Scores of Government schemes and awareness campaigns have failed to get small scale industries get finances to kickstart and boost their business, thereby hampering growth of Indian economy.
A staggering 93 per cent MSMEs did not get loan from government or non-government body, says a research done by the rating agency CRISIL. The fact that only that only 0.25 per cent MSMEs could get credit rating, in itself speaks of the apathy and ineffectiveness of Government schemes.
The CRISIL report was released by Dr S S Mundra, Deputy Governor, Reserve Bank of India, at the 2nd National Conference on MSME Funding organized by the Confederation of Indian Industry (CII) on 23 August 2016 in New Delhi.
The report claimed that 5.1 crore MSME units are operational in the country employing about 12 crore people. MSME sector contributes 36% of GDP directly or indirectly but it’s credit requirement is not easily met and units are unable to get fund from institutional sources. This sector still depends on moneylenders who provide finances on a very high rate. In fact, a major portion of their income goes into debt servicing thereby crippling their growth
“Only 5.18 per cent of the units (both registered and unregistered) have availed of finances through institutional sources and 2.05 per cent from non-institutional sources, which means a whopping 92.77 per cent did not have access to credit or depended on self-financing or moneylenders,” the report said.
But the CRISIL study on 12,000 rated micro enterprises with turnover less than Rs 1 crore shows that enterprises are forced to seek loans at much higher interest rates thorough informal channels due to their inability to provide adequate collateral to financial institutions. Such units are bound to accept loan on rate of 18 to 25 per cent for their immediate needs. This impacts their working capital cycle and subsequently their profitability, technology up gradation, or hiring of skilled manpower to increase scale of operations.
Generally, micro and small units need funds between 1 lakh to 25 lakh. However, the government claims to have done a lot to ensure adequate funding for MSMEs. Recently, in interview to SMEpost.com, Additional Secretary of MSME Ministry, S N Tripathi said, “We know that many MSMEs are working with their own money. So we are offering them collateral free loan up to 1 crore rupees. You will be surprised that every year 6 to 7 lacks people are getting benefit with this facility. Till now almost 23 lack people got benefited by this scheme.”
Need of a credit rating mechanism for Micro and Small Enterprises were highlighted in Union Budget 2004-05. After that, Central Government launched Performance and Credit Rating Schemes in 2005 which provides 75 per cent subsidy on fees for rating to MSMEs. But, till now only 2 lakh MSMEs got rated. It clearly shows that mechanism of being rated needs overhauling of process and easy to access.
