They will have access to funds, the benefits of scale as well as credit guarantees that would make lenders more amenable to lend to them
Nirmala Sitharaman laid out her plan to allow MSMEs greater access to funds, the benefits of scale as well as credit guarantees that would make lenders more comfortable in lending to the sector.
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Small and medium enterprises and the multiplier effect they have on employment were a focus area for the Budget speech.
In a separate section devoted to the sector, Finance Minister Nirmala Sitharaman laid out her plan to allow MSMEs greater access to funds, the benefits of scale as well as credit guarantees that would make lenders more comfortable in lending to the sector. MSMEs contribute to 36 percent of our manufacturing, employing 75 million people. They also account for 45 percent of exports.
The Budget enhanced the turnover and investment limits for MSMEs, bringing in more enterprises under the net. For instance, investment and turnover limits for micro enterprises were increased from Rs1 and Rs5 crore respectively to Rs2.5 crore and Rs10 crore respectively. Any enterprise with a turnover of Rs500 crore will now be classified as a medium enterprise. The earlier limit was Rs250 crore.
Once enterprises are classified as micro, small or medium, they have access to several credit facility initiatives of the government. “The introduction of customised credit cards for the micro enterprises registered in the Udyam portal is a significant move to enhance financial inclusion in the MSME sector,” says Yashraj Vakil, CEO, CaptainBiz, a software company that caters to small businesses. In the first year, the government plans to issue 10 lakh cards with a Rs5 lakh limit. Banks are also allowed to classify these loans as priority sector lending.
In addition, loans to MSMEs come with an optional credit guarantee that lenders can avail of. These will be made available for loans of up to Rs10 crore compared to the earlier Rs5 crore and Rs20 crore for startups.
In the last year, loans to medium enterprises have grown by 19.9 percent to Rs348,108 crore, according to data from the Reserve Bank. For micro and small enterprises, loan growth was 9.8 percent to Rs771,039 crore.