Mumbai: The banking sector is undertaking several initiatives and schemes to ensure timely credit and improved cash flow to micro, small and medium enterprises (MSMEs).

One such scheme — the Pradhan Mantri Mudra Yojana (PMMY) — could notch up a record of sorts, going by the number of new entrepreneurs financed within a short span of 12 months.

In the last one year, about 1.5 crore new entrepreneurs have received support from banks and microfinance institutions (MFIs) to set up small businesses under the Yojana, which was launched last April to support small entrepreneurs.

Overall, 3.22 crore new as well as existing entrepreneurs have been sanctioned loans under the PMMY. Women entrepreneurs account for about 78 per cent (or 2.52 crore) of the total number of borrowers. And this is no mean achievement.

Categories of loans

Under PMMY, loans are given by banks and MFIs under three categories — Shishu (loans up to ₹50,000); Kishor (loans above ₹50,000 and up to ₹5 lakh); and Tarun (loans above ₹5 lakh and up to ₹10 lakh).

As per extant policy, certain targets have been prescribed for banks for lending to the MSME sector.

In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks have been advised to achieve a 20 per cent year-on-year growth in credit to micro and small enterprises, a 10-per-cent annual growth in the number of micro enterprise accounts, and 60 per cent of total lending to MSE sector – as on the preceding March 31 – to micro enterprises.

In order to ensure that sufficient credit is available to micro enterprises within the MSE sector, banks should ensure that – (a) 40 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to ₹10 lakh and micro (service) enterprises having investment in equipment up to ₹4 lakh; (b) 20 per cent of the total advances to MSE sector should go to micro (manufacturing) enterprises with investment in plant and machinery above ₹10 lakh and up to ₹25 lakh, and micro (service) enterprises with investment in equipment above ₹4 lakh and up to ₹10 lakh. Thus, 60 per cent of MSE advances should go to the micro enterprises.

The Reserve Bank of India is in discussions with the Centre, SIDBI (Small Industries Development Bank of India) and other key stakeholders for launching an electronic platform for online application of loans and tracking of the status of the applications, with the help of seamless availability of key information on creditworthiness and guarantee.

To be known as ‘Universal Udyami’ portal, it will have crucial links to several other related portals, eventually making life easier for entrepreneurs and fixing responsibility on banks, RBI Deputy Governor SS Mundra said.

Besides, the RBI has issued licences to three entities for discounting of trade receivables of MSMEs from the large corporates, including the public sector enterprises. The Centre has also been approached to provide a legislative backup to the process, Mundra added. According to latest MUDRA (Micro Units Development & Refinance Agency Ltd) data, in the last 12 months, banks and microfinance institutions have sanctioned and disbursed loans aggregating ₹1.28-lakh crore and ₹1.22-lakh crore, respectively.

Out of this, sanctions and disbursement to women entrepreneurs stand at ₹59,132 crore and ₹58,000 crore, respectively.

The data captured by MUDRA shows that almost 50 per cent of the loans under PMMY have been taken by new enterprises.

Role of SIDBI

While Mudra is a new SME financing agency, specialised banks such as SIDBI are already quite active in this space. Funding under SIDBI’s Growth Capital and Equity Assistance scheme can be obtained for marketing, brand building and creating a distribution network.

Businesses with a track record of three years of profitability as well as two years of good credit history with a bank can get bridge funding, with flexible repayment structuring under this programme.

SIDBI also offers early stage debt funding on softer terms for development, demonstration and commercialisation of new innovations in emerging technological areas and new products and process, under its Srijan Scheme.

One can get a loan of up to ₹1 crore after a technical and financial viability evaluation of the proposal.

Active NBFCs

For a relatively new business, there are NBFCs one can approach. Shriram City Union offers loans to businesses that have been in existence for at least two years. The loan amount one can avail of is based on the annual income of the business. 

Operations of the business are assessed by the lender to determine profit margins, sales and receivable cycles, before the loan is approved, says GS Sundararajan, Director of Shriram City Union.

Capital Float lends to companies that have been in existence for at least a year and have an annual turnover of at least ₹25 lakh. Between ₹3 lakh and ₹1 crore can be borrowed for up to one year at over 18 per cent interest rate and a processing fee of 2 per cent. Capital First, Magma Fincorp are other NBFCs also active in this segment.

The Reserve Bank of India has also proposed to bring in a new class of lending platforms called peer-to-peer (P2P) lending in help small businesses.

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