MSME Loan Schemes, approaches and Aathmanirbhar Bharat Economic packages on MSME

MSMEs are the worst hit sector in the recent outbreak of the Pandemic which has crippled almost all the enterprises under this scheme. To push the crippling sector back to the normalcy, the Finance Minister along with the other relief measures, has widened the scope of MSMEs by amending the definition of the same.

The revised definition elucidates MSMEs not only on the basis of the investment but also an additional component of Turnover has been attached along with the investment. Earlier MSMEs were classified and defined based on the enterprise being a manufacturing or a service enterprise. On the other hand the new definition integrates both these components into one. An enterprise(Both manufacturing and Service) can be called as

Some of the Key loan schemes under MSMEs are

1. PMEGP (Prime Minister’s Employment Generation Programme)
2. CGTMSE (Credit Guarantee funds Trust for Micro and Small Enterprises)
3. Mudra Loans

This scheme is the result of the merger of two earlier schemes Prime Minister’s Rojgar Yojana(PMRY) and Rural employment Generation Programme(REGP) focusing on the employment opportunities through establishing Micro Enterprises in rural and urban areas.

The funding under this scheme can be categorized into two:

1. Funding for New Micro Enterprises
2. Funding for Existing Enterprises

• If the enterprise is a manufacturing sector then the maximum amount that can be sanctioned as project cost is Rs. 25 lakhs per unit
• If the enterprise in into the service/business sector then the maximum amount that can be sanctioned as project cost is Rs. 10 Lakhs per unit
• The Balance amount of the project cost shall be funded by the Bank as term loan.

Note: Special category beneficiary includes SC / ST / OBC /Minorities/Women, Ex-servicemen, Physically handicapped, NER, Hill and Border areas etc.

Eg: I want to start a business which is into manufacturing and my total project cost works out to Rs.14 lakhs and I am eligible to avail the subsidy as special category beneficiary under this PMEGP. Also I am planning to establish this business in an urban area. But on the Other hand I have only Rs85000 with me. Since I am eligible I can apply under this scheme and my funding structure will be as follows

• If the enterprise is into the manufacturing sector the cap on the project cost for upgrading the existing facilities is Rs. 1 Crore and the maximum subsidy which can be availed shall not exceed 15 Lakhs.
• If the enterprise is into the service sector, the cap on the project cost for upgrading the existing facilities shall not exceed Rs.25 lakh.
• The Balance amount shall be funded by the Bank as term Loan

Eg: I am already running a manufacturing business which for which I sourced through PMEGP scheme and now I am planning to upgrade my business and the cost of upgrade comes to Rs. 45 lakhs. Unfortunately since I am running short of finance for upgrading my existing structure I can avail subsidy under this scheme. In such a case the funding pattern for this particular project will be

1. Any individual above 18 Years
2. The eligible individual should have cleared 8th¬ Standard for setting up projects related to manufacturing sector costing more than Rs. 10 Lakhs and in case of service or business sector if the project cost exceeds Rs. 5 Lakhs.
3. Self Help groups provided such SHG’s have not availed any subsidy under other scheme
4. Charitable Trust and Co-Operative socities
5. Existing units under the old scheme provided such units have not availed any subsidy under any Central and State Government schemes.

This trust is formed to provide financial assistance to the MSMEs without any third party collateral or guarantee. These schemes provide the assurance to the lenders that in case of default by them a guarantee cover will be provided by trust in the ratio of 50/75/80/85 percent of the amount so given. There are 133 eligible lending institutions associated with this trust.

In case of default the trust will settle claim upto 80% in case the amount repaid by the enterprise is upto 50 lakhs. If the amount exceeds 50 lakhs the guarantee cover reduces to 50 Percentage from 80 percentage. For this the trust charges 1 percentage of the loan amount sanctioned. One block of tenure guarantee lasts for 5 years.

Mudra when expanded becomes Micro Unit Development and Refinance Agency was bought in primarly focusing on refinancing of MSMEs which can be classified into three categories:

• Shishu : covering loans upto 50,000/-
• Kishor : covering loans above 50,000/- and upto 5 lakh
• Tarun : covering loans above 5 lakh and upto 10 lakh

Mudra facilitates easy disbursal of loans without much complications and so the schemes are designed to meet the requirements of different business activities of different sectors like food processing, transports, textiles, loans for traders and shopkeepers etc. Even banks can approach for Mudra loans for better liquidity.

The funding support MUDRA receives are of two types:

1. Micro credit scheme for loans upto Rs.1 Lakh through Micro Finance Institutions(MFI)
2. Refinance schemes for commercial banks/ Regional Rural banks/ NBFC and Small finance Banks.

The pandemic has resulted in a short term liquidity crunch for most of the MSMEs which may go beyond the current financial year. The 3.5 Trillion Package announced by the Government of India has bought in the schemes which can potentially increase the viability of MSMEs. Some of the important points which can benefit most MSMEs are highlighted below;

1. Collateral free loans of MSMEs upto 4 Years tenure with 12 months moratorium. Such loans are credit guaranteed by government which means in case of default the government will pay off the loan of the enterprise. This will provide an additional 20 per cent support to all existing accounts, subject to conditions.
2. Stressed MSMEs will be provided with equity support. Government will facilitate the provision of Rs. 20,000 crores as subordinate debt.
3. Thirdly, equity infusion for MSMEs through ‘Fund to Fund’, to be operated through a Mother Fund and a few Daughter Funds. This is to help extend the MSMEs size and capacity.
4. Global tenders to be disallowed in government procurement of garments upto Rs. 200 crores.
5. E-commerce markets to be provided for MSMEs. Government to honour every MSME receivables in 45 days.