Soon, collateral-free loan for MSMEs: FM
New Delhi, Nov 10, 2024
The government is set to launch a collateral-free term loans scheme for micro, small and medium enterprises (MSMEs) to boost their manufacturing capabilities, finance minister Nirmala Sitharaman said on Saturday, adding that the scheme will be placed before the cabinet soon.
The introduction of the new credit guarantee scheme will have to go to the cabinet “sooner”, which will facilitate “term loans” to MSMEs, she said while addressing the industry at the National MSME Cluster Outreach Programme in Bengaluru.
After the success of the working capital loan facility – the Emergency Credit Line Guarantee Scheme (ECLGS) – that saved millions of MSMEs from sinking into the red by providing them liquidity during the Covid period, the government is launching a term loan facility for them to purchase modern plants and machinery. As on December 2023, ECLGS issued guarantees to over 11.9 million borrowers involving ₹3.68 lakh crore.
Sitharaman on Saturday said while MSMEs received easy working capital loans, they faced problems in getting term loans. While the proposed scheme will cover a collateral-free guarantee for term loans of up to ₹100 crore, a unit may borrow even more from banks, she said while addressing the industry.
“You don’t even need a third-party guarantee, no collateral, no third-party guarantee,” she added.
The proposed scheme is part of the five key budget proposals to boost the MSME sector. “This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing. We have formulated a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the interim budget,” the FM said while announcing specific measures during her budget speech on July 23.
The budget speech said a credit guarantee scheme for MSMEs in the manufacturing sector would be introduced. “The scheme will operate on pooling of credit risks of such MSMEs. A separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to ₹100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance,” she said that day.
The government recently implemented its second MSME-related budget proposal to enhance the limit of Mudra loans for those entrepreneurs who availed and successfully repaid previous loans. Last month, it doubled the maximum limit of the collateral free institutional credit to small businesses to ₹20 lakh for a new category of scrupulous entrepreneurs – Tarun Plus -- who availed the facility in the past and repaid the borrowed sum. The move also raised the categories of Mudra loan beneficiaries from three to four under the Pradhan Mantri Mudra Yojana (PMMY) that was launched by Prime Minister Narendra Modi on April 8, 2015.
Other budget proposals are under various stages of implementation, officials said. The proposals include a new assessment model for MSME credit, Small Industries Development Bank of India (SIDBI) branches in MSME clusters, and enhanced scope for mandatory onboarding in the Trade Receivables Electronic Discounting System (TReDS) platform to unlock their working capital.
[The Hindustan Times]
