The Central budget has several positive measures making it easier for the Micro, Small and Medium Enterprises (MSMEs) to access finance, according to E K Ponnuswamy, President, Coimbatore District Small Industries Association (Codissia).

He also welcomed the creation of a mechanism to finance the receivables of the MSMEs as this would help improve their cash flow and rid them of the hassles they faced in receiving the payments due to them for the supplies they had made.

Responding to the budget presented by Union Finance Minister Arun Jaitley today, he said the minister had proposed the establishment of a Micro Units Development Refinance Agency (MUDRA) Bank. This would have a corpus of ₹20,000 crore and a credit guarantee corpus of ₹3,000 crore. Jaitley said that the MUDRA bank would refinance Micro-Finance institutions through a Pradhan Mantri Mudra Yojana and said priority would be given for lending to SC/ST enterprises. Apart from giving a boost to first generation entrepreneurs, it would also help existing small enterprises to expand their businesses.

The Codissia President pointed out that the creation of a substantial corpus of ₹20,000 crore for refinance would inject a massive credit flow into the system and the cash on rotation would be even as high as 5 times of this amount (₹1 lakh crore). He said most of the loan seekers under this category wanted small sums ranging from ₹10,000 to ₹50,000 to fund their businesses. For them, even to get this meagre amount from traditional financial institutions would be difficult, forcing them to go to private money lenders paying high interest rates. The creation of a formal financing mechanism to these borrowers would have a significant impact in improving the quality of life of people at the bottom of the pyramid, particularly in rural areas.

Ponnuswamy said what was heartening was the attempt made by the Finance Minister to address the issue of working capital requirements of the sector. The minister had pointed out that this arose because of the time lag in MSMEs receiving payments for the supplies they had made to their large buyers. The Finance Minister had said that the government was on course to establish an electronic Trade Receivables Discounting System (TReDS) to finance the trade receivables of the MSMEs from corporates and other customers through multiple financiers. The minister said `this should improve the liquidity in the MSME sector significantly’.

The Codissia President said the major problem faced by the MSME sector was in getting timely payments, mainly from PSUs and large clients. It normally took 30 days to 90 days or more. When because of disputes over quality or financial constraints payments were delayed, the suppliers had to go to facilitation council to get their money which soured the relationship between the suppliers and their defaulting clients. The industry has been clamouring for creation of a mechanism to make it legally binding for timely payment or provision of a factoring service so that the MSMEs got their money on time.

He said the move of the Centre for an electronic receivables discounting system would enable the MSMEs get nearly 80-90 per cent of the payment immediately. This would vastly improve their cash flow and financial health.

Ponnuswamy also lauded the decision to use the enormous postal network in India with more than 1.50 lakh points of presence across the nation through the proposed Payments Bank of the postal department. With its unparalleled reach, the bank would be able to serve even small and micro units located in remote rural areas. He also welcomed the imminent launch of GST that would help remove the tax hassles the sector faces because of multiple levies at different levels.

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