Subordinate Debt Scheme for MSMEs in India

Posted in Lending Articles By Sajhyadri Chattopadhyay-
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MSMEs form an integral aspect of India's economy, contributing 30% to the GDP and standing as the second-largest employer, after agriculture. The 73rd National Sample Survey (2015-2016) reported 63 million registered MSMEs, employing over 11.1 crore individuals. To support this sector, the government has initiated programs for funding, skill enhancement, infrastructure, and technological advancements, to reinforce the role of MSMEs in the nation's economic landscape. 

Key Government Schemes for MSMEs in India

Some of the popular MSME schemes offered by the Indian Government with other key institutions are –

MSME Business Loans in 59 Minutes: 

The MSME Loan in 59 Minutes is a scheme by the Indian Government and the Small Industries Development Bank of India (SIDBI), that offers swift credit access for MSMEs. This online application process takes just 59 minutes, with loan amounts ranging from ₹1 Lakh to ₹5 Crores. The scheme involves 12 banks, including State Bank of India, Punjab National Bank, and ICICI Bank. To apply, MSMEs need to submit their GST identification number, ITR details, bank statements, etc. 

Pradhan Mantri MUDRA Yojana (PMMY): 

The Pradhan Mantri MUDRA Yojana (PMMY) aids small entrepreneurs by offering loans up to ₹10 Lakhs. These are categorised into Tarun (₹5 Lakhs to ₹10 Lakhs), Kishore (₹50,000 to ₹5 Lakhs), and Shishu (up to ₹50,000). This scheme covers various sectors and includes loans from scheduled commercial banks, regional rural banks, and microfinance institutions. It provides crucial financial support to micro and small enterprises. 

Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE): 

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) helps small businesses tackle the challenge of obtaining collateral-free credit. To overcome the risk associated with the lack of collateral, the scheme provides credit guarantee cover of up to 75% of the loan amount. Both new and existing MSMEs can access loans up to ₹2 Crores without any collateral. This scheme offers loans from both public and private sector banks and financial institutions, promoting financial stability for micro and small enterprises. 

Growth Capital and Equity Assistance Scheme (GEMs): 

The Growth Capital and Equity Assistance Scheme (GEMs) acts as a hybrid debt financing instrument, with financial opportunities for the expansion and modernisation of MSMEs. This scheme is ideal for non-asset creating investments like research, development, and marketing, and provides variable loan amounts from ₹25 Lakhs. Aimed at boosting the growth of enterprises, GEMs offers a practical solution for the diverse needs of the MSME sector. This fosters progress and adaptability in the Indian business landscape. 

Prime Minister Employment Generation Programme (PMEGP): 

The Prime Minister's Employment Generation Programme (PMEGP) is a credit-linked subsidy initiative for micro-enterprises. It offers up to 35% subsidy in urban areas and 25% in rural regions but excludes agricultural enterprises. PMEGP targets job creation, especially in rural areas, and boosts micro-enterprises by supporting them with a credit-linked subsidy. The programme aims to transform small ventures into significant employment generators that contribute to the economic empowerment of individuals and communities. 

Credit Linked Capital Subsidy Scheme for Technology Upgradation: 

The Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS) eases the burden of upfront capital costs for small businesses, by promoting technology enhancement in MSMEs. With a 15% capital subsidy, the scheme supports both manufacturing and service sector MSMEs. CLCSS recognises the pivotal role of technology in sustainable growth and encourages MSMEs to upgrade their technology without compromising their financial stability. 

Udyogini Scheme: 

The Udyogini Scheme, spearheaded by Women Development Corporations, provides vital support to female entrepreneurs in rural areas. This programme offers subsidised MSME loans of up to ₹3 Lakhs, empowering women-led small and micro enterprises. Famed for receiving universal acclaim, Udyogini significantly contributes to the growth and sustainability of businesses led by women in underdeveloped localities. 

National Small Industries Corporation (NSIC) Scheme: 

The National Small Industries Corporation (NSIC) Scheme gives a competitive edge to small-scale businesses by offering both credit and marketing support. Eligible single MSME units can receive lump sums up to ₹5 Crores to enhance their advertising capacities, with interest rates of 9.5-12%. NSIC also organises tech fairs and exhibitions to promote these businesses, building both financial viability and visibility for small-scale enterprises. 

Recent Developments in India’s MSME Sector

In the Union Budget 2023-24, Finance Minister Nirmala Sitharaman announced a major uplift to the Credit Guarantee Scheme for Micro & Small Enterprises. The revamp, effective from April 2023, injects ₹9,000 Crores into the current corpus. This provides an additional collateral-free guaranteed credit of ₹2 Lakh Crores and reducing the average cost of credit by 1%. 

Following this move, the following significant steps have been taken – 

  • Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) infused with ₹8,000 Crores to its corpus 

  • CGTMSE reduces the annual guarantee fee for loans up to ₹1 Crore from 2% to 0.37% p.a., reducing overall credit costs 

  • The limit for guarantees was raised from ₹2 Crores to ₹5 Crores to broaden its financial support 

  • Legal proceedings are no longer deemed mandatory for claims settlement of guarantees for loans up to ₹10 Lakhs 

  • The CGTMSE scheme hit a new milestone in FY23 by approving guarantees worth ₹1 Lakh Crores 

 

Besides such Government schemes, a major assistance that can be given to small business owners is to provide them easy credit access for their business. Bajaj Markets supports MSMEs by offering hassle-free Business Loans for expansion, providing easy credit access. Business owners can secure up to ₹50 Lakhs with a repayment tenure of 6 years. The loans serve multiple purposes, like expanding business space, purchasing equipment, managing inventory, and more! 

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