    Know more: https://www.nsic.co.in/Schemes/Credit-Facilitation-Through-Bank.aspx

However, before applying for a loan, ideally, all businesses should know and understand their creditworthiness. This is where the CIBIL Rank and Company Credit Report (CCR) helps.

CIBIL Rank and CCR give an idea of a company’s creditworthiness. CIBIL Rank ranges from 1 to 10, where 1 is the best rank. CCR is a record of a company’s credit history, based on data given to CIBIL by financial institutions across the country. Since a company’s past payment pattern is an indication of its imminent behaviour, it helps lenders take an informed decision when underwriting business loans.

Some lenders offer preferential rates of interest to those MSMEs with a CIBIL Rank between 4 and 1. In fact Bank of Baroda and Oriental Bank of Commerce emphasis on the importance of having a good CIBIL Rank and have offered lower rates of interest to MSMEs with good CIBIL ranking. The closer a company’s rank is to 1, the better are the chances of securing a loan.

A good CIBIL rank ensures that the process of availing business loans is simple and acts as a key indicator for easy access to credit throughout the loan cycle. The CIBIL Rank provides lenders with impartial insights relating to the credit behavior of MSMEs, so that they can assess the business unit more accurately, competently and reliably. This is an influencer in helping lenders make informed decisions, which eventually facilitates faster loan approvals for the MSME owners. Lenders can make quicker decisions based on access to the company’s CIBIL Rank; thus CCR is contributing to anevidentfall in TAT for loan approvals to MSMEs, which is very important as access to capital at the right time is essential for MSMEs.

The Indian government is all-too-aware of the problems facing the country’s mushrooming MSME sector, and as the above schemes show, it is taking steps to expedite access to credit for the sector.

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