MSME push to help individual entrepreneurs; this crucial change to credit guarantee scheme on cards

MSME sector is one of the areas which is likely to play an instrumental role in self-reliance Bharat dream.

In the past few weeks, Prime Minister Narendra Modi has raised his pitch on making India self-reliant and the MSME sector is one of the areas which is likely to play an instrumental role in the same. The government has taken several steps to strengthen the sector and the latest in the line is an amendment in Emergency Credit Line Guarantee Scheme (ECLGS) with which individual entrepreneurs will also be able to avail benefits of the scheme, The Indian Express reported. The National Credit Guarantee Trustee Company Ltd (NCGTC), which runs the ECLGS, has approved changes in the scheme, the newspaper said, citing sources. 

Individual entrepreneurs amount to a large chunk of the country’s over 6.3 crore MSMEs. Banks have already sanctioned loans to over 30.11 lakh MSMEs and disbursed it to 11.21 lakh such enterprises. This roughly translates to about 4.75% and 1.77%, respectively, of the total 6.33 crore MSMEs in the country.

Why credit to individual entrepreneurs matters?

About a whopping 80-90% of the MSME entrepreneurs such as truck owners, agriculture equipment owners, taxi drivers or shop owners are not registered as MSMEs. Instead, they take loans in their personal capacities, making them ineligible for additional lending under the government’s scheme, the newspaper cited Sanjay Chamria, vice-chairman & MD at Magma Fincorp, as saying. 

Under the ECLGS scheme, banks are offering up to Rs 3 lakh crore of government-guaranteed loans. This is an extra 20% of outstanding loans to MSME borrowers that are non-NPA. However, those who are borrowing for the first time, those who are individual borrowers and NPA accounts cannot raise funds under the scheme.

While various MSME associations and industry chambers are in favour of including individual entrepreneurs under the scheme and have also written to the government, bankers expect that the same may result in a spike in NPAs. Nonetheless, bankers expect disbursements under the scheme to rise significantly when individual borrowers will be included under the scheme.