Adam Smith, the father of modern economics, stated that the rate at which national wealth increased directly prompts wages or income of an individual, the tiniest unit in an economy’s success. Therefore, it is the rate of GDP growth rather than its size that defines an economy’s success.
India, one of the fastest-growing economies globally, is currently facing a financial crisis like none other. Several economists and institutions like RBI believe that India could potentially leverage the MSME sector to boost its economic growth.
And one of the most potent ways MSMEs could prosper and flourish amid a fiscal crisis is via credit facilities like a business loan, according to financial experts.
However, as this sector is still largely unorganised, availing credit often has been a challenging prospect for business owners.
And this is not the first time that a specific industrial sector has come across the difficulty of adequate funding amid an economic slump.
Ergo, both RBI and the Government of India (GOI) have time and again introduced financing schemes and implemented measures to counteract this lack of funding from institutionalised sources.
What are the initiatives taken by GOI and RBI for MSMEs?
According to RBI, MSMEs contribute to more than 28% of India’s GDP, 40% of exports, and 45% of manufacturing output.
Furthermore, this sector has an extensive network of 63.38 million units that employs over 111 million individuals.
Keeping in sight the hefty economic contribution of this sector, GOI and RBI in collaboration with financial institutions have implemented the following measures to ensure personal loan for self-employed individuals –
1. Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTSME)
As the name suggests, it is a trust fund created by GOI and the Small Industries Development Bank of India (SIDBI).
Both SIDBI and the Central government contribute toward the fund’s corpus. As per the CGTSME guidelines, business loans under this scheme would carry a guarantee of up to 75% of the credit amount.
Therefore, it directly addresses the issue of lenders not advancing finance to SMEs, especially ones belonging to the unorganised sector, on account of lack of credibility.
Thence, this scheme encourages not only lenders but also facilitates SME owners to reap the benefits of an MSME loan via an institutionalised source.
2. Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
It is a subsidy scheme for Medium and Small Enterprises. MSEs can avail a 15% subsidy on the cost of outlay to upgrade to a state-of-the-art or near state-of-the-art technology.
The ambit of this scheme not just includes the manufacturing industry but also the khadi, village and coir MSE units.
However, the scheme does not provide subsidy on personal loans for self-employed availed to replace existing technology or equipment, nor does it entertain subsidy for MSEs upgrading technology with used machinery.
3. Prime Minister’s Employment Generation Programme (PMEGP)
It is another credit-linked subsidy scheme that the Government of India endorses. Under this scheme, MSMEs from both the manufacturing and service sectors can avail a subsidy ranging from 15% – 35% on the cost of project or unit.
The maximum amount that is admissible as the cost of a project or unit is Rs.10 lakh for the service sector and Rs.25 lakh for the manufacturing sector.
Individuals can also avail a business loan, separate from the credit availed under the guidelines of the scheme, to cover the balance cost of a project or unit.
Reputed financial institutions like Bajaj Finserv also provide pre-approved offers to ensure a simple and fast loan approval and disbursement process. These offers apply to a large assortment of financial products like business loans, personal loans, etc.
4. Entrepreneurship and Skill Development Programme (ESDP)
While this initiative does not directly provide any financial assistance to businesspersons, it does help enrich them in the ways of successfully managing a business.
It promotes the value of entrepreneurship and creates scope for more efficient MSMEs in the economy’s success.
Individuals can learn why every SME needs a solid financial plan, and how businesspersons can appropriately chart their way in the heterogeneous mosaic of MSMEs in India.
Nevertheless, there is still a necessity for more comprehensive government initiatives and measures by RBI that can percolate more effectively down the socio-economic funnel to facilitate a robust and holistic economic development.