Budget 2023: Union Budget announcements to boost credit offtake for rural, MSME-focused lenders

The slew of positive announcements for the MSME sector in the Budget are expected to boost credit growth for rural and MSME-focused lenders such as PSU banks, mid-sized private banks, and NBFCs.

FM Nirmala Sitharaman, on Wednesday, announced that the revamped credit guarantee scheme for MSMEs will be effective April 1 through the infusion of ₹9,000 crore. This will enable additional collateral-free guaranteed credit of ₹2-lakh crore and reduce their cost of the credit by around 1 per cent.

In addition to increasing credit flow to the fund-starved MSME sector, which is still reeling from pandemic-induced challenges and high commodity prices, this move will also give comfort to banks that are reluctant to lend to MSMEs in the absence of proper collateral, said Shantanu Bairagi, co-founder of Artfine.

Other initiatives such as promoting timely payments to MSMEs, building a digital public infrastructure for farmers, digitisation of documents for MSME lending, computerisation of agriculture co-operatives, encouraging agri-based start-ups, and helping boost value-added crop production, are also expected to support the lagging rural and agriculture economy, thus improving demand for credit.

“MSMEs have a lot to gain from this budget. Agriculture and rural development have been given detailed attention which should boost the rural economy and consumption. The announcements will trigger a pick-up in credit off take for small enterprises, the consumption-driven two-wheeler business and lending to transportation,” said Umesh Revankar, Executive Vice-Chairman, Shriram Finance.

However, others said that only 7-8 per cent MSMEs have access to credit under the credit guarantee scheme, which is currently only being used by banks. Thus, more is needed to support smaller lenders and credit access for MSMEs.

The coverage of CGTMSE is limited to term loan products. Expanding the same to include supply chain finance products such as inventory funding, bill discounting, and factoring can make it more impactful for both lenders and MSMEs, said Arun Poojari, Co-founder and CEO of Cashinvoice.

“The demand of NBFCs from the finance minister was to advance hassle-free credit access and the government has given a much-needed boost to the MSME sector,” said Shachindra Nath, Vice Chairman and MD of U GRO Capital, adding that while these measures will enable better underwriting of credit to MSMEs, an active liquidity support system for NBFCs still remains a request.

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