Sourcing finance and maintaining proper cash flow management has always been a hassle for SMEs. Though several financial assistance schemes initiated by the government and banks brought a temporary relief, small businesses are yet to gain adequate access to capital.

Mamtaa Gupta, who runs a fashion and lifestyle store in Delhi, said that after borrowing a Rs 5 lakh collateral-free loan from HDFC bank, she preferred to take another Rs 5 lakh from an SME lending startup due to the low interest rate. According to her, accessing capital for a small business is still a challenge.

Now with PM Narendra Modi’s announcement of incorporating NBFCs (Non-Banking Financial Companies) in the credit guarantee scheme for small, medium and micro enterprises (SMEs) and an extension of the amount of loan disbursement up to Rs 2 crore under the scheme, an upsurge in the accessibility to capital is likely to occur.

Hemanth Seth, Director-MSME, FICCI, says,

The scheme is an advantage for SMEs because it provides collateral-free loans. But banks were still hesitant to provide loans to SMEs even with the old one crore limit. So, how much loan amounts will rise for SMEs is yet to be seen when it comes to Rs 2 crore loan disbursement. Companies have to be registered as SMEs to avail the loan. The inclusion of NBFCs in the credit scheme will definitely reduce the financial crunch of SMEs, because the majority of funds for SMEs come from NBFCs.

The scheme is a government initiative that was set up to lend additional money to SMEs which are not eligible under the normal lending criteria of a bank. The scheme facilitates loans by providing banks with a government-backed guarantee for 75 percent of the facility value.

If SMEs are declined the SBCI loan because of not meeting the criteria, they can avail of the loan under the credit guarantee scheme with assurance. The SME borrower pays a two percent annual premium to the Government in addition to the interest rate/fee charged by the bank.

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was formally launched on August 30, 2000. The Ministry of MSME, GoI and SIDBI together established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the corpus of which is being contributed by the GoI and SIDBI in the ratio of 4:1. Together, they have contributed Rs 2,477.78 crore to the corpus of the Trust up to May 31, 2016.

According to R. Narayan, Founder and CEO, Power2SME, the Credit Guarantee Scheme is a fund trust established by the government to provide credit guarantee of up to 85 percent on the approved loan facility to MSMEs. The government of India has announced the doubling of the eligibility amount from Rs 1 crore to Rs 2 crore and also enhanced the cash credit limit to 25 percent from the current 20 percent of the turnover.

Power2SME works closely with many NBFCs and banks and has developed a niche platform called FinanSME that helps build digital profiles of SMEs with all necessary details required by banks/NBFCs to analyse creditworthiness.

Bringing NBFCs under the purview of this scheme is a positive step since it leads to more access to funds for SMEs and MSMEs. This will help borrowers on P2P platforms have greater access to funds at lower and affordable interest rates,” says Rajat Gandhi, founder and CEO of Faircent.

He further added that lenders should be encouraged to invest in SMEs/MSMEs through tax sops. Recently, the UK government announced tax breaks on income earned through investments on P2P lending. Such initiatives boost lender confidence and would mean faster and cheaper loan funding for SMEs/MSMEs.

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https://yourstory.com/2017/01/modi-smes-budget2017/

APARAJITA CHOUDHURY,  31 JANUARY 2017, YOURSTORY.COM