Preliminary studies suggest that the Emergency Credit Line Guarantee Scheme (ECLGS) unveiled in May 2020 has worked as a lifeline for lakhs of MSMEs, particularly the ‘micro’ and ‘small’ units ( turnover below ₹5 crore and ₹50 crore, respectively), in the wake of the pandemic. Unlike most similar credit initiatives for MSMEs, which have ended up serving the top end of this segment, the ECLGS — a scheme that ‘guarantees’ a top-up loan up to 20 per cent of the outstandings — seems to have broken through that barrier. The question, is to what extent.

A TransUnion CIBIL study released last month throws some light. Its analysis of disbursement of loans amounting to ₹1.45-lakh crore shows that as many as 58.5 per cent of the total number of borrowers were very small units (defined here as those with a credit exposure of less than ₹10 lakh), while 32 per cent were micro units (credit exposure between ₹10 lakh and ₹1 crore). In value terms, very small and micro units accounted for 30 per cent of the disbursed amount. This is encouraging, given that the cap on loan guarantee stands at ₹200 crore, after ECLGS in its subsequent tranches was expanded in scope — to include large units as well as a wide range of sectors. Since ECLGS’ inception in May 2020, loans worth over ₹3-lakh crore have been sanctioned from the corpus of ₹4.5-lakh crore set aside for the purpose. While its offtake has been positive, the CIBIL study says getting the loan was no easy task for many enterprises. This study says that medium level units (credit exposure between ₹10 crore and ₹25 crore) benefited the most when seen in terms of the “percentage of borrowers who availed for the facility out of the total eligible borrowers for the segment”.

This ties in with SBI Research’s finding that ECLGS has rescued 13.5 lakh MSME accounts, 93.7 per cent in the micro and small categories (defined in turnover terms). Not surprisingly, it says that private companies rather than proprietorships are the main beneficiaries. Clearly, the ECLGS has a lot going for it, and should be extended beyond March, given the ongoing third Covid wave. This will preserve jobs in the contact-intensive sectors and boost growth. The scheme has arguably been the most successful MSME credit scheme in recent times. It has lifted credit flows to MSMEs, which were muted despite a credit guarantee scheme (CGTSME) being in existence since 2000. The positives of ECLGS should be incorporated into CGSTME, which includes waiving processing and guarantee fees. ECLGS has also worked due to formalisation of the economy. Meanwhile, other financial vehicles, in keeping with the advance of technology, need to be explored. As the 2019 RBI expert panel report on MSMEs has suggested, a ‘fund of funds platform’ under SIDBI can be created to advance venture capital finance. For now, a freeze in inter-firm credit as a result of low business confidence has impacted working capital flows. The RBI should address this problem while improving its MSME outreach.