Importance of MSME to country’s economy

•       MSMEs contribute 45% of manufacturing output.

•       MSMEs contribute 48% of exports.

•       MSMEs contribute 8% of GDP.

•       Largest employment provider after Agriculture.

•       Employment at lower capital cost; labour intensity higher than large industrial sectors.

•       Engine of economic growth.

•       Plays an important role in equitable economic development of the country.

•     In most countries, including advanced countries such as the US, UK, MSMEs account for major share of production, services, exports & employment as in India.

  Definition of MSME:-

WEF 2nd July, 2020, definition of MSME enterprises have been changed. Now, it's a composite criteria of Investment in Plant & Machinery and  the Annual Turnover.

• While calculating Investment in Plant & Machinery, the cost of certain items are to excluded such as cost of land & building, furniture & fixture, transportation & installation, spare parts & maintenance equipments, generator, pollution control equipments and all such items not directly related to manufacturing process or services rendered  as may be specified in the notification of MSME Ministry.
• While calculating Turnover, exports of goods & services to be excluded.

GOVT INITIATIVES for the benefits of MSME Sector

• CGTMSE scheme for providing collateral free loans to micro & small enterprises up to Rs.200 lacs.
• As per MSMED Act,2006, for all purchases made from MSMEs, the payment has to be made within a period of 45 days by the buyers.
• In case of any delay in payment, the buyer has to pay Interest  @ 3 times of Bank Rate for any period beyond 45 days.
• Public Procurement Policy – All Central government ministries/ departments/ PSUs have to mandatorily make  25% of their annual purchases or services from MSMEs. Further, in such procurements, 15% weightage in price preference is given to Micro & Small Enterprises.
• Prime Minister Employment Generation Program (PMEGP) provides that if a micro & small entrepreneur wants to set up a Greenfield project, government will grant him  Credit Linked Subsidy @ 35% subject to the Cost of Project for  Manufacturing unit is maximum Rs 25 lacs, and for Services unit is maximum Rs 10 lacs.
• MSMEs can register themselves online under Udyog Aadhaar without any fees.
•  Small Industrial Bank of India (SIDBI) has been set up to finance MSMEs.
• www.psbloanin59minutes.com has been launched to sanction loans to micro & small enterprises within 59 minutes.
• Restructuring  of Loans Accounts by Banks. Scheme valid up to 31.03.2021 for loans outstanding up to upto Rs 25 cr.
• Trade Receivables e-Discounting System (TReDS) for e-discounting of bills raised by MSMEs on governments departments, PSU & large corporate. Under this system, MSMEs will get the payments of their bills within a period of three working days.
• Stand-up India Scheme – all banks’ branches are required to sanction at least one loan per month to MSE borrowers belonging to SC/ST and woman entrepreneurs.

POST COVID GOVT INITIATIVE

• Rs 3 lakh cr Collateral-free Automatic Loans for Businesses, including MSMEs. Banks will provide Emergency Credit Line upto 20% of outstanding as on 29.02.2020.  Under this scheme, 45 lakh units can resume business activity and safeguard their jobs.
• Rs 20,000 cr Subordinate Debt for Stressed MSMEs
• Rs 50,000 cr Equity Infusion for MSMEs through Fund of Funds
• Change of Definition of MSMEs wef 02nd July, 2020.
• Global Tender to be disallowed upto Rs 200 cr.

  Credit Facilities to MSMEs by BanksCash Credit against stocks & receivables

• Cash Credit against stocks & receivables
• Export Packing Credit or Pre-shipment Credit
• Post-shipment Credit
• Bill Purchase/Discounting under LCs
• Bank Guarantee (Performance & Financial)
• Term Loans (Investment in Fixed Assets)
• Composite Loans
• Term Loan to Road Transport Operators
• Loans to professional service providers (Doctors, Dentists, Architects, etc.)
• Mortgage-backed loans
• Supply Chain Financing, Vendor Financing, Factoring, Forfeiting

 Credit Guarantee Fund Trust for Micro & Small Enterprise (CGTMSE)

Banks face mainly two major hurdles for extending loans to micro & small enterprises, viz,

• Inability of entrepreneurs to provide collateral security and/or third party guarantee, and
• Low recovery rate faced by the lending institutions.

To overcome above hurdles, CGTMSE provides guarantee to commercial banks for extending collateral free loans up to Rs 200 lacs to such borrowers.

 Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises  (MSMEs)

 Under its guidelines dated March 17, 2016, RBI advised banks to adopt certain measures to promptly diagnose the problems faced by their MSMEs borrowers up to Rs 25 crore; and timely adopt the Corrective Action Plan which may include Rectification, Restructuring or Recovery  measures. This process has to be adopted within a time bound program.

 Restructuring of Stressed Accounts under MSME Sector

WEF January 1, 2019, Reserve bank allowed banks to restructure the MSMEs’ accounts (upto Rs 25 crore)  facing financial difficulties without downgrading their asset classification. The Scheme has been extended up to 31.03.2021.

 Business  Loan Restructuring Affected Due To Covid-19

MSMEs’ borrowers (above Rs 25 crore) affected due to Covid-19 and whose accounts were not in default for more than 30 days as on 01.03.2020 have been allowed to be restructured without downgrading to NPA. The restructuring package under this scheme has to be invoked by 31.12.2020 and has to be implemented within 180 days its invocation.

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