The provision for sub-debt scheme will be Rs 20,000 crores and is likely to benefit two lakh MSMEs.
The government has announced a debt scheme titled 'Distressed Assets Fund-Subordinate Debt Scheme' to help stressed Micro, Small and Medium Enterprises (MSMEs) to raise funds from financial institutions, at its cabinet meeting held on Monday. The central government will provide guarantee coverage of up to 85 per cent for loans up to Rs. 5 lakh and 75 per cent for loans beyond Rs 5 lakh to MSMEs to raise funds from financial institutions. This scheme provides a debt facility of up to 15 per cent of promoter contribution or Rs 75 lakh to the promoters, who, in turn, will infuse the amount in the MSME unit as equity.
The subordinate debt scheme balances the risks and rewards between the lender and the customer. In a situation where an outright loan would be too risky, such a scheme with an inbuilt guarantee will allow the lender to provide requisite financing to the MSME concerned. On the other hand, the scheme opens a window for MSMEs that have either become, or are on the brink of becoming NPAs and would not be able to avail a loan in the normal course.
The provision for sub-debt scheme will be Rs 20,000 crores and is likely to benefit two lakh MSMEs.
The government also announced a 'Fund of Funds' to provide equity to MSMEs. The proposed fund of funds will encourage private sector investors such as venture capitalists and private equity (PE) firms to infuse money into the MSME sector to help them in meeting their growth requirements. As of now, venture capitalists and PEs firms do offer early stage funding but very few of them provide growth stage funding and this is set to change in wake of the Fund of Funds.
This scheme will have a Mother Fund, where government of India will be the anchor investor. The Mother Fund can invest daughter funds, who will deploy the investments in targeted MSMEs - this will create a partnership with MSMEs and enable them to grow bigger and get listed on stock exchanges.
The scheme is expected to facilitate equity financing of Rs.50,000 crore in the MSME Sector
Last month, the government had announced a slew of measures to rescue the micro, small and medium enterprises (MSMEs), which included collateral-free, automatic loans and expediting the payment of pending dues. The measures were part of the Rs 20 lakh crore Atmanirbhar Bharat package announced by Prime Minister Narendra Modi to support the economy, which has been hit by the nationwide lockdown that has been in force since March to curb the spread of coronavirus.
In April, the government had modified the definition of MSMEs. Under the revised definition, units having investment less than Rs 1 crore and turnover less than Rs 5 crore will be called micro units. Investment between Rs 1 and Rs 10 crore and turnover of Rs 5 crore-Rs 50 crore will be categorised as small enterprises. And units having investment between Rs 10 crore and Rs 20 crore, and turnover between Rs 50 crore and Rs 100 crore will be known as medium enterprises. The government has now tweaked the definition of medium enterprises, whereby units having an investment between Rs 10 crore and Rs 50 crore, and turnover between Rs 50 crore and Rs 250 crore will be known as medium enterprises.
