MSMEs are the pillars of India’s economy contributing towards development and economic growth. However, they face significant challenges, particularly in securing timely and adequate financing, thereby delaying their growth. This blog discusses how MSMEs can improve their credit access through several government and private sector lending initiatives and how these can foster a prosperous future for MSMEs.
Micro, Small and Medium Enterprises (MSME) are the backbone of the Indian economy that play a crucial role in inclusive growth, driving employment, and strengthening the nation's exports. The sector is pivotal in empowering rural and urban areas by employing over 113 million people, which is about 40% of the country’s workforce.
According to the Ministry of MSME, the sector contributes over 29% to India’s GDP and has an enormous share of 50% in the exports market, making them indispensable to the nation’s economic development. However, despite their paramount importance, MSME entrepreneurs are riddled with various challenges.
One of the most significant challenges faced by MSMEs is securing adequate and timely financing. Entrepreneurs often find themselves in a complex maze of procedures, collateral demands, and high interest rates that deter them from obtaining loans. This challenge of securing finances forces them to rely on their limited resources, hindering their growth prospects.
To address this pressing issue, the government and several private financial institutes have rolled out a series of initiatives to support MSMEs to thrive in the competitive market. Let's explore these lending initiatives and discuss how they can pave the way for MSMEs towards a prosperous future.
MSME loan government scheme
The Union Budget 2024 has brought great news for MSMEs by reforming several initiatives to boost their long-term growth and sustainability. One of these initiatives is the Credit Guarantee Scheme, which allows manufacturing MSMEs to access collateral-free loans with guarantees of up to ₹100 crore.
Likewise, many government schemes that have been in operation for a long time have been helping MSMEs reduce credit risks and enhance access to financing. Let's take a look at these key government lending programs below -
• MUDRA scheme : The MUDRA scheme provides financial support to SMEs to access low-cost loans based on the stage of the business and funding needs. MUDRA loans are categorized into three tiers—Shishu (loans up to ₹50,000) Kishore (loans from₹50,001 to₹5 lakh), and Tarun (loans from ₹5 lakh to ₹ 20 lakhs). This scheme is designed to empower small entrepreneurs by reducing dependency on informal sources of finance and encouraging self-employment.
• Credit Guarantee Fund Trust for MSMEs (CGTMSE) : The CGTMSE scheme supports MSEs by providing loans up to ₹100 lakh without needing to provide collateral or third-party guarantees. Normally, the scheme provides a guarantee cover of 75% of the loan amount. However, for loans up to ₹5 lakh, businesses owned by women, and MSMEs in the North-East region, the guarantee cover rate climbs to 80% under this scheme.
• Credit Linked Capital Subsidy Scheme (CLCSS) : The CLCSS program offers financial incentives and subsidies to small businesses to upgrade their technology and equipment. The scheme provides an upfront capital subsidy of 15% on institutional finance of up to ₹1 crore on capital purchases for new equipment and technology. This initiative helps MSMEs stay competitive, improve product quality, and reduce production costs, ultimately contributing to their growth and sustainability.
• Prime Minister Employment Generation Programme (PMEGP) : The PMEGP scheme supports only new projects with a maximum cost of ₹50 lakh for manufacturing projects and ₹20 lakh for business/service projects. Under this scheme, beneficiaries can get a subsidy ranging from 15% to 35% of the project cost from the government.
Did you know?
Under the PMMY scheme, ₹4.82 lakh crore was sanctioned under ₹5.8 crore Mudra loans to non-corporate and non-farm MSEs in 2024.
Private Sector Lending Initiatives Supporting MSMEs
Private banks and non-banking financial companies (NBFCs) have been focusing on providing credit services to MSMEs, contributing to overall financial growth. They provide advisory services, use digital platforms for easier access, and offer finance solutions to help MSMEs secure the funding needed for operations and expansion. Here are some of the key lending initiatives provided by several private banks and NBFCs -
• YES Bank MSME Loans : Private banking institutions like YES Bank offer an array of financial schemes which provides credit assistance to MSMEs, and they include :
• Smart Edge Lending : Smart edge lending process provides secured lending up to ₹5 Cr based on GST returns and bank statements.
