The second wave of COVID-19 Pandemic pulled down India’s GDP to an all-time low in history. Now everyone has started to look at the Central Government Stimulus package for revamping economy. “Vocal for the Local” is the Maha Manthra for “Athmanirbhar”, and that is the solution for the MSME to position back to spindle. It is the 2nd largest contributor in GDP and highest employment provider in both organised and un organised segment. But the sector is facing unequitable challenges due to the liquidity issues, ruined capital and labour crisis. Govt could release stimulus packages through financial institutions. But the past experience is schemes are not meeting its desired results due to lack of risk dispersant mechanism for the finance and banking institutions.
Availability of bank finance without the troubles of collaterals or third party guarantees would be biggest hassle for the MSE units, whether it is for the working capital, fund based or non-fund based. For eligible and viable projects providing collateral guarantee free credit facility extended by eligible institutions are the solution to overcome this. Financing guarantee system will help to improve the credit guarantee ability of Micro and Small Enterprises to obtain financing.
This problem could be overcome by forming multiple credit guarantee trust companies / corporation (at least half a dozen) in regional or segmental wise. Currently there are two credit guarantee mechanism in our country. National credit guarantee Trustee Company Limited (NCGTCL) and it was formed with a capital of 10 Cr in 2014. Under this company different schemes for the credit guarantee funds are formed is main. And a Credit guarantee fund trust for Micro and Small industries (CGTMSE) setup by Government of India and Small industries development bank of India (SIDBI) jointly to meet the requirements of MSE’s. With an initial Government of India corpus of Rs. 2500 cr, and 4:1 ratio with SIDBI. In 2020 the corpus enhanced to Rs. 7500Cr (7000 By GoI and 500 by SIDBI). 8, 46,650 guarantees were approved in Financial Year 2020, for an amount of Rs 45,851Cr. These two mechanisms are barely sufficient to provide the genuine credit requirements of the MSE’s without collaterals under the normal circumstances
A corpus of 50,000 Cr to 1, 00,000 Cr corpus through multiple credit guarantee corps is required to meet the “Vocal for Local” and address present pandemic crisis. Financial capital is the main pillar of the credit guarantee system, which cannot be found by Central government alone, and that is not the model in developed countries. Financial capital has to be split in to two parts where the basic assets (Capital) are contributed by the central and respective states governments, financial institutions and even FDI could be attracted for the remaining requirement. With this arrangement the state government also will formulate attractive MSE policies, on their geographical territory. It will create a healthy competition among credit guarantee corporations/ companies and state governments. While inviting private equity and FDI in the credit guarantee business, the performance analysis of projects & companies will improve and become more competitive.
Separate trust fund for micro and small enterprises also need to be organised instead of common pooling, so that a balanced and organic growth can be achieved. The priority lending to be in the manufacturing sector could be promoted by higher percentage of loan guarantee, more than service industry. Moreover, it also has to set up special underwriter terms and norms on MSE’s of Manufacturing segment.
To achieve these objectives we need subsequent legislation while necessary amendment in the existing laws governing to MSE and Credit guarantee. In the MSMED Act the provision for credit guarantee to be added, similarly “The Deposit Insurance and Credit Guarantee Corporation Act” need to be amended on its governance and structure concern. This is to allow the State government and other investors to be the part of the credit guarantee scheme. A trustable and acceptable rating system with uniform parameters and common criteria for the MSE’s of respective industries have to be established.
Discussion about this post