Experts Say MSME Loan Scheme Needs Modifications

The central government’s Emergency Credit Line Guarantee Scheme (ECLGS) for micro, small and medium enterprises (MSMEs), to support Rs 3 lakh crore in credit, would need several modifications to address the real problems of the enterprises due to COVID-19 pandemic, according to experts representing a group of industry bodies. 

According to the Finance Ministry, from May 23 to July 15, Rs 68,311.55 crore has been disbursed of the total sanctioned amount of Rs 1,23,345.16 crore under the scheme. A total of 37,26,238 MSME accounts have been sanctioned credit and 17,98,336 accounts have been disbursed. 

“The poor disbursal of the credit which is only 22% of Rs 3 lakh crore allotted under the scheme points out to various field issues such as need of documentation, fulfillment of conditions of sanction, sanction of inadequate funds and arbitrary use of funds by the banks or financial institutions for settling dues which may not be the priority of the enterprise, including regularisation of their accounts and so on have contributed to poor disbursal as against sanctions,” according to K E Raghunathan, Convenor of Consortium of Indian Associations, a group of 30 trade associations. 

Kenny Ramanand, National General Secretary of All India Manufacturers Organisation (AIMO) said that about 40% of the units out of the estimated 45 lakh beneficiaries have received the funds under the scheme. As per the government statistics, “Only an average of Rs 3.8 lakh enterprise has been sanctioned as against the budgeted average of Rs 6.6 lakh per enterprise. Almost 82% of the estimated beneficiaries have already been given sanction. How can an industry turn around from a nearly three month long lock down phase with a meagre amount of Rs 3.8 lakh?,” he questioned. 

Also read: The Great MSME Stimulus Muddle

Under the scheme, MSMEs with up to Rs 25 crore outstanding loans and turnover of up to Rs 100 crore are eligible to avail credit up to Rs 5 crore from banks and financial institutions. Also, the National Credit Guarantee Trustee Company (NCGTC) is providing 100% guarantee for the collateral free loans.

As many as 35% of MSMEs and 37% of self- employed entrepreneurs have begun shutting their businesses seeing no chance of recovery amid the COVID-19 outbreak and over two months of lockdown measures, indicated a survey conducted by AIMO during the last week of May.

The crucial problem of MSMEs has been that thousands of the units are reeling under the pressure of uncleared payment dues from corporates, state governments and government undertakings during the last one year, said Raghunathan. Estimating that the total uncleared amount may exceed Rs 3 lakh crore, he pointed out that the government needs to address the issue in order to save micro units from shutting shops. 

As per the MSME Ministry, about 99.4% of the total 633.88 lakh unincorporated non-agricultural MSMEs are micro units.

Last week, the Finance Industry Development Council, a representative body of non-banking finance companies, wrote to Finance Minister Nirmala Sitaraman seeking inclusion of all individuals, who have taken loans to purchase vehicles for commercial purposes, for assistance under the ECLGS. Presently, only individuals who have earlier availed loans for commercial vehicles under MUDRA scheme are eligible under the scheme.