The most recent MSME Credit Health Index has brought attention to the accelerated growth of MSME credit in the quarter that ended in September 2020. This acceleration signifies an improvement from the data recorded in the previous quarter that ended in June 2020. One of the key factors driving this growth has been the implementation of the Emergency Credit Line Guarantee Scheme (ECGLS), which has provided crucial support to the Micro, Small and Medium Enterprises (MSME) sector.
About the MSME Credit Health Index
The MSME Credit Health Index was launched through a collaboration between TransUnion CIBIL and the Ministry of Statistics & Programme Implementation (MoSPI). The index is published quarterly and aims to provide a detailed measure of the growth and strength of India’s robust MSME sector. More than just offering government bodies, policymakers, and market participants a numeric indicator to gauge the health of the MSME sector, the Index also serves as a tool for strategic planning and policy formulation.
The Index measures the credit health of India’s MSME industry based on two distinct parameters: growth and strength. Both indices operate on the principle of ‘higher the better’. Growth is determined through the measurement of increase over time in exposure value (outstanding balances). Consequently, an increasing Growth Index implies an improvement in credit growth. On the other hand, Strength is evaluated through the rise or fall in credit risk in terms of non-performing assets (NPA). An increasing Strength Index signifies better asset quality, indicating an improvement in the structural strength of the sector.
Significance of the MSME Credit Health Index
The MSME Credit Health Index serves as a pivotal tool in facilitating improved MSME credit risk management. Furthermore, it aids in formulating strategies and policies aimed at revitalising the MSME sector and the broader economy. According to the latest data, the overall growth index rose to 114 points, which is a three-point increase from 111 in June, 2020. In the same period, the overall Strength Index also improved, rising to 89 from 83.
Emergency Credit Line Guarantee Scheme (ECGLS)
The ECGLS was launched as part of the Aatmanirbhar Bharat Abhiyan package in May 2020. The scheme aimed to alleviate the distress caused by the COVID-19 lockdown by providing credit support to different sectors, especially MSMEs. Under the ECGLS, the Guaranteed Emergency Credit Line (GECL) facility is provided. The GECL is a loan whose full guarantee is provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs) – banks, financial institutions, and Non-Banking Financial Companies (NBFCs).
About National Credit Guarantee Trustee Company Ltd (NCGTC)
Established by the Department of Financial Services, Ministry of Finance in 2014, the NCGTC is a private limited company incorporated under the Companies Act, 1956. As a wholly-owned company of the Indian Government, it functions as a common trustee company for multiple credit guarantee funds. Credit guarantee programmes, such as the one managed by NCGTC, are designed to share the lending risk of lenders, thus facilitating easier access to finance for potential borrowers.