 "'Credit-starved' MSME sector generously funded")
While the MSME sector has been crying out that lack of finance is a major handicap, the ministry of micro, small and medium enterprises (MSME) actually has several well-funded programmes and initiatives in support of this sector.
It is estimated that the credit gap for the MSME sector will increase from Rs 10,15,614 crore at the beginning of the 12th Plan (April 2012) to Rs 11,37,151 crore at the end of the 12th Plan (March 2017). The main reasons for low credit penetration among SMEs, according to industry experts, are insufficient credit information on SMEs and their low market credibility.
The government has initiated several programmes to address this problem. The MSME ministry was allocated Rs 10,330 crore during the 11th Plan (2007-12). This has been increased by the Planning Commission to Rs 24,124 crore in the 12th Plan (2012-17).
In his Budget presented in February, Finance Minister P Chidambaram announced an increase in re-financing for the Small Industries Development Bank of India (Sidbi) from Rs 5,000 crore to Rs 10,000 crore. He announced the setting up a new fund of Rs 500 crore for supporting factoring services, and to incentivise the growth of MSMEs, announced that they would continue to enjoy the relevant non-tax benefits for three years after they had grown beyond a certain size.
The MSME ministry also allocated over Rs 8,000 crore in the 12th Plan under the PMEGP to set up about 3.39 lakh enterprises which will create 27.12 lakh jobs. The government is also implementing various schemes - Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme, Performance and Credit Rating Scheme, among others - to facilitate credit flow to the MSE sector.
The India Opportunities Venture Fund (IOVF) that was announced in the Union Budget for 2012-13 was operationalised by Sidbi with effect from August 1, 2012. The IOVF envisages enhancing the availability of risk capital to the MSME sector. IOVF provides direct assistance to MSMEs as well as indirect assistance by way of 'fund of fund' operations.
However, most SMEs in the country have little idea about these schemes. J James, representing MSMEs in Coimbatore, which houses hundreds of them, said the problem is not non-availability of funds, but the limited credit information system. The current credit information system used by banks and other financial institutions in the country is not "SME friendly and it keeps SMEs out of the loop," he said.
A senior representative of a public sector bank agreed. He said that because of the absence of an efficient credit information system, most banks require a lot of documentation and collateral from MSME loan applicants - which is a tiring exercise for both the bank and the applicant.
"We are caught in the middle, because on one side the government has mandated that we should earmark a certain portion of our overall lending for the MSME sector, and on the other side we also need to keep our non-performing assets under control," said the bank official.
The National Commission on Enterprises in the Unorganised Sector (NCEUS) had estimated the credit gap for micro enterprises at Rs 6.31 lakh crore in end-March 2012, with the number of such unorganised micro enterprises estimated at 70 million with an average credit off-take of Rs 1.23 lakh per enterprise. In contrast, the MSME sector, which is estimated to have 32.2 million enterprises, had an average credit off-take of Rs 7.16 lakh in end-March 2012, based on scheduled commercial banks' data.
At the beginning of the 12th Plan period, the outstanding credit gap for the MSME sector was estimated at 62 per cent, which is expected to fall to 43 per cent by March 2017, in view of the government's advice to banks to increase lending.
It is estimated that the credit gap for the MSME sector will increase from Rs 10,15,614 crore at the beginning of the 12th Plan (April 2012) to Rs 11,37,151 crore at the end of the 12th Plan (March 2017). The main reasons for low credit penetration among SMEs, according to industry experts, are insufficient credit information on SMEs and their low market credibility.
The government has initiated several programmes to address this problem. The MSME ministry was allocated Rs 10,330 crore during the 11th Plan (2007-12). This has been increased by the Planning Commission to Rs 24,124 crore in the 12th Plan (2012-17).
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Then there are a number of schemes to promote entrepreneurship. For instance, under the Prime Minister's Employment Generation Programme (PMEGP), subsidy-linked bank loans are provided to new entrepreneurs; under the Credit Guarantee Scheme collateral-free bank loans are facilitated; and under the Rajiv Gandhi Udyami Mitra Yojana (RGUMY), the cost of Udyami Mitras providing hand-holding support to new entrepreneurs is subsidised.
In his Budget presented in February, Finance Minister P Chidambaram announced an increase in re-financing for the Small Industries Development Bank of India (Sidbi) from Rs 5,000 crore to Rs 10,000 crore. He announced the setting up a new fund of Rs 500 crore for supporting factoring services, and to incentivise the growth of MSMEs, announced that they would continue to enjoy the relevant non-tax benefits for three years after they had grown beyond a certain size.
The MSME ministry also allocated over Rs 8,000 crore in the 12th Plan under the PMEGP to set up about 3.39 lakh enterprises which will create 27.12 lakh jobs. The government is also implementing various schemes - Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme, Performance and Credit Rating Scheme, among others - to facilitate credit flow to the MSE sector.
The India Opportunities Venture Fund (IOVF) that was announced in the Union Budget for 2012-13 was operationalised by Sidbi with effect from August 1, 2012. The IOVF envisages enhancing the availability of risk capital to the MSME sector. IOVF provides direct assistance to MSMEs as well as indirect assistance by way of 'fund of fund' operations.
However, most SMEs in the country have little idea about these schemes. J James, representing MSMEs in Coimbatore, which houses hundreds of them, said the problem is not non-availability of funds, but the limited credit information system. The current credit information system used by banks and other financial institutions in the country is not "SME friendly and it keeps SMEs out of the loop," he said.
A senior representative of a public sector bank agreed. He said that because of the absence of an efficient credit information system, most banks require a lot of documentation and collateral from MSME loan applicants - which is a tiring exercise for both the bank and the applicant.
"We are caught in the middle, because on one side the government has mandated that we should earmark a certain portion of our overall lending for the MSME sector, and on the other side we also need to keep our non-performing assets under control," said the bank official.
The National Commission on Enterprises in the Unorganised Sector (NCEUS) had estimated the credit gap for micro enterprises at Rs 6.31 lakh crore in end-March 2012, with the number of such unorganised micro enterprises estimated at 70 million with an average credit off-take of Rs 1.23 lakh per enterprise. In contrast, the MSME sector, which is estimated to have 32.2 million enterprises, had an average credit off-take of Rs 7.16 lakh in end-March 2012, based on scheduled commercial banks' data.
At the beginning of the 12th Plan period, the outstanding credit gap for the MSME sector was estimated at 62 per cent, which is expected to fall to 43 per cent by March 2017, in view of the government's advice to banks to increase lending.