Credit and Finance for MSMEs: Enabling non-government provident funds, superannuation and gratuity funds to invest up to 5 per cent of their size in option investment funds (AIFs) will assistance widen the fundraising possibilities for MSMEs and expand the domestic pool of capital, authorities told TheSpuzz Online. The Finance Ministry in a notification on Tuesday permitted private retirement funds to invest up to 5 per cent in the units of Category I and Category II AIFs regulated by the Securities and Exchange Board of India (SEBI), but with particular situations. Category 1 AIFs integrated infrastructure funds, venture capital funds, angel funds, and social venture funds. Category II AIFs covered funds exactly where at least 51 per cent of their size can be invested in either of the infrastructure entities or SMEs or venture capital or social welfare entities.
“In terms of diversification of source of funds, it is definitely a positive move as small businesses will get funds from another source as well. However, we need to understand how much of the amount these private PFs would be willing to allocate to AIFs and whether they are even willing to support them to invest in MSMEs. Generally, there is risk aversion from banks to lend to certain segments. Hence, this aversion might be carried forward by these investment funds,” Kavita Chacko, Senior Economist, CARE Ratings told TheSpuzz Online.
The situations for the retirement funds to invest integrated backing only these AIFs that have Rs one hundred crore or more in corpus and that the exposure to a single AIF is not beyond 10 per cent of its size. “However, this limit would not apply to a government-sponsored AIF,” the notification stated. Also, investment shouldn’t be produced straight or indirectly in securities of corporations or funds incorporated and/or operated outdoors India. Moreover, the AIF’s sponsor will have to be a non-promoter of the fund, and AIF should really not be managed by an investment manager controlled or managed by the fund or its promoter group.
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“5 per cent seems to be a decent number for long-term funds like PF. It makes sense for them also to put money into the long-term asset class. So, it is a good move as domestic money is required for this asset class. Also, it will be easier for funds to showcase returns to Indian limited partners (LPs) than foreign LPs. So, more rupee money is welcome from the industry even as AIFs have to perform for these funds to invest but at least the regulatory restriction is removed now,” Arun Natarajan, Founder, Venture Intelligence told TheSpuzz Online.
Meanwhile, the Finance Ministry, which had introduced the ECLGS final year to help Covid-hit MSMEs, has spent the whole quantity allocated towards its implementation for FY21, according to the government information. The income expenditure incurred by the Department of Financial Services towards ‘assistance to the National Credit Guarantee Trustee Company (NCGTC)’, which is the assure provider below the ECLGS scheme to member lending institutions (MLIs), stood at Rs 4,000 crore as of January 22, 2021, according to the information shared by Minister of Finance Anurag Singh Thakur in the Lok Sabha on Monday. The quantity allocated towards the identical for FY21 was Rs 4,000 crore. On the other hand, the gross bank credit deployed to micro and smaller enterprises in December 2020 had jumped 6.6 per cent to Rs 11.31 lakh crore from Rs 10.61 lakh crore through the year-ago period, according to the RBI information.