Credit for MSMEs: 5 Key Programs Beyond ECLGS, CGTMSE to Alleviate Small Business Capital Problems
Credit and financing for MSMEs: The Emergency Credit Guarantee Program (ECLGS) may have been the Modi government’s flagship credit program to help MSMEs, especially for post-Covid recovery. On the other hand, before Covid, in fact, for 20 years, the credit guarantee system for micro and small businesses (CGTMSE) has been one of the main mechanisms deployed to meet the financing needs of MSMEs. In the meantime, a number of other credit programs have been launched by the government for various purposes such as new business creation, job creation, exports, manufacturing, female entrepreneurship, units in difficulty, etc. Here is a brief overview of the top five government credit support programs for MSMEs to consider beyond ECLGS and CGTMSE:
Pradhan Mantri Mudra Yojana
What is the scheme: The six-year-old program focuses on unincorporated small and micro enterprises which include hundreds of thousands of sole proprietorships and partnerships such as small manufacturing units, service sector units, traders, fruit and vegetable vendors, truck operators, catering units, repair services. stores, machine operators, small industries, artisans, food processors and others. The program was initiated to cater for these businesses because over 90 percent of these businesses do not have access to formal sources of credit.
Credit limit and how to apply: The program is divided into Shishu, Kishor and Tarun indicating the growth stages of a business and the corresponding credit needs. For example, Shishu loans can be up to Rs 50,000, while Kishor loans are over Rs 50,000 and up to Rs 5 lakh. Tarun loans are over Rs 5 lakh up to Rs 10 lakh. Loans can be guaranteed through banks, NBFCs, microfinance institutions, regional rural banks and foreign banks. Application forms can be downloaded from the Mudra website.
The Reserve Bank of India (RBI) had capped the interest rate at the base rate / MCLR for micro-unit loans by banks. Likewise, regional rural banks have received an interest cap of 3.50 percent above the Mudra refinancing rate, according to the details of the program. In the case of NBFCs, the RBI had stipulated an interest cap of 6 percent in addition to the refinancing of Mudra. As of October 8, 2021, out of Rs 1.13 crore involved in sanctioned 2.03 crore loans, Rs 1.07 lakh crore loans have been disbursed since April 1 of the current fiscal year, according to provisional data on the program portal.
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Prime Minister’s Job Creation Program (PMEGP)
What is the scheme: The PMEGP offers credit-related grants to micro-enterprises launched in the manufacturing and service sectors. According to the details of the program, according to the guidelines of the central bank, the project setup (company) costing up to Rs 10.00 lakhs under the program is exempt from collateral guarantee while CGTSME provides collateral guarantee for the program. project beyond Rs 5 lakhs and up to Rs 25 lakhs under the PMEGP scheme. Self-help groups, institutions registered with the Companies Registration Act of 1860, production cooperative societies and charitable trusts are also supported under this program.
Credit limit and how to apply: The program facilitates financial support up to Rs 25 lakh for micro-enterprises to be launched in the manufacturing sector and up to Rs 10 lakh for companies in the service sector. Those over the age of 18 and those who have completed their studies up to at least the eighth grade are eligible to apply for the program. However, existing units receiving government grants under another scheme cannot apply. Applications can be submitted through the Khadi and Village Industries Commission website. The interest rate is 11-12 percent.
Banks had sanctioned and disbursed loans to 84,793 micro-units in FY21, allowing the employment of around 6,784,444 people against the goal of helping 78,625 entrepreneurs and generating estimated jobs for 6,29,000 people during the year. “This is the best performance of the PMEGP since its creation in 2008-09. Thus, the target set under the PMEGP for the year 2020-21 has been exceeded despite the challenges of COVID 19, ”said MSME Minister Narayan Rane, sharing the data in response to a question posed to the Rajya Sabha in July of this year.
Credit Linked Capital Grant Program (CLCSS)
What is the scheme: CLCSS categorically aims to help micro and small enterprises (MSEs) upgrade their technologies for better production. The program applies to companies operating in the 51 sectors specified under the program, including ready-made clothing, biotechnology industry, cosmetics, steel furniture, pharmaceuticals, food processing, leather, etc. . Eligible businesses could be khadi units, village units, coco industrial units, units headed by women entrepreneurs, etc.
Credit limit and how to apply: For technology upgrade, the program allows a capital grant of 15 percent of the investment in machinery (on institutional funding up to Rs 1 crore used by MSEs. The maximum grant to be provided is Rs 15 lakh. Businesses can apply online through lending institutions that would upload the applications to the attached nodal agency. The agency would then recommend the application to the MSME of the Office of the Development Commissioner (DC) to provide the required grant. The funds would then be transferred to the agency which will pass the amount to the lender.It is important to note that a special Credit Linked Capital Grant (SCLCSS) program has also been launched under the National SC-ST Hub to provide a grant 25 percent to businesses run by entrepreneurs from scheduled castes or tribes.
According to government MSME dashboard data, 15,213 units were supported with a grant of Rs 1,102 crore in FY21, compared to 7,840 units supported with a grant of Rs 546 crore in FY21. of FY20. In FY22 so far, 1,800 units have already been supported with a grant of Rs 106 crore.
PSB loans in 59 minutes
What is the scheme: The 59-Minute Loan Application In-Principle Program is an initiative of the Small Industries Development Bank of India (SIDBI) and launched by Prime Minister Narendra Modi in November 2018. It enables term loans and working capital loans, etc. ., for MSMEs for the purchase of plant and machinery, technology upgrading, product expansion, purchase of raw materials, infrastructure development, etc. The disbursement period is typically seven to eight days while the interest rate starts at 8.50 percent.
Credit limit and how to apply: The loan ranges from Rs 1 lakh to Rs 5 crore through the 59 minute program. Applicants should register on the PSB Loans website, create a profile, provide the required business financial details and bank details, and then select the desired bank and branch from which they wish to obtain the loan. It is important to note that, depending on the details of the program, to receive approval in principle, the borrower will have to pay Rs 1,000 excluding GST. The need for collateral is at the discretion of the lender.
The number of applications sanctioned via PSB loans in 59 minutes increased from Rs 2,12,091 crore until the end of August last year, to 2,34,905 loans involving Rs 78,409 crore as of September 30, 2021. From even the demands disbursed have increased. from 1,964,473 involving Rs 54,545 crore to 2,18,977 claims in August of last year involving Rs 64,067 crore.
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What is the scheme: Launched in April 2016 to stimulate entrepreneurship among women entrepreneurs and listed caste / tribe (SC / ST) entrepreneurs, the program aims to facilitate bank loans to at least one SC / ST borrower and one female borrower per bank branch. for the creation of an entirely new business. in manufacturing, services, agrifood products and commerce. Entirely new businesses are referred to as the Entrepreneur’s First Businesses in the respective industry. In case the business is not a sole proprietorship, the borrower must have a controlling interest of at least 51 percent.
Credit limit and how to apply: Composite loans ranging from Rs 10 lakh to Rs 1 crore can be applied as part of the start-up program. The loan amount would be 85 percent of the cost of the project. In the event that the borrower’s contribution as well as support from any other regime exceeds 15 percent of the cost of the project, the regime would not apply to the borrower. It is important to note that banks can request collateral collateral in addition to primary security at their discretion. The repayment period is seven years with a moratorium period of up to 18 months. The loan can be applied at the branch of the partner bank or through the Stand-Up India website.
So far, over 1.40 lakh applications involving Rs 33,359 crore have been received, of which 1.22 lakh applications involving Rs 27,535 crore have been sanctioned by 367 lenders, according to data from standupmitra.in. From now on, the scheme is valid until 2025.