Though Micro, Small and Medium Enterprises (MSMEs) play a vital role in the economy, getting finance from institutional sources, especially from banks, has been an uphill task for them.

The numbers say it all. As per Reserve Bank of India data, as on March 2016, only 7.42 per cent of the gross non-food credit from scheduled commercial banks (SCBs) was lent to MSMEs against 11.15 per cent as on March 2010.

In sharp contrast, despite increased distress in banks’ books on account of large corporates, loans to this segment increased to 34.28 per cent of the gross non-food credit as on March 2016 from 31.98 per cent as on March 2010.

Key sector The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.

In January, RBI Deputy Governor SS Mundra observed that there is growing realisation that if the country has to move to a higher growth trajectory, the MSME sector would need to play a central role. In recent years, both the Centre and RBI made substantial efforts to ease various constraints faced by the sector.

“While the government has established Micro Units Development and Refinance Agency Ltd (MUDRA) for developing and refinancing all micro-finance institutions (MFIs) which are in the business of lending to micro and small business entities engaged in manufacturing, trading and service activities, RBI has prescribed a target of 7.5 per cent of net bank credit for micro enterprises for achievement in a phased manner. Further, medium enterprises have also been brought into the ambit of priority sector credit,” said Mundra.

The Deputy Governor said in order to improve liquidity for MSMEs, an electronic Trade Receivables Discounting System (an authorised electronic platform to facilitate discounting of invoices/bills of exchange of MSMEs) is being set up RBI to enable a speedy realisation of receivables. The RBI has also launched a National Mission for Capacity Building of Bankers for MSME Financing for sensitising the bank staff about the financial and other lifecycle needs of MSME borrowers.

Referring to the financing needs of MSMEs, the RBI’s latest financial stability report pointed out that the Securities and Exchange Board of India has encouraged a framework for a separate exchange/platform for SMEs), thereby facilitating fund raising from the capital market and listing of securities.

“While there are 104 small companies listed on the Bombay Stock Exchange and eight companies listed on the National Stock Exchange, active trading is seen in very few stocks. In addition, various credit guarantee schemes of the government, also provide supporting mechanisms for the financing needs of MSMEs,” the report said.

Although well-structured and properly funded credit guarantee schemes boost economic activity while maintaining credit quality, the RBI is of the view that there is a need for rationalising and regulating such schemes.

Funding the unfunded Industry experts feel that with the MUDRA and small finance banks coming into play, hassle-free institutional finance for micro and small enterprises at competitive interest rates is slowing turning into reality.

Under the Pradhan Mantri MUDRA Yojana (PMMY), banks and microfinance institutions together surpassed the lending target of ₹1,22,188 crore to micro units by ₹10,767 crore in FY2016. The number of loans sanctioned by lenders stood at 3.48 crore. MUDRA is the nodal agency.

The PMMY, which was launched in early April 2015, requires all banks to lend to micro enterprises engaged in manufacturing, processing, trading and service sector activities, for a loan up to ₹10 lakh.

MUDRA loan is meant for ‘funding the unfunded’. It is available for both new units and expansion of existing units. The data of new entrepreneurs supported under PMMY indicate that out of 3.48 crore accounts financed during the year, 1.25 crore accounts were for new entrepreneurs, which work out to 36 per cent.

The data indicate that 2.76 crore women were funded out of the total number of 3.48 crore accounts, which is a whopping 79 per cent. MFIs contributed significantly for the financing women under PMMY.

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