Credit and Finance for MSMEs: The Modi government’s flagship credit scheme for Covid-hit MSMEs and other individuals Emergency Credit Line Guarantee Scheme (ECLGS) is expiring on Thursday, September 30, 2021. While authorities think that additional extension is most likely to be offered by the government as MSMEs across several segments are however to see pre-Covid recovery levels, there is also a lack of clarity on the total quantity sanctioned so far out of the all round ceiling of Rs 4.5 lakh crore.
However, the MSME ecosystem’s demand from the government with the additional probable extension of ECLGS this time is to have more focus on sectors that are witnessing slower recovery and/or these with higher possible. The scheme launched in May last year has currently been extended 4 instances – from October last year to November and then to March 2021 followed by June and lastly till September along with subsequent expansion in scope as effectively to include things like more sectors and markets.
“Mainly the focus should be on businesses involved in travel and tourism including tour operators. Restaurants should particularly be given importance because while the recovery is there but they generate an enormous amount of business and employment. In its entire supply chain, a lot of people are involved apart from a very large number of delivery boys in the last mile network. There are many that are still closed and haven’t been able to pay rent or clear loans. So something for them should be there for increasing their speed of revival,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told TheSpuzz Online.
The government had in March announced ECLGS 3. to cater to MSMEs and other organizations in hospitality, travel & tourism, leisure, and sporting sectors that had, as of February 29, 2020, total credit outstanding up to Rs 500 crore and overdues, if any, for 60 days or much less, on that date. However, there is no newest sectoral information — with respect to the quantity sanctioned and disbursed beneath ECLGS — disclosed by the government.
Emails to the Department of Financial Services (DFS), Ministry of Finance searching for comments for this story didn’t elicit a response. The spokesperson was not readily available for comments on get in touch with as effectively till the time of publishing this report.
“52 sectors have been identified that are almost wiped off with second Covid attack and are predominantly run by micro and small entrepreneurs. These sectors include salons, gyms, cinema theatres, construction contractors, sheet metal manufacturers, paper manufacturers, street vendors, auto ancillaries, freight forwarding, exhibition and event management firms, and more,” KE Raghunathan, Convenor, Consortium of Indian Associations told TheSpuzz Online.
Unless the Finance Ministry urgently considers extending the ECGLS scheme to these sectors irrespective of their predicament as SMA or 1 or 2 or even non-performing assets (NPA), we would not be in a position to enable them, he added whilst asking for a particular One Time Settlement scheme to give entrepreneurs honourable exit if they want to shut down their ventures.
SMAs are particular mention accounts signaling incipient anxiety top to the borrower defaulting in servicing the debt. SMA- are accounts with payments partially or wholly overdue for 1-30 days whilst SMA-1 and SMA-2 accounts have payments overdue for 31-60 days and 61-90 days respectively.
All India Association of Industries, which represents more than 50,000 SMEs across India, was amongst the MSME bodies that had currently requested the government lately for additional extension of ECLGS till at least March next year to enable revive some important sectors
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The newest information readily available on ECLGS and shared by the government was up till July 2, 2021. MSME Minister Narayan Rane had informed Rajya Sabha in July citing information from DFS that Rs 2.73 lakh crore in loans was sanctioned (60.6 per cent of Rs 4.5 lakh crore), of which Rs 2.14 lakh crore was disbursed by companion banks and non-banking economic firms (NBFCs). Moreover, guarantees issued for loans had been granted to about 1.09 crore MSMEs.
“AIAI had demanded extension till March next year. There is hope among MSMEs for demand recovery in the market and hence they are looking for an extension of the scheme while earlier there was perhaps a lack of interest among them due to lack of demand. Engineering, pharma, textiles, and auto components should be in more focus. The engineering industry has suffered because of poor demand while the auto sector needs more focus to enhance production. Small textile units, which are complementary to larger units, must be supported while some pharma units have been struggling to recover even as healthcare has been one of the top sectors benefitting from the pandemic,” Vijay Kalantri, President, AIAI told TheSpuzz Online.
“If there was a lack of interest among MSMEs for this scheme or there were no takers, then the realisation among the government would have been that even if we extend the scheme, nothing would happen. However, the government extended the scheme with emphasis on different areas and sectors as the demand was there,” a banker told TheSpuzz Online requesting anonymity.
The an additional suggestion to the government has been about relaxation in the eligibility criteria to allow even these who have never ever raised bank credit however had been impacted due to Covid. Currently, all MSME borrowers with combined outstanding loans across all lenders of up to Rs 50 crore in any sector and classified as standard, SMA- or SMA-1 as of February 29, 2020, are eligible.
“There has been nothing for those who didn’t take any loan before the ECLGS scheme. The more inclusive criteria could include components such as timely tax payments, or if let’s say their turnover has suddenly reduced due to Covid impact, then some credit should be available without collateral, up to maybe 10 or 20 per cent of their turnover. So some formula could be devised to revive operating businesses,” mentioned Bhardwaj.
According to ECLGS, all MSME borrower accounts in the 26 sectors identified by the Kamath Committee on Resolution Framework in its report of September 4, 2020, and in the healthcare sector that getting combined outstanding loans involving Rs 50 crore and Rs 500 crore and classified as standard, SMA- or SMA-1 as on February 29, 2020, are eligible. The interest charged is capped at 9.25 per cent for banks and 14 per cent for non-banking economic firms (NBFCs).
“In spite of our several requests such as relaxation of eligibility criteria, moving the cut-off date to March 24 from February 28, and amount paid to be 20 per cent of loan sanctioned instead of loan outstanding, the government didn’t consider them. The scheme has not been able to achieve the very objective of saving MSMEs from the Covid impact,” added Raghunathan.