Credit availability a big problem for MSMEs; Centre, banks must resolve it: Experts

The Micro, Small and Medium Enterprises sector in India is said to be the second-largest employment creator after agriculture, providing employment to an estimated 11 crore people.

The Micro, Small and Medium Enterprises sector in India is said to be the second-largest employment creator after agriculture, providing employment to an estimated 11 crore people. It contributes 30 percent of the GDP and accounts for 48 percent of the exports.

However, as a result of the consecutive lockdowns in 2020 and 2021, the MSME sector has been facing a wide range of issues including massive liquidity and supply crunch, shortage of labour and non-payment of dues.

Speaking at a FICCI webinar on MSME Financing, NK Jain Chairman, FICCI RSC MSME Sub-Committee said that while the MSMEs were given the permission to operate and function during the lockdowns announced during the second wave of Covid-19, he noted that it could not help the sector as the very markets the MSMEs caters to were shut thereby prompting the MSME sellers to stock their products.

According to Jain, the MSMEs continued to incur expenses but could not receive payments for their produce thereby weakening the overall cashflows and working capital.

Jain further added that as a result of this, the MSMEs are now unable to get loans from banks due to a poor credit and CIBIL score. To help ease the capital requirements for the small enterprises, Jain urged that the banks in India should issue credit cards purely designed for the MSMEs.

Mukesh Kumar, General Manager, Financial Inclusion and Development Department, Reserve Bank of India, said, "Covid-19 dealt a severe problem to entire country including the MSME sectors, banking and other sectors. There are variations to sectors on how much they have been impacted as some have been impacted severely while others have escaped it."

"In terms of MSME, the NPA (non-performing asset) proposition, the NPA levels in banking sector of MSMEs, are lower as compared to the other large corporates but NPA is the biggest fear that the bankers have which they need to understand. Even in the TransUnion CIBIL report which comes out every quarter, the February report also said that the MSME NPAs are lesser than those of the large corporates. Another thing that the bankers have to understand is whether the MSMEs are viable," Kumar added.

"There are reports that indicate that the GDP growth is improving because of the MSME sector, and the MSME growth in GDP is higher than the GDP growth of the country. There is an assurance from the MSME side and positive outlook the sector is giving which the banks need to consider," Kumar noted.

According to Balbir Singh, General Manager, Jaipur region, SIDBI, the MSME sector was the worst affected and urged the state, central government and the banks to provide timely credit and fulfill the capital requirements of the sector.

Ajay Thakur, Head BSE SME appreciated the efforts of the government and the central bank and noted that India is witnessing the lowest interest rate in the history of independent India.

"Through this, the RBI has ensured liquidity to the MSMEs and not only that, right after the second wave, the RBI came out with Rs 50,000 crore loan facility," Thakur said.

According to Thakur, only 5 percent of the 63 million MSMEs in India operate in the formal sector. He urged that all the stakeholders must take efforts to bring the MSMEs into the formal economy in order to bridge the credit gap.