The micro, small and medium enterprises (MSME) contributes nearly 45% to the manufacturing sector, about 40% to the export sector, and 8% to the overall Indian GDP. The MSME sector consists of 32 million units that manufacture more than 6000 products and creates employment for about 70 million people. Hence, the MSME sector is considered as the spine of Indian economy.
Despite the success, especially after 1991, the MSME sector suffers from a multitude of problems such as poor technology, lack of access to credit, corporate governance issues, increased international competition, and inability to cope with the change in legal environment.
To solve the above issues, the RBI and many other banks have introduced various schemes to allocate credit at better terms (interest rates) to strengthen the sector. One of the schemes introduced was the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The primary objective being that the borrowers obtain both term loan and working capital facilities from a single agency without collateral. The Government has notified the institutions that are eligible to offer this scheme; it mainly includes all commercial banks. The maximum credit for such loans is 1 crore, and the maximum guarantee cover is 65-75% of the amount sanctioned. This scheme has provided relief to small traders and dealers, but a large number of traders and dealers in the small segment community are still ignorant about this scheme. Hence, its full potential is yet to be realized. There are calls to increase the maximum cap to 3 crores.
SIDBI and EXIM (Export Import) bank are two financial institutions that are created to provide funds to MSMEs through a variety of schemes. SIDBI acts as a nodal agency for Government schemes and provides finance to small operators for acquiring ISO certification and technological upgradations of textile units. SIDBI is supported by 4 venture capital funds at the national level for facilitating investments in startups and the IT industry. EXIM bank provides credit facilities at all stages of the export cycle. They provide a safe mode of non-recourse financing options and also buyers and suppliers credit on deferred payment terms.
Another scheme introduced to target the SME group is SME smart score loan. The loan product is for enterprises that are engaged in manufacturing, trade and services that require working capital for the procurement of fixed assets. Favorable interest rate loans are available for loans up to 50 lakhs for SSI companies and up to 25 lakh INR for trade and services sector companies.
Other such schemes include SBI SME Smile, SME credit plus, etc. SBI SME Smile is an interest-free loan advanced to small scale industries for technology upgradation with a maximum ticket size of Rs 10 lacs. Similarly, SME credit plus is a scheme that offers cash credit facility up to a maximum limit of Rs 25 lacs (repayable within two months). This facility has helped small business’ overcome temporary cash crunch.