Credit for MSMEs: 5 key schemes beyond ECLGS, CGTMSE meant to ease small businesses’ capital woes

Credit and Finance for MSMEs: In the past two decades or more, the government had rolled out dozens of credit schemes of different varieties for earlier small-scale enterprises and later for MSMEs. While many of such schemes are no longer functional, there are still a number of other schemes that have seen a significant amount of takers.

Credit and Finance for MSMEs: The Emergency Credit Guarantee Scheme (ECLGS) has been perhaps the flagship credit scheme of the Modi government to help MSMEs particularly for post-Covid recovery. On the other hand, pre-Covid, in fact, for the past 20 years, the Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE) has been among the major schemes rolled out to cater to the funding requirement for MSMEs. In between, a number of other credit schemes were launched by the government for various purposes such as setting up new businesses, job creation, exports, manufacturing, women entrepreneurship, stressed units, and more. Here’s a quick lowdown on the five prominent credit support schemes by the government for MSMEs to look at beyond ECLGS and CGTMSE:

Pradhan Mantri Mudra Yojana

What’s the scheme: The six-year-old scheme focuses on non–corporate small and micro enterprises that include lakhs of proprietorship or partnership firms such as small manufacturing units, service sector units, shopkeepers, fruits and vegetable vendors, truck operators, food-service units, repair shops, machine operators, small industries, artisans, food processors, and others. The scheme was launched to cater to these businesses as over 90 per cent of such enterprises lack access to formal sources of credit.

Credit limit and how to apply: The scheme is segregated into Shishu, Kishor, and Tarun indicating the stages of growth of a business and corresponding credit needs. For instance, Shishu loans are up to Rs 50,000, while Kishor loans are above Rs 50,000 and up to Rs 5 lakh. Tarun loans are over Rs 5 lakh till Rs 10 lakh. Loans can be secured via banks, NBFCs, micro-finance institutions, regional rural banks, and foreign banks. Application forms can be downloaded from the Mudra website.

The Reserve Bank of India (RBI) had put a cap on the interest rate at the Base rate/ MCLR for lending micro units by banks. Likewise, regional rural banks were given an interest cap of 3.50 per cent over and above the Mudra refinance rate, as per the scheme’s details. In the case of NBFCs, RBI had stipulated an interest cap of 6 per cent over and above Mudra refinance. As of October 8, 2021, out of Rs 1.13 lakh crore involved in 2.03 crore loans sanctioned, Rs 1.07 lakh crore loans were disbursed since April 1 in the current financial year, as per the provisional data on the scheme’s portal.

What’s the scheme: PMEGP offers credit-linked subsidies to micro-enterprises launched in the manufacturing and services sectors. According to the scheme’s details, as per the central bank guidelines, the project (enterprise) set-up costing up to Rs 10.00 lakhs under  

the scheme is free from collateral security while the CGTSME provides a collateral guarantee for the project beyond Rs 5 lakhs and up to Rs 25 lakhs under PMEGP scheme. Self-help groups, institutions registered with Societies Registration Act,1860, production co- operative societies, and charitable trusts are also supported under the scheme.

Credit limit and how to apply: The scheme 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 businesses in the service sector. Individuals above 18 years of age and those who have completed schooling till at least the eighth standard are eligible to apply for the scheme. However, existing units that have government subsidies under any other scheme cannot apply for it. Applications can be submitted via Khadi and Village Industries Commission website. The interest rate is 11-12 per cent.

Banks had sanctioned and disbursed loans to 84,793 micro-units in FY21, thereby enabling employment for around 6,78,344 people against the target of assisting 78,625 entrepreneurs and generating estimated employment for 6,29,000 people during the financial year. ?This is the best performance under PMEGP since its inception in 2008-09. Thus, the target fixed under PMEGP for the year 2020-21 has been surpassed despite COVID 19 challenges,? MSME Minister Narayan Rane had said sharing the data in reply to a question in the Rajya Sabha in July this year.

Credit Linked Capital Subsidy Scheme (CLCSS)

What’s the scheme: CLCSS is categorically focused on helping micro and small enterprises (MSEs) to upgrade their technologies for better production. The scheme is applicable for businesses operating in the specified 51 sectors under the scheme including ready-made garments, biotech industry, cosmetics, steel furniture, pharma, food processing, leather, and more. The eligible enterprises could be into khadi units, village units, coir industrial units, units led by women entrepreneurs, etc.

Credit limit and how to apply: For technology upgradation, the scheme enables capital subsidy of 15 per cent of investment in machinery (on institutional finance of up to Rs 1 crore availed by MSEs. The maximum subsidy 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 recommended the application to the Office of the Development Commissioner (DC) MSME to provide the required subsidy. Funds would then be transferred to the agency that will forward the amount to the lender from where the MSE is operating its account. Importantly, a Special Credit Linked Capital Subsidy Scheme (SCLCSS) was also launched under the National SC-ST Hub to provide a

25 per cent subsidy to enterprises run by scheduled caste or scheduled tribe entrepreneurs.

According to the data from the government’s MSME Dashboard, 15,213 units were supported with a subsidy of Rs 1,102 crore in FY21 in comparison to 7,840 units supported with Rs 546 crore subsidy in FY20. In FY22 so far, 1,800 units have already been supported with a subsidy of Rs 106 crore.

PSB Loans in 59 Minutes

What’s the scheme: The scheme to provide in-principle approval to a loan application in 59 minutes is an initiative by 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 to purchase plant and machinery, technology upgrade, product expansion, purchase of raw materials, infrastructure development, etc. The disbursement period is generally seven-eight days while the interest rate starts from

8.50 per cent.

Credit limit and how to apply: Loan ranges from Rs 1 lakh to Rs 5 crore through the 59- minute scheme. Applicants have to register on the PSB loans website, create a profile, provide required financial details of the business and bank details, and then select desired 

bank and branch from where they want to get the loan. Importantly, as per the scheme’s details, for receiving the in-principle approval, the borrower will be charged Rs 1,000 excluding GST. The need for collateral is as per the lender’s discretion.

The number of applications sanctioned via PSB loans in 59 minutes grew from 2,12,091 involving Rs 66,991 crore till August-end last year, to 2,34,905 loans involving Rs 78,409 crores as of September 30, 2021. Similarly, the applications disbursed had increased from 1,96,473 involving Rs 54,545 crores to 2,18,977 applications in August last year involving Rs 64,067 crores.

What’s the scheme: Launched in April 2016 to boost entrepreneurship among women entrepreneurs and scheduled caste/scheduled tribe (SC/ST) entrepreneurs, the scheme aims to facilitate bank loans to at least one SC/ST borrower and women borrower per bank branch for setting up a greenfield enterprise in manufacturing, services, agri-allied, and trading sector. Greenfield ventures are referred to as the first-time ventures of the entrepreneur in the respective sector. In case the venture is not an individual enterprise, the borrower should have at least a 51 per cent controlling stake.

Credit limit and how to apply: Composite loans ranging from Rs 10 lakh to Rs 1 crore can be applied under the scheme for setting up a new venture. The size of the loan would be 85 per cent of the project cost. In case, the borrower’s contribution along with the support from any other scheme exceeds 15 per cent of the project cost, the scheme would not apply for the borrower. Importantly, banks may seek collateral security besides primary security as per their discretion. The repayment period is of seven years with a moratorium period of up to 18 months. The loan can be applied at the partner bank’s branch 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 were sanctioned via 367 lenders, as per the data from the standupmitra.in. As of now, the scheme is valid till 2025.