• Cash Backed Lending Programme : This programme provides financial solutions for traders, manufacturers, and service providers. It is ideal for immediate non-fund-based credit needs of MSMEs. Under the scheme, entrepreneurs can get a bank guarantee of up to 36 months.
• Construction Equipment Loan : Under this scheme, entrepreneurs can avail loans up to 90% of their equipment price with a simple documentation process. The repayment tenure for this scheme is up to 72 months.
• Tata Capital Financial Services Limited : Tata Capital provides unsecured business loans with a focus on quick processing and minimal documentation. With Tata Capital, entrepreneurs can acquire funding capital up to ₹90 lakhs without any collateral or security. They also provide loans to startups with multiple EMI options and at an affordable rate of interest starting from 15% per annum.
• Kinara Capital : Kinara Capital provides fast and flexible loans without collateral to small business entrepreneurs. It helps MSMEs to acquire loans from ₹1 lakh to ₹30 lakh within 24 hours and minimal or flexible documentation process. The loan is issued for a tenure of 12 months and 60 months with an interest rate of 24%. However, this is applicable for businesses operating for 2 years or more.
Examples of Lending Initiatives Transforming MSMEs
• Mudra Loans : There are numerous success stories of entrepreneurs who have benefited from Mudra loans. For instance, a baker from Morigaon, Assam received a loan amount of ₹1 Lakh from State Bank of India under the PMMY scheme to start her bakery business.
Following this, the bakery flourished earning a monthly profit of ₹15,000. Similarly, a weaving community from Tamil Nadu modernised their equipment by availing a loan under the PMMY’s Shishu Category that helped them to purchase new implements and yarns, leading to an additional income of ₹1,000 per week.
• Tata Capital’s RAMP scheme : Among the many MSMEs that Tata Capital has supported, the textile industry’s story is particularly noteworthy. A small textile manufacturer struggled to expand its production capacity due to limited access to credit. Under Tata Capital’s RAMP scheme, the company secured a collateral-free loan of ₹50 lakhs , allowing it to invest in new machinery and increase its production.
As a result, the textile business witnessed a 30% increase in output, leading to higher revenues and employment opportunities.
• Kinara Capital Loans : Kinara Capital has helped multiple MSMEs with credit assistance, one of which is the story of the manufacturing unit, Modern Alloy Parts of Bengaluru. Modern Alloy Parts has been manufacturing aluminium products for six years and wanted to purchase new machinery for his manufacturing unit. To enhance production quality and quantity, the owner approached Kinara Capital to secure funds.
After verifying the manufacturing unit’s documents and their requirements, the owner secured a ₹2.5 lakh loan , enabling him to purchase new machinery. As the business grew, the stakeholder obtained additional loans of ₹97,000 and ₹2 lakh , leading to business expansion and the enterprise’s growth.
How Can TCS iON Bizhub Help MSMEs?
TCS BizHub serves as a comprehensive digital platform that can assist MSMEs through their GST compliance solutions and ERP software in the following ways :
• Financial Data Readiness : To apply for credit help, furnishing financial statements are crucial as they provide a clear picture of a business's financial health, their credibility and determine the loan amount & terms. As to assist MSME’s in arranging their financial data, TCS Bizhub’s ERP software can help businesses by managing accounting, assets, and budgeting efficiently.
• Compliance Solutions : Lenders often require GST returns or bank statements for loan approval. In this case, Bizhub’s GST compliance solutions can help MSMEs stay GST compliant at all times, streamlining the loan approval process.
Conclusion
MSMEs are a vital component to drive the nation’s economic growth. However, these enterprises often struggle with financial challenges that hinder their potential. By leveraging both government and private sector lending initiatives, MSMEs can overcome these obstacles and pave the way for sustainable growth.
Empower your MSME by registering with TCS iON BizHub and take advantage to fuel your business growth